Wednesday, May 18, 2011

ERM-BC-ERM: Ripple effect


I talk about the ripple or domino effect quite a bit.

Sometimes this is in connection with vendors.

According to a United Press International (UPI) piece on Advisen FPN, "The (U.S.) Federal Reserve said manufacturing production fell 0.4 percent in April after nine consecutive months of increases. The most notable drop in the sector was a decline in vehicle production, which fell to an annual rate of 7.9 million units from a previous rate of 9 million." (Emphasis mine.)

The Fed blamed the decline in auto production on Japan's earthquake.

Consider the global picture.

Japanese parts destined for US assembly plants were not manufactured, so they were

  • not stuffed into truck-to-train-to-ship containers

  • not shipped to Japanese ports
  • not inspected by U.s. agents stationed in Japan
  • not shipped to the U.S. west coast ports
  • not off-loaded by union steveadores at US ports
  • (import duties, if any, were not collected)
  • not shipped by rail and truck to assembly plants
  • not assembled into "American made" vehicles
  • not shipped by rail and truck to dealers across the U.S.
  • not sold by sales people at the dealerships

Plus, additional parts never made it to dealership maintenance facilities so faulty or damaged parts were not replaced, possibly putting unsafe vehicles on the road

But it doesn't stop there.

I'm not sure is anyone at any of the Japanese assembly plants in the U.S. was laid off, but I am sure that sales people who have nothing to sell have $0 commissions so unless they have a nice financial buffer in the local bank, there could be missed mortgage payments, reduced spending at the supermarket, fewer entertainment-related purchases, less miles traveled - and less fuel bought, and on and on.

Granted, there may - MAY - be "pent up demand" when Japanese parts start arriving on America's shores again (meanwhile Korea's Hyundai and Kia are enjoying record sales and even U.S. automakers are noting an up tick in sales).

We have a global economy; no longer is any country's economy independent of others' economies, be they across the border or around the world.

The U.S. had an "economic meltdown" and most of the world felt the heat.

When the dominos start to fall, they fall around the world.

Something to think about.

No comments: