In the automotive sector, changing suppliers is a pain in the neck. It even has an official term attached to it: re-sourcing. Re-sourcing can take weeks or months. It's costly. It's messy. And automakers will do just about everything they can to avoid it. Just look at the situation involving bankrupt Delphi Corp., a major auto parts supplier.
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General Motors Corp. has agreed, once again, to pour billions of dollars into Delphi to make sure the company doesn't fall apart. Incredible really, considering that GM is known to be bleeding cash. And yet, instead of abandoning Delphi for greener pastures, GM is instead bailing it out.
But what choice does GM have?
While other automakers might opt to re-source, for GM, doing so with Delphi would be a far-reaching, timely and costly task. Another alternative would be to take over many of Delphi's plants and then either consolidate, sell or retain them. But again, would that really be worth it?
GM obviously doesn't think, deciding instead to pump $10.6 billion in cash -- not to mention another $950 million in loans -- into Delphi over the next year. And this by a company that has said that it needs to raise $15 billion by the end of 2009 to survive the slowdown of the U.S. automotive sector. - Ben Fidler
