The Auto Impact

The past couple of weeks have brought us a new automotive industry.

Consider

• GM & Chrysler are / have been in bankruptcy
• Chrylser now reports to Italy (Fiat)
• Saturn is now a distribution company for auto manufacturers, having been purchased by Penske, who will contract manufacturing to GM and other manufacturers
• Dealer networks have been slashed
• Many Tier 2 and Tier 3 auto parts suppliers are seeking the protection of bankruptcy and hoping that they will be paid by the “new” GM and the “new” Chrysler
• GM is now part of the private equity plan to help Delphi out of bankruptcy

and much more.

What does this have to do with the electrical industry? Think of the many electrical products that are used in automotive plants and in the vehicles. The auto industry structural changes, plus the decline in auto production, will impact many manufacturers (don’t need LEDs for headlights in cars, less electrical tape in cars, less wire, etc…). Distributors will be impacted with fewer MRO needs for less plants (let alone more pressure to reduce their margins).

Further, given the wide spread geographic impact of an auto factory, many of these areas may experience even further commercial and residential market erosion.

The upside … some plants will find other usages, hence renovation work. Existing plants will need maintenance and startup work. Ideally, the auto industry will be stronger in the long run and create new opportunities (plant changeovers for smaller cars, electric / hybrids, battery factories, etc…)

Unfortuantely electrical distributors in the Detroit area have suffered significantly over the past couple of years with many directly dependent upon the auto manufacturers. Others have been indirectly affected as the commercial markets have plummeted. The questions then become,

• What is the impact for distributors in other parts of the country who serve auto plants and auto suppliers?
• What is the impact for the OEM market for electrical manufacturers?
• And what actions can be taken to survive the summer shut downs of Chrysler and GM (and the plants / suppliers they affect)?