GM, Chrysler Bankruptcies May Weaken Freight Volumes

This story appears in the June 8 print edition of Transport Topics.

Truckers said they are adjusting to widespread fallout from the bankruptcy of General Motors Corp., whose vision of a scaled-down company could further weaken freight markets.

“The GM and Chrysler bankruptcies have added to the overcapacity in the Michigan freight market, both inbound and outbound,” Glen Merkel, president of Davis Cartage, Corunna, Mich., told Transport Topics on June 3. “The recession has created ghost-town factory sites throughout Michigan.”

The June 1 announcement by GM and President Obama represents the largest industrial bankruptcy. It includes plans to trim the Hummer, Saab, Pontiac and Saturn brands, cut 21,700 jobs, close or idle plants in five states and cut the dealer network by 42%. U.S. taxpayers are slated to own 61% of the new company and pay $30 billion to support the restructuring.

“The GM that let too many of you down is history,” CEO Fritz Henderson said. “This is a new beginning.”

“I’ve been pleasantly surprised that they [GM] want their carriers to stay on board,” said Kevin Burch, president of Jet Express, Dayton, Ohio, whose business is 75% automotive.

“We’ve been fortunate to be involved in numerous conference calls with GM,” Burch told TT. “It’s truly been a collaboration on where we are going to go after the bankruptcy. [The restructuring proposal] was well-planned. We feel pretty confident moving ahead with GM.”

Burch said automakers’ troubles “taught us how to move nonautomotive freight again.” That change forced drivers accustomed to dedicated automotive business with precise routes and schedules to adjust to irregular runs and less time at home.

“We seem to be going into a serious stage of consolidation in the automotive industry,” said Walter Heinritzi, executive director of the Michigan Trucking Association. “As GM shrinks, there is going to be a lot less freight to haul. A big concern is that the supplier community is going to be paid.”

GM received court approval to pay a cadre of “essential suppliers,” a separate $141 million to truckers, warehouses and logistics providers and payment for claims received within 20 days of its bankruptcy. GM also told suppliers it had no legal obligation to pay pre-bankruptcy claims.

“From this point on, suppliers and carriers will no longer have the cloud of receivables hanging over their head,” said Robert Farrell, executive director of American Trucking Associations’ Automobile Carriers Conference. “If GM holds to its 19.9% market share, stability can come out of all of this uncertainty, not only for its suppliers but also their carriers.”

Anticipating trouble, Merkel told TT that his company began diversifying into freight such as foodstuffs four years ago, when automotive was two-thirds of its business. That’s now 16% of revenue for Davis, a less-than-truckload and truckload operator whose LTL service “has taken the biggest hit,” Merkel said.

He vowed to re-enter the auto parts-hauling business when the weakest shippers and carriers depart, and he cited the bankruptcies of Michigan-based Alvan Motor Freight Inc. and Parker Motor Express as signs of damage already done by weak auto markets.

“The bankruptcies are not just with GM and Chrysler,” Merkel added.

Suppliers such as Visteon and Metaldyne have filed bankruptcy petitions in recent weeks. GM wants to reassert control of some Delphi parts plants that were spun off previously. As many as 500 suppliers could fail in 2009, the Motor Equipment Manufacturers Association estimated.

The supply chain and the interrelated companies in it will be critical to GM’s future, said James Rubenstein, professor of geography at Miami University of Ohio and author of three automotive books, because 80% of parts makers serve all three Detroit automakers.

“If you are missing one part, you can’t build a car,” he said, citing the 2005 bankruptcy of Collins & Aikman Corp., as a precursor of potential problems. Failure of that Troy, Mich., company, the sole supplier of a safety part for every automaker, forced manufacturers to scramble until other sources were found.

Under the federal program, GM suppliers can keep cash flowing by paying a fee to receive full payment upfront or sell their receivables.

That group wants another $10 billion to help suppliers cope with the auto industry’s woes on top of the $3.5 billion already committed by the Supplier Support Program.

Terry Rhadigan, GM’s director of North American product communications, told TT that fleet and commercial operations will “most definitely be part of the new GM. FCO represents a huge percentage of our sales and profit opportunity.”

“It will be a few years before we can judge whether this was a success or not,” Rubenstein said. “Politicians and pundits like instant answers. That won’t happen this time. The long-term question is whether people will buy their cars.”

Staff Writer Joe Howard contributed to this story.