Guaranteed loan helps supplier

November 12, 2010
| By Pete Daly |
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MUSKEGON — The availability of bank financing for small industrial companies in Michigan has ranged from scarce to non-existent in the aftermath of the recession, especially for automotive suppliers. But Port City Group, whose corporate offices are at 1985 E. Laketon Ave. in Muskegon, is one auto supplier that has found a solution.

Port City Group, which operates six auto parts manufacturing facilities in Muskegon County, has been approved for a U.S. Department of Agriculture Business and Industry guaranteed loan of $9.6 million from the Bank of Holland.

Port City Group’s president, John Essex, said the money would be used primarily for acquisition of new high-tech equipment that will enable the group of small factories to expand into other industries beyond automotive.

Essex said the company was looking to replace one of its major lenders, which he declined to identify other than saying it is a large, international lender. Then the Bank of Holland, he said, “stepped in and recognized an opportunity for us both,” in the USDA Rural Development Business and Industry loan program, which is available where population density is less than that in major metropolitan areas.

Normally, the USDA program guarantees 80 percent of a loan made by a bank, but under the American Recovery and Reinvestment Act of 2009, the guarantee was increased to 90 percent. There is also a fee charged by USDA, which is normally 2 percent of the guaranteed portion of the loan, but it was 1 percent in FY10 with stimulus funding, and a service fee of one-quarter of 1 percent normally charged by USDA was waived.

In Michigan, during the last federal fiscal year that ended Sept. 30, the volume of USDA Business and Industry loans was about three times that of previous years, according to a USDA official, and the Bank of Holland and its sister bank in Traverse City, which are both owned by Lake Michigan Financial Corp. in Holland, were named Lender of the Year by the USDA. The banks made more than $25 million in USDA-guaranteed loans under the Business & Industry program.

Mike Skinner of the Bank of Holland called Port City Group “a solid, well-run auto parts manufacturer with a prudent business approach. Their strategic planning team has positioned them to offer global automakers a long-term reliable parts supplier that produces top quality parts in modern, efficient plants.”

Port City Die Cast was the first of several companies that were established by Bruce Essex Sr. and Mert Mills; it was incorporated in 1981. Port City Metal Products, Muskegon Castings, Mirror Image Tool, Alloy Resources and Port City Custom Plastics followed.

B. John Essex Jr., along with additional minority shareholders, purchased the predominant share of the companies and took over operational control in 1998.

About 85 percent of Port City Group’s business is still automotive, supplying mainly tier one automotive components companies. However, it is one of the few independent direct suppliers to Toyota and Subaru in North America.

The Port City Group companies make parts mainly from zinc and aluminum castings as well as plastic injection moldings. They buy non-ferrous metal scrap from junked automobiles and recycle it for their source of raw materials. Essex said about the only types of processes they don’t do are things like painting and plating, things that would invite “scrutiny” by the EPA.

Power train components are still among the group’s main products. Port City Group was named Eaton Corporation Supplier of the Year in 2006 in recognition of its involvement with that tier one supplier in cylinder-deactivation technology that reduces fuel use at highway speeds.

But the companies also make other kinds of auto parts. “There’s no place on the automobile we don’t cover,” said Essex. He noted that most of the Japanese SUVs built in the U.S. are fitted with roof rack support brackets from Port City Group.

Essex said that early in 2008, the business had secured “a couple of huge projects in the automotive transmission applications — back when all the banks were fighting one another to come here and help us finance the deal.”

“Things were great,” he said. “Then all of a sudden, September 2008 rolled around,” and the recession clobbered the auto industry. “The big banks especially, they weren’t all that jazzed about West Michigan, as you know, and they sure weren’t jazzed about automotive suppliers,” said Essex.

“We had commitments to our customers and we fulfilled them. We were able to survive during that dreadful period of time,” he said. Port City Group financed most of its capital growth “through cash flow — and that certainly needed some creativity, to say the least.”

Port City Group was able to hang on long enough to enjoy somewhat of a turnaround, at this point, with “a lot of opportunities for us right now.” Some of those opportunities have come from attempts to diversify into non-automotive industries, which in Port City Group’s case include plans to produce machined titanium devices and medical-grade plastic parts for the medical industry.

When the U.S. auto industry was at “the bottom of the barrel” in late 2008 or early 2009, said Essex, employment at all his companies together was “down to about 160.”

“Right now, we’re more than double that,” he said — the group’s highest employment ever. “We’re busier today than we have ever been in our history,” he added.

“We were very fortunate to get our core team back when things picked up,” he said, adding that “everybody who wanted to come back and join our team when the work came back, is back — plus some.”

Port City Group is cautious, however. In recent years, it has restructured its customer portfolio to minimize exposure to financially weak automotive suppliers, and no customer has more than 18 percent of the companies’ business.

“We’re as diversified as we can be within the automotive industry,” said Essex.

Car sales are improving in North America and orders “are steady and increasing,” he said. The year started with automotive suppliers anticipating about 11 million vehicles being produced in North America in 2010, but “it sounds like we’re going to get about 12 and a half (million) before it’s all said and done.”

“I remember the days when it was 16 million vehicles, and right now — as busy as we are, and all the new programs we’ve been able to take on — it feels like those days again.”

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