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Could you explain this with a couple sentences, I don't understand.
by sitkack 4y ago
Could you explain this with a couple sentences, I don't understand.
- throwaway_4ever 4y agoSay GM and Chrysler weren't bailed out. Then they wouldn't be able to support the trade between other third party car parts manufacturers that rely on them. Those companies would lose economies of scale and/or go out of business too. Then wouldn't Ford be able to make their cars without those third parties and would need bailing out to not go bankrupt also.
- pixl97 4y agoWhen dominoes start tipping they can all fall over.
- HWR_14 4y agoTotally made up example (with easy to follow numbers): Let's say GM, Chevrolet and Ford all buy 12V car batteries from BatteryCo at the rate of 1,000,000 a year (each). BatteryCo has fixed annual costs of $3,000,000 and per battery costs of $1. Right now, Ford pays $2/battery. If GM and Chevrolet both go out of business, Ford's 1,000,000 batteries need to absorb the whole fixed operating cost of $3,000,000. Therefore, Ford's per battery cost doubles to $4/battery. You can imagine other numbers and other parts of the supply chain all working similarly.
- sitkack 4y agoThank you and @throwaway_4ever, excellent explanation!