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Big Auto's Woes Echo Along the Supply Chain

Kenta Kennedy assembles an instrument panel for a 2009 Dodge Dakota at an auto supplier's plant in Michigan.
Kenta Kennedy assembles an instrument panel for a 2009 Dodge Dakota at an auto supplier's plant in Michigan. "When they move, we move, and when they stop, we stop," said Kennedy, referring to how the Detroit Three's viability affects health of suppliers like his firm, IAC. (By Jeffrey Sauger For The Washington Post)
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By Peter Whoriskey
Washington Post Staff Writer
Thursday, March 19, 2009

WARREN, Mich. -- The assembly line at the factory where Kenta Kennedy works isn't operated by the Detroit Three. But it starts and stops on their whim.

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Every time a new Buick Lucerne or Dodge Dakota starts down the assembly line at one of the automakers, Kennedy and his co-workers get an order to put together another dashboard -- a steering column, a speedometer, a radio and so forth. Within five hours, their piece of the finished car must be delivered to parallel assembly lines at General Motors or Chrysler.

"When they move, we move, and when they stop, we stop," said Kennedy, 32, a father of three. "So unfortunately, whatever happens to them, is going to happen to us, too."

Although government aid to the auto industry has focused so far on GM and Chrysler, the vast majority of the jobs and revenue in the U.S. industry are not with the automakers but their web of suppliers, such as the company that Kennedy works for.

About 673,000 people worked in parts supplier plants in 2007, according to the Bureau of Labor Statistics. By contrast, the Detroit Three employed about 239,000 at that time.

Now, as the plunge in vehicle sales begins to affect the thousands of suppliers, the task of propping up the U.S. auto industry has become much more complex for the Obama administration.

Over the past year, the stock prices of major suppliers such as American Axle, Lear and Visteon have dropped precipitously. Others such as Getrag Transmission, Cadence, Contech and Key Plastics are in bankruptcy proceedings. And according to a report last week from Grant Thornton, a company that works with troubled suppliers, as many as 500 of approximately 1,700 direct suppliers to the auto companies are at "high risk."

Those companies are seeking help from the Obama administration auto task force, too.

"If you want to save the auto industry, you can't just save the carmakers," said Thomas Klier, a Fed economist who has written a book about the industry's suppliers. "Think about it like an iceberg. What's above the waterline is the automakers -- that's what we see. But what's below the waterline is the suppliers, and it's much, much bigger."

Until the late 20th century, according to Klier, U.S. carmakers produced most of their parts. But the automakers chose to focus their energy on designing and engineering cars, and now the task of making parts falls to the thousands of independently owned suppliers. These days, most suppliers are in the Midwest, with some in the South -- in Alabama, Georgia, Kentucky, Tennessee and the Carolinas.

Those suppliers provide approximately 70 percent of the value in a car, according to the U.S. Economic Census.

So saving the U.S. auto industry means keeping alive the suppliers as well, industry experts said, and it won't be a simple matter.

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