The bankruptcy of General Motors Company (NYSE: GM) is an earthquake whose shock waves will affect Israel. The local influence will be felt at three levels: firstly, at the consumer level in the sale of GM cars in Israel; secondly by Israeli manufacturers producing parts for GM cars; and thirdly if major international suppliers of parts to GM also encounter financial difficulties.
At the consumer level in terms of local marketing, the affect will be the least felt. Two of GM's three main brands in Israel Chevrolet and Cadillac are seen as "core brands" and will continue to enjoy investment in R&D, uninterrupted production and full service support, even if it is under the management of the US government.
It is not yet clear what will be the fate of Buick, which sells several hundred vehicles each year in Israel, but even if it is forced to pay the price of the cuts dictated by the US government, it will still gain some support and the Israeli car market will hardly feel the difference. The overseas brands of GM - Germany's Opel and Sweden's Saab, are barely represented in Israel in recent years, so the influence there will be negligible.
GM owns 10% of its Israeli importer and distributor UMI Ltd., which says that it is business as usual despite the situation and that there will be no delays in the supply of new vehicles or parts. UMI is considered a stable and very profitable company. 2008 was a record year for the company, which sold nearly 17,000 vehicles. UMI has abundant cash and the vehicles that it sells in Israel come from GM's relatively stable factories in Korea.
However, the affect of the bankruptcy at the two other levels is likely to be far more serious for Israeli industry, which has captured a respectable share of the parts and assemblies purchases by GM. These purchases had reached almost $100 million per year, but are now down to a trickle.
Moreover, Israeli suppliers are likely to find that chasing after debts owed by a company protected by Chapter 11 is a great challenge. To the best of "Globes" knowledge there will be no changes at GM's R&D center in Herzliya, which employs several dozen engineers.
The third and final level is the potential affect on large international suppliers of vehicle parts to GM, which exist in close synergy with GM and are now likely to be dragged down into bankruptcy. These include huge companies such as Delphi Corporation (NYSE: DPH), Visteon Corporation (NYSE: VC) and others, which work with all the world's automakers.
The vehicle industry is critically dependent on the supply of parts exactly "on time." Any delay can immediately paralyze production lines. It is enough that a car seat, engine computer or gearbox part is not available in order to stop production.
Published by Globes [online], Israel business news - www.globes-online.com - on May 31, 2009
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