“Bridge Loan”-this is bankingese for the business equivalent of “can you lend me twenty bucks ‘till I get paid Friday”. Banks approve bridge loans when the bank has confidence that the borrower will in fact have the funds in the amount promised when promised.

But when the lender is Uncle Sam, standard banking practices and even good old American common sense take a backseat to politics. This has never been more present than in the government’s willingness to entertain another plea by the “Big 3” for more good money on bad.

As if it the economic facts of life aren’t sufficiently gut wrenching for Americans, now comes the triple entente of automakers led by the helmsman of the biggest of the big 3, GM Head Cheese Rick Wagoner. I was curious to hear what sort of slick presentation Wagoner would bring to try and bilk the government out of more taxpayers dollars, and can’t accurately express my shock at his performance.

Pardon me, but if I was asking for a lot of billions of dollars, I’d bring all the showstoppers. Legacy retirees, middle aged employees working their last years before social security, core suppliers like Delco, Delphi, and maybe even Dell Computer. I’d paint the picture of the economic despair that will follow the collapse of the American Auto Industry.

Instead, Wagoner gave us the equivalent of “I dunno”. Maybe he didn’t know, but I find that hard to believe. Maybe he did know, but didn’t want to leave money on the table. Or worst of all, maybe he knew that all he had nothing to offer but begging, so he begged.

The fact is, and Wagoner is too smart not to know this, the end is inevitable. The Big 3 aren’t asking for a bridge loan, they asking for a stay of execution. It’s money in the money pit, folks. The reason the industry is in tatters is because the Big 3 have been able to afford to refuse the operational, technological and organizational changes necessary to produce a superior product. Wagoner knows this. He’s powerless to exact the sort of change necessary to revive the crumbling empire. The system is just too hard coded.

But he has an ace in the hole. Because the collapse of the American auto industry will trigger an economic wave unlike any we’ve felt since, okay a month ago, but before that, the 30’s. Mature on-shore industries such as chemicals, lubricants, paints and metals will suffer a tremendous dip, and many will downsize, restructure or collapse. For procurement teams charged with buying in these industries, the landscape will shift dramatically and at a tremendous pace.

Of course foreign manufacturers will be glad to purchase real estate for pennies on the dollar, labor for a fraction of its previous cost, and eventually fill manufacturing the gap. Still, business for the auto industry and its core suppliers will be forever changed. The change will be painful; for many, unbearable. That’s Waggoner’s trump card. How much more hurt are we willing to endure right now, when the banking industry in is shambles and the economy is rapidly contracting.

I thought that Nancy Pelosi’s request that the automakers return with a plan, before any money (if any money) is appropriated, was novel. It’s likely that two things will occur: the “plan” will be ridiculous, and the government will choose the GSB (Government Sponsored Bankruptcy) option that should have taken place in the 80’s. We can only hope anyway. The GSB option will lessen the immediate and crushing impact of a complete collapse while still requiring a measure of fiscal sanity that the foreign manufacturers would implement anyway.

The Sourcerer’s advice is simple, though. For those who live in procurement, you’d better pack your lunch. Start exploring alternative suppliers and alternative products now. Look to expand your approved supplier base in advance. Business as usual is gonna become unusual very soon.
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  1. House passed the stimulus recovery package with no republican vote and now it has gone to senate for its approval. This tells President Obama that things are not that rosey as it seemed. President needs republican votes for future Bills which will come on his desk. Always when there is a crucial votes, House and Senate votes along party-lines with few exceptions.