Leadership Matters: Change Is Coming

Last week, I sat in the office of a friend who is CEO of what used to be a 100-employee business providing event marketing services primarily to the auto industry. On this day, the 8-10 employees not laid off were working feverishly to keep the lights on and close some deals that were pending. Except they didn't have any resources to work with.

Turns out that an open invoice with Chrysler for nearly $1.5 million had prompted the bank to stop financing the event marketing business as soon as bankruptcy was declared. For a company the size of this one, the unpaid invoice (perhaps never to be paid) combined with the halted credit line is more than can be absorbed.

Of course, the impact goes further. The leader of this Tier-1 business (selling directly to the manufacturer) has Tier-2 businesses that sell supplies and services to him. His potential bankruptcy could wipe out smaller businesses waiting for only $150,000 and employing maybe a dozen people. At the same time (literally), Chrysler announced the closing of 789 dealerships as part of its Chapter 11 restructuring while General Motors (GM Quote) is expected to tell nearly 1,200 dealers that their franchises would not be renewed after September 2010. While these may be necessary moves for the automakers to stand a chance of survival, the economic ramifications are immense. These businesses together, whether suppliers or dealers, employ thousands of other workers whose future is now uncertain.

Admittedly, this is not as simple as I portray it. For example, each of the dealers impacted by the Chrysler bankruptcy has the opportunity to appeal in bankruptcy court (fat chance). The Obama administration is also on the hook to consider how to assist all of these suppliers through additional bailout funds. Nonetheless, a radical change is occurring in the automotive sector that will have an immediate effect on the ability of Americans to stay employed, employ others, pay taxes and generally make the economy work. Suppliers for Chrysler and GM are also suppliers for Daimler (DAI Quote), Toyota(TM Quote), BMW and others in the U.S. The trickle effect is difficult to underestimate.