Will Bailouts Commit OEMs To Supporting Their Suppliers?
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Do you envision that any government funding made available to the OEMs will commit them to supporting their supplier base?
Senior Business Editor Michael Bruno responds:
Not likely. Boeing has made the case that the U.S. government should provide financial aid to the company and its suppliers. The company argues that because it is the head of a supply chain of roughly 17,000 suppliers—almost 70% of Boeing’s spending goes to its outside providers—it should be the clearinghouse for taxpayer funds (and with few strings attached).
To those in favor of government support, there is no alternative to Boeing in the U.S.: If it fails, so do many or most of its specialized suppliers, which are spread across every state and almost every congressional district. Boeing employs around 160,000 workers directly, but there would be exponentially more workers affected if it failed.
Yet so far, the recently enacted Coronavirus Aid, Recovery, and Economic Security (CARES) Act and the emerging regulations from the U.S. Treasury Department do not mention the supply chain in any context, let alone as a precondition for receiving federal aid. Why? In Washington, there is an adage about how public policy is like using a hammer to do a fly swatter’s job. Time and again, policymakers’ best intentions lead to unintended consequences. The relevant goal in the CARES Act is to maintain jobs, not necessarily sustain brands. Adding stipulations about aid to suppliers could quickly run into opposing demands to let market forces play out and jeopardize all of it.
The bottom line: Do not expect formal requirements out of Washington telling original equipment manufacturers how to spend on their supply chains.