Default Risk in the Automotive Supply Network

Abstract

The goal of this dissertation is to empirically investigate, model, and estimate which features of a car-part supplier's portfolio, including production capacity, buyer or component-sector specialization, and solvency risk, drive the formation of new business relationships between this car-part supplier and a car manufacturer. In this dissertation, I exploit a unique professional database listing suppliers for a set of car components at the car model level. After cleaning the data, I combine reduced-from evidence and structural analysis to shed light on how, along with operational factors, financial risks are internalized by firms in the car-part supply network in their decisions to form new business relationships. Choosing to be agnostic about the process of contract-offer arrivals to a supplier from car manufacturers, I first use reduced-form evidence to exhibit the pattern of network externalities in the supply network, and investigate whether these patterns changed in the aftermath of the collapse and debated bailout of General Motors and Chrysler in 2009. In a second place, I provide and estimate a one-sided model of buyer-supplier agreements in the car-part industry in which a supplier exogenously receives contract offers overtime from its buyers and endogenously accepts a new contract as a function of the risk and operational benefits that this new business generates.