Suppliers counting on survival of GM, Chrysler

April 5, 2009
| By Pete Daly |
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While Michigan is anxiously watching and waiting as the fate of General Motors and Chrysler is worked out behind closed doors in Washington, representatives of some of the hundreds of small automotive suppliers in West Michigan are demanding that any deal must take into account the entire auto industry supply chain, not just the big Tier 1 suppliers.

"I am pro-bailout of GM and Chrysler. There are too many people around the country that depend on the jobs that are involved. People just don't realize what is at stake," said Jim Pleune, owner of Philips Machining Co. in Coopersville, which employs 19.

Pleune is also vice president of the West Michigan chapter of the National Tooling & Machining Association, which represents thousands of small companies across the U.S. that provide some type of product used in automobiles made in America.

Another national trade association that represents many West Michigan auto suppliers is the Precision Metalforming Association. Rayme Bracken, a vice president at Tool Ventures International, also serves as vice chair of the West Michigan PMA.

Bracken said the PMA has been working hard in Washington as an advocate for the many metalworking companies, such as Grand Rapids Spring & Stamping, that supply the auto industry. "Unfortunately,” he said, “it's very difficult to get their attention" in Washington.

"At the risk of sounding very blunt, there seems almost to be a disregard for manufacturing as a viable, long-term, survivable business," said Bracken.

He said the general opposition to an auto industry bailout seems to be mainly in the many states where there is little or no automobile-related manufacturing. "Unlike the financial bailout — (because) everyone's got a bank," said Bracken.

"I hope that whatever happens (in a government bailout of GM and Chrysler), they take into consideration the bigger picture — the suppliers and the affected communities," said Bracken. "If they just limit the attention to those employed by the Big Three, you're only seeing about a third of those who are truly affected."

If it ends in "structured" bankruptcy for GM and/or Chrysler, said Bracken, "then make sure that structured bankruptcy takes into consideration those Tier 2 and Tier 3 suppliers. Those are what we have mostly in West Michigan."

Pleune said industrial people from West Michigan are mobilizing on behalf of the automotive industry.

"I spoke with Dan King from Riviera Tool (in Grand Rapids) and he told me that a group of people are going to meet with the auto czar who is coming to Detroit this week," Pleune told the Business Journal last week. "They are going to ask for assistance to the lower level automotive suppliers. He says they are pushing to promote a healthy supplier base for the automotive industry. The fact of the matter is that we not only supply the automotive companies, but also many other industries. If an automotive implosion damages the supply base, other industries will see their suppliers disappear."

King could not be reached for comment.

Edward Montgomery, director of Recovery for Auto Communities and Workers, was named to the newly created position last week by President Barack Obama. Montgomery will attempt  to help states hurt by the losses in the U.S. auto industry. Montgomery is an economist and dean of the College of Behavioral and Social Sciences at the University of Maryland. He is a former deputy secretary of the Labor Department and a current member of Obama’s auto industry task force.

Some people believe Montgomery will be involved in trying to turn around GM and Chrysler. The president has asked him to use the economic development and job retraining funds from the $787 billion federal stimulus package to assist autoworkers and communities that rely on the industry.

In March, the federal government announced that $5 billion from the Troubled Asset Relief Program will be used to provide financial support to some automotive suppliers, but that may only mean Tier 1 suppliers such as Delphi. (See report from local attorney Eric Bredemeier on page 11.)

A major issue to many automotive suppliers, especially tool-and-die companies, is the increasing delay in payments for orders they have filled for Tier 1 suppliers to the Big Three. Jim Grossman, marketing director for the NTMA, told the Business Journal last week the NTMA wants the automakers to "rattle the cage" of their Tier 1 suppliers to stop delay of payments down the supply chain to the smaller companies. The trade associations are also putting pressure on the federal government to include in any bailout deals a requirement that the smaller suppliers be paid more promptly.

The car companies have repeatedly said that their Tier 1 suppliers' dealings with the smaller companies is none of their business.

Philips Machining is a small business, with annual sales of about $3 million. While it is not technically a tool-and-die shop, its customers are. Philips produces "details" used with dies. When there is a major delay in payment to the tool-and-die shops, there is a major delay in payment to companies like Philips Machining.

Pleune said the wait for payment varies. “One of the new sayings around here is '60 is the new 30.' But we're fast approaching '90 is the new 60.'"

"For larger companies, larger tool-and-die shops, their payment terms are far worse. I know lots of people who have waited a year to be paid for a significant job," said Pleune.

"They already have very challenging terms as far as payment, and with this slowdown, their cash becomes limited. That trickles down to people like us," said Pleune.

Both Bracken and Pleune said tool-and-die companies are being used by the companies at the top of the auto industry to "finance" the tools they supply.

"Let's face it, they're using other people's money to finance these things," said Bracken.

Pleune said the definition of when the 30-day payment-due period starts is also being redefined. More often now, it's 30 days after the major supplier gives "final approval" on the parts it has received — "which of course, can be dragged out. It's very subjective," he said.

And there's a new wrinkle, since the Big Three started postponing the introduction of some new designs and products.

"A lot of companies are saying, 'Well, we're not going to use that tool for another year, so that's the point at which we are going to start the clock'" for when payment falls due, said Pleune.

There are laws in Michigan that allow tool-and-die companies to attach liens to tools for which they have not been paid to protect them in bankruptcy proceedings.

"But a lot of people, when they get squeezed, they'll take (payment) terms maybe they don't really want, just to get the job," said Pleune.

"Over the last 10 years, we've lost a significant amount" of the membership of the NTMA, said Pleune, due to "a lot of manufacturing leaving the country and the (Michigan) area, in general."

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