There’s been a lot of talk about the impending collapse of “the big three” automakers over the last two weeks — of course, what people really are talking about is GM…but panic sells better, right?
One angle we’ve explored at Military.com is the effect a collapse of one or more of the American automakers would have on the defense industry…specifically military vehicles like Humvees, Medium trucks, Strykers, tanks and Bradleys.
The answer from our sources: “not much.”
Now, I have a lot of respect for Sen. Karl Levin, the Democratic icon and chairman of the Senate Armed Services Committee. But his pandering to the panic and his Michigan constituents about how GM’s failure would put American national security at risk just isn’t supported by the facts.
Former NATO commander Wes Clark tried to tie the two together the other day with an oped in the New York Times where he said stuff like this:
In a little more than a year, the Army has procured and fielded in Iraq more than a thousand so-called mine-resistant ambush-protected vehicles. The lives of hundreds of soldiers and marines have been saved, and their tasks made more achievable, by the efforts of the American automotive industry. And unlike in World War II, America didnt have to divert much civilian capacity to meet these military needs. Without a vigorous automotive sector, those needs could not have been quickly met.
Huh? AM General makes the Humvee and isn’t part of the big three domestic market except for its “Hummer” line of vehicles. The armor innovations didn’t come at all from GM, Ford or Chrysler. MRAPS aren’t made by them either. Where does Clark come up with this?
And even the $3,000 watch-wearing, private jet flyin’ CEOs are claiming the Pentagon will suffer if there are no more Suburbans made.
Chrysler’s chief executive, Robert Nardelli, told the Senate Banking Committee on Tuesday that a crippled auto industry “would undermine our nation’s ability to respond to military challenges and would threaten our national security.“
My sources are telling me — and others — that the Big Three pulled out of the defense market a long time ago, not seeing it as a profitable, stable market for their goods. In fact, none of the JLTV downselectees have any ties to the domestic auto business — how’s that for innovation Wes?
Levin has spread his fear dust all over the country, claiming: This is a national security issue as well as an economy issue, Levin said. But first and foremost, its a jobs issue,” according to a report on Crains Detroit Business.
Surely, there could be some downside to the crisis for suppliers to the defense industry. But another source of mine said he’s done some preliminary searches of DoD contracts and couldn’t find a single instance where “this just jumps out at you.” He mentioned that “you need to go way down the supply chain for some widget to find a connection”…but that is very preliminary.
Yes, a collapse of one of the Big Three would suck. But a “national security issue?” That’s a stretch…
– Christian
It’s the suppliers.
If the Big 3 go down, parts/component suppliers across the nation will fold, some have already started:
http://trollerbk.com/portal/?module=intro&c=2DB6F168-EBAA-6A39-6A479BA7606BDD44&showcase=1
Many of those same suppliers, and the raw materials industry which depends on their business, are heavily involved in the defense market. If we lose the big 3, the ripples spread out.
Good Morning Christian,
Great symbolism in the picture you posted, the right front tire is flat. It must be a GM product.
Since GM’s big Defense Contract of late was the Stryker and they chose to manufacture it and service it in Canada, where is the National Security issue here?
Economics fact: as I write this an 10:18 PST the sock of Ford was selling at $1.16 and GM was at $2.26 or combined total of $3.16. Yesterday I paid $3.49 for a Big Mac. Me thinks I will being wearing evidence of the Big Mac long after these two companies are a memory.
ALLONS,
Byron Skinner
+1 on Moose’s comment. Where are the JLTV/MRAP parts coming from? Where are they going to come from?
Downselecting a “lead systems integrator” is all well and good, but who’s going to do serial production on JLTV, or a Humvee replacement?
Are we going to buy them from China?
Apart from that, IIRC, part of the Dodge/Chrysler bailout was the contract for the (often maligned) M880 CUCV. So, we’ve turned auto industry bailouts into procurement scams before.
Should we do it again? That’s a whole other question.
Byron,
the reason Stryker is made in Canada is because it was developed in Canada, London, ON for Canadian Forces even before US wanted to use one. Stryker/LAV III design is based on Swiss Mowag Piranha.
More info here -> http://en.wikipedia.org/wiki/Stryker
Andre
I think you might be focusing your study too small — the problem isn’t specific contracts, the problem is lack of capability and capacity. Why are people worried about the lack of shipbuilding capacity in the United States? Not because of ships now, but because the USN might need more ships later. Same issue here.
JGH
Jerry, aren’t the majority of Japanese cars actually built in the US, in places like Alabama? There’s your capability and capacity.
