General Motors' bankruptcy implies big changes in auto logistics

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General Motors has filed for Chapter 11 bankruptcy protection. That one of the world's largest purchasers of logistics services is slowly going broke will inevitably have major long term effects on the logistics industry throughout the world.

Not that GMs bankruptcy can be any surprise to its suppliers as the automotive sector has known how vulnerable GM is for years. The present crisis has just pushed it over the edge and, as is so frequently the case, logistics is at the heart of the company's problems.

GM's strength has always been based on its huge volumes and economies of scale. However its management became obsessed by production volumes at the expense of product quality. Detroit's habit of buying-off its workforce with ever-higher wages and conditions in order to avoid any disruption to production pushed costs to unsustainable levels. Above all, healthcare and pension costs crippled the company financially. 

Yet it was the ability of its competitor Toyota in particular to manage mass- production more effectively that finally broke GM.  A subtle but relentless focus on asset utilisation and inventory meant that the Japanese company had lower unit costs and higher margins. GM understood the nature of the threat too late and responded too slowly.

It remains unclear what any re-born GM will look like, however it not only will be a much smaller producer of vehicles but it will also face a questionable future. Stripped of so much capacity and product lines, the post-Chapter 11 entity will struggle to find the volumes necessary to ensure its long-term viability. 

In terms of GM's logistics suppliers there will be one big loser. GM is Ryder Systems single largest customer, accounting for over a third of the supply chain solutions business and more than 10% of revenue of the whole company. Ryder has options - its other big automotive customer is Toyota - but it will suffer substantially.

Others will face problems too. For example it is unclear what the future holds for Schneider Logistics' big warehousing contracts for GM Spare Parts Operations.

Overall it appears that, like the automotive sector generally, the automotive logistics sector will consolidate aggressively.  Some logistics service providers will go out of business, many others will just reduce their exposure to the sector. The winners will include the top tier of LSPs with broad exposure to a number of global vehicle manufacturers. However as the market share of leading vehicle manufacturers such as Toyota and Volkswagen grows, so will their purchasing power and this will not make life any easier for the remaining logistics suppliers. 

Source: Transport Intelligence

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