I have heard a lot of talk in the news about the need for an automotive bailout recently, and I started to think, what would happen if GM went into bankruptcy and the worse predictions came true?
Lets say that GM entered bankruptcy and then demand completely fell off, because people did not want to make a significant investment in a bankrupt car company. Then GM completely folded and so did a number of their suppliers whose only customer was GM. Who would provide service parts to the several million GM vehicles that are currently driving on the roads today?
Every part would have to be analyzed to see if it would be better to stock a large quantity built by the original supplier prior to going out of business, or keep the part machines in production. The expense to keep part machines in production would be small for some parts, like plastic parts, because other suppliers would have the same equipment and would only need to molds to build the GM parts, but what about the others? For example the white body, or frame of the vehicle, that is welded together at the plant. When a customer is in an accident and the frame is severely damaged, then a service part white body is essentially cut up and the replacement frame area is sent to the shop to fix the vehicle. Trying to make these parts without the original equipment would be very costly, but who would operate the original equipment, in this case the equipment is very expensive and can currently only make a profit when it has a high utilization rate. Operating the equipment for service parts may not be feasible, but carrying entire vehicle white bodies does not seem viable either.
This question of service parts would prompt me not to buy a GM vehicle, since I would expect the cost for service parts to increase dramatically if they would be available at all. On the other hand due to the extreme cost of holding service part requirements for the next several years (usually only a couple of months are held)if a company could be very very flexible and somehow produce for all GM makes and models, that company I believe could make a great deal of money in the years following an outright GM closure. Of course if the company were that flexible, I guess it could provide service parts for any company.
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2 comments:
I believe that many companies create only OEM replacement parts for automobiles, especially older vehicles. In this case, these companies may see an increase in demand for these products if other suppliers go out of business, but I don't think the products would be unavailable.
As far as body parts, they would definitely become more expensive, but we would probably see an increase in the usage of parts from junkyard vehicles.
Regardless, demand for replacement parts would not go unsatisfied. I make this assumption because of the large number of GM vehicles on the road. If there is money to be made in producing and selling GM replacement parts, firms will enter the industry!
I think that in the event of a car company going bankrupt, there would be plenty of support from third party manufacturers. These companies would find increased demand due to being the only producer of their product. Shortly after, consumers would slow down demand for GM products and the whole industry would tank. But, these third party manufacturers could last for a few years after the bankruptcy.
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