Well, it’s all a lot more complicated than just giving GM and the rest $25billion to do with as they please. Congress is talking about attaching some big strings. The strings attached to Chrysler’s bailout back in the day eventually led to the government actually making a profit on the deal. So let’s do that again.
Right or wrong, GM employs a heck of a lot of people, and keeps a heck of a lot more employed indirectly. Management certainly gets a failing grade and they deserve to go through bankruptcy reorganization. The resulting company probably will be smaller, leaner and meaner and still unrelated to the defense industry. But if they can survive the reorganization process then a lot of regular joes will still be bringing home a paycheck and paying taxes. That seems like a good thing.
Problem is, if you file for bankruptcy, no bank will give you a dime until you can prove you can make a profit again. So how do you make payroll while the lawyers and judges decide what part of your company is worth saving (Saturn? Opel? Pontiac but not Chevy? etc.)? That’s where the need for government aid comes in. A big chunk of that $25 billion request is a bridge loan (not a handout, a loan) to allow the company to pay cash for the metal and tires and such, and to make payroll, during the bankruptcy process. Assuming everything works out and they start making money again, the government gets paid back first, with interest. So the taxpayer ultimately isn’t harmed. If things work out the way they’re supposed to, which they did for Chrysler.
We just gave $100 billion to AIG, a single insurance company. Will we be paid back? I have no idea. But $25 billion for the big three is small potatoes in comparison.
To Moose:
I don’t doubt that’s the case, but won’t it be more effective then to prop up these suppliers?
You respect Carl Levin so much you spelled his name wrong.
Wes Clark, the Democrat General
heh
Take out one of the “Big 3.” I am pretty sure Chrysler fits the bill. Dodge and Jeep will do fine. Ford and GM need to get their heads out of their asses and start a huge marketing push. Like fuel efficiency. Or even new deals on cars and better lease deals.
And national security? Eh, the Senator is just trying to keep his job by keeping other people’s jobs. This doesn’t really surprise me. It politics 101. Personally, does anyone remember AMC or American Motor Corporation? I didn’t think so.
Oh and btw, what about other car companies, not just GM? Other commentors — please include this in your comment. The world is not just GM, sorry.
The H1 plant depends on Pentagon spending and is one of the things that any congressman from the area must keep funded. Prior to Iraq the H1 plant turned out massive numbers of vehicles and was parking them all over town. Their lot is relatively empty now simply because the Pentagon orders are down. The H2 and H3 lots are also pretty empty. The things aren’t selling and haven’t for a year now. GM was stupid to invest in the new plant when gas prices were going up. The two lines are separate but adjacent. They feed off of different supply chains. The slowdown by GM might actually help the H1 side if AM General is not affected by their stake in the H2/H3 plant.
Wes Clarke is just a political animal putting his spin on things. Don’t take him seriously.
Correct, the tier one companies of suppliers are the automotive industry that does the production and development — the big three (OEM) are only the brand companies that market, integrate and assemble the hardware.
And the automotive suppliers were certainly heavily involved in the MRAP programs because companies like force protection don’t do much more than the OEMs do as well.
The real know-how and production base are the suppliers.
The tier ones are very international, though. A tier one can easily supply most of the great automotive brands at once with different parts. It’s imho unlikely that many tier ones would die if the big three died. There are too many foreign brand assembly plants in the U.S., big three assembly plants could be bought by other companies and too many components are being shipped to overseas.
It would be very tough, though.
Why should we pay for the bad business practices of a company that is riddled with an overpaid unionized work force?
If the companies fall then so be it. It will create an opportunity for somebody else to come in and use the work force for something new, they just have to tell the unions to F off or get no jobs period.
Move the companies to the South like the Germans and Japanesse are doing. Mild weather, cheaper (but just as skilled) workforce, and state/local gov’ts that actually want your business here.
The Rust Belt is dying with their unions, don’t tax me because these people are getting paid $80 an hour to turn a screw while my neighbor is getting $45 an house and is happy turning the same screw on a Hyndai.
Ok, with your new info let me rephrase my rant.
Why should we pay for the unions PREVIOUS overburden on the American auto industry? Because of the unions greed the big 3 are going bankcrupt buying out their employees (like the $80/hour older workforce and cushy medical benefits) and we’re supposed to fund a “bail out” so they can continue to drive escalades while they have a HS degree and turn a screwdriver all day?
The unions are the ones driving the companies out of the country with their demands. There was a time and place for unions, but it is not here and not now.
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