Black suppliers at the center of auto crisis

While talks continue on Capitol Hill to find a solution to the imminent collapse of the industry, minority suppliers in Detroit are making adjustments – both financially and philosophically.

While talks continue on Capitol Hill to find a solution to the imminent collapse of the industry, minority suppliers in Detroit are making adjustments – both financially and philosophically.

Leon Richardson, CEO of Chemico-Mays, a minority supplier that provides chemical management services, said that the downturn has been significant, so a new way of thinking needs to be proffered.

“One of the things we try to do is diversify our product offering,” Richardson said. “We’ve done a really good job in that diversity effort. The automotive industry was 95 percent of our overall business (five years ago). Now it’s 60 percent. What’s really afforded us the opportunity to do that is that we’ve taken the skills, the knowledge and talent we’ve used in the automotive industry, and have applied it to other businesses and it really works well for us.”

Since most minority suppliers are first or second generation, he noted, they are still relatively new businesses. “While we’re in the process of building equity and building these companies to scale, these suppliers are being caught in a situation,” Richardson added. “The credit markets are becoming very tight, and it’s becoming very, very challenging. Revenues are shrinking; the cost of financing is becoming more expensive. The biggest problem is a reduction in volume. It’s having an adverse effect on those suppliers.”

The connection between minority communities, auto suppliers and the Black community is an obvious one in his opinion. “If you look at some of the largest minority companies in the country, a large portion of those are directly tied to the automotive industry,” Richardson said. “A large portion of the middle class was derived from the auto industry. If that industry was to disappear or diminish, it’s going to have a dramatic effect on the minority community. Most of the large companies that are minority-owned are tied to the auto industry.”

Richardson recently met with the House and Senate to plead the case from the minority suppliers’ perspective. “We think it would be a travesty to let another manufacturing sector go away,” he said. “It’s critical we save this industry. The message is that 2009 going into 2010 is going to be very difficult. We need to understand how important manufacturing is.”

Like Richardson, Kirk Lewis, president of The Bing Group (a minority owned supplier), traveled to Washington to present the arguments in favor of a bailout. “The minority supply base, which tends to be much smaller companies, are challenged with similar issues as it relates to credit availability and volume,” Lewis said. “What we’ve been doing over the last 24 months is really focusing on how do we run our businesses at lower volumes? At certain points, you reach a level where you can’t cut expenses anymore. And that’s where we are now. The volumes have dropped so low where we can’t do many things to offset the lack of margin.”

The largest issue is that every sector is suffering, he noted.

“You’re having significant industry-wide distress,” Lewis said. “Our customers are in financial distress; all our suppliers are in financial distress, which really puts the whole system in distress. I think our biggest challenge today outside of reducing the cost and process improvement is how do we deal with the lack of available credit and the negative view on the automotive industry? It’s a long process that we’re going to have to work our way through. There’s no silver bullet. There’s structural change that needs to happen, that’s a long term and very painful process.”

He steadfastly believes that if the auto industry as it is today is to survive, it will have to transform itself.

“The question is how do you survive so that when you come out this thing, you’ll be in a position to grow your business?” Lewis said. “That’s one of the things we’re focusing on – how to do that.” Bankruptcy, he believes, would be a mistake. “I think that if GM files bankruptcy, it would be devastating to the automotive industry, and the ripple effects would be unprecedented,” he said.

During his meetings in Washington, Lewis stressed the importance of seeing the auto industry collapse as a national, possibly even global crisis. “This isn’t a Detroit issue,” Lewis said. “This is a U.S. issue because the automotive industry directly and indirectly reaches just about every state, and it’s important that we get the right focus to get this industry back on track. That’s really been the push – internally looking at our operation and going on to talk to other folks and letting them know the impact of having a failed industry.”

As for a timetable, he can’t realistically see one. “I think it’s going to be painful,” Lewis said. “Everybody’s going to have to come to the table – the car companies, labor and government, but we will eventually get it wrapped up. Is it the end of the year? January? I don’t know. It’s really going to be based on how far they can stretch their cash.”  Real Times News Service

Copyright 2008 Real Times News Service. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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