Dried Supply

In an excellent article, Forbes.com probes the financial woes of the other half of the Detroit auto disaster--the suppliers.

To engineers living in Metro Detroit, names like TRW, Lear, Federal-Mogul are common. We all know people who work at these places and in some cases have worked or interned for them ourselves. These automotive parts suppliers are huge employers and even bigger supporters of local engineering colleges within universities such as Lawrence Tech, University of Michigan Dearborn, and Kettering.

It's good to see that the Obama administration understands the importance of keeping an eye on these suppliers--so that all of the efforts going towards keeping GM and Chrysler afloat don't have the rug pulled out from under them.

All local Detroit pride and empathy aside, Forbes illuminates an ugly group of shares that have been de-listed (Visteon), may be de-listed (American Axle), and have lost more than 98% of their stock price from their 52 week high (Arvin Meritor, Dana Holding, Hayes Lemmerz).

Johnson Controls piqued my interest with its 27% long term debt/total capital ratio (low for this group). A further look at their financials show that they actually posted a $1.63 earning per share in 2008--another rarity for this group--and they are a company with a long history of posting profits.

Can anyone see a diamond in the rough here that will survive all of the turmoil and emerge on the other side? If you can you might have a winner.

"How to Save the Industrial Heartland"

Interesting story on Forbes here about how to save the industrial heartland, in specific: Michigan.

"So instead of believing in reincarnation or finding some miraculous cure, Kitchens believes places must rely on exploiting their historic advantages. In the case of Michigan, those are assets like a powerful engineering tradition and a hard-working and skilled workforce that can be harnessed in fields outside the auto industry."



This article makes a lot of salient points, especially about tapping into the rich engineering talent in Michigan. In the face of panic and despair, quick fixes such as a "cool cities" initiative may seem like an apropos solution, but this is not a recipe for long term success.

Michigan needs to invest in businesses that use the talent of the people that are both displaced by the auto industry collapse and that come out of the many great universities in Michigan.

We will see whether or not a green energy initiative is a smart bet (the author thinks not), but at least it's a bet.