Auto parts supplier looks beyond industry for survival
BURTON, Mich. -- In 2001, Laurie Schmald Moncrieff gave her 35 workers some homework.
Moncrieff, a third-generation family owner of auto supplier Schmald Tool & Die near Flint, Mich., asked her workers to read Who Moved My Cheese? by Spencer Johnson, a self-help book that deals with big life changes.
Moncrieff worried her employees were too accustomed to making car parts to quickly adjust to changes she saw coming.
"They looked at me as if I was nuts," she says. "But I have been saying that change is coming. It felt like I was there on a track watching the train coming, and no one was listening to me."
She hoped her workers would take away the message that the days of being just a supplier to auto companies were quickly ending.
From a bare-bones office at her plant, Moncrieff works 16-hour days trying to win new business, lobby the state and federal governments to change laws affecting small manufacturers and keep her business funded. It's exhausting, she says, but she doesn't know what else to do. "You can sit there and talk about all the bad things that are happening, or you can do something. I'm trying to do something."
The changes rattling the auto industry first hit small suppliers such as Schmald Tool & Die 10 years ago, as companies shifted more work overseas. The first parts to go to Asia were types Moncrieff's company made: small metal parts easily tossed in a crate and shipped to the U.S.
Seeking outside aid
A decade of severe pricing pressure from customers — automakers and larger suppliers — forced many suppliers into bankruptcy court, even before the current sales crash. Now, suppliers, who employ 590,000 U.S. workers, have followed automakers in asking for federal aid.
Last month, the suppliers' Motor & Equipment Manufacturers Association (MEMA), which says 40 members made bankruptcy filings in 2008, asked the Treasury to guarantee the payments GM gm, Ford f and Chrysler owe for parts, making it easier for suppliers to get bank loans.
They also want a "quick pay" program for payment faster than the 60 to 90 days many see now. A similar plan after the Sept. 11 attacks helped suppliers deal with a drop in demand.
Bob McKenna, CEO of MEMA, says a third of auto suppliers are in financial distress, and another third say they will be by the end of this quarter.
"We are not seeking blanket protection from natural consolidation, but need temporary relief to sustain the very foundation of the domestic auto industry and a critical sector of the nation's economy." McKenna says.
Bankruptcies among "tier 2" suppliers, those who make pieces for larger car parts, could soon jump as idled car production restarts, says Himanshu Patel, an analyst at JPMorgan. When suppliers barely getting by are asked to ramp up making parts again, they may not have the money for materials.
That has nearly 70% of suppliers at risk of bankruptcy filings or closure in the next year, says Mark Gardner, an auto analyst at Deloitte Consulting. "I've been in this industry for 25 years, and I think this is as bad as I've seen it. The falloff in demand is one of the biggest things we're working through."
If auto suppliers go out of business, it ripples through the system. Auto plants often get parts hours before they go into a vehicle. Disruption of the chain slows or cripples production.
"Troubled suppliers pose a real risk to every automaker and to their large suppliers," says Stephen D'Arcy, auto group leader at PricewaterhouseCoopers.
Plus, many now-troubled suppliers rely on other troubled suppliers for parts or materials. In the tightly woven industry, Gardner says, one failed company can hurt dozens of others.
"It's like a table of dominoes — if one thing falls, everything around it starts to fall," he says. "If there's a company that's kind of healthy or is surviving and the company that supplies it starts to fail, it creates pressure."
Moncrieff says that's a fate she's working hard to avoid. But she has other obstacles, such as pressure from her bank. She gets daily e-mails asking for proof she'll make money soon, even though she hasn't defaulted on any loans. She lost money the past two years, but hopes to be close to breaking even this year.
The year might even be better, she says, because of new non-auto business. Through a consortium of suppliers she formed, Schmald recently won a Defense Department contract for inside shells of hand grenades. They've also made bars for body piercings and are working on new business in the nuclear and wind energy and levitated rail industries.
Breaking new ground
Courting customers outside the auto industry was foreign to many suppliers. When Moncrieff began working for her father in 1996, she pushed to find new business. When she took over a few years later, she learned that sales leads she'd brought in from other industries were often shredded or tossed out.
That's in part because, for a long time, making money in the auto sector was easy. Business came in through word of mouth or personal connections. Suppliers often had one or two big customers. That often was enough to keep their plants running full steam, and they didn't bother looking for new customers.
But it wasn't a smart way to do business, Moncrieff says. "The generation before us was greedy and short-sighted," she says. "We've got to think about the next generation. If it all goes, at least I can look at my kids in the eye and say, 'I did everything I could.' "
Gardner says the efforts to diversify could save Moncrieff and hundreds of other auto suppliers.
"It's not too late," he says. Suppliers need to do anything they can to get through the next year, when things should start to turn around. "There is a healthy, viable industry ahead of us, but we're looking at weathering through this very troubled time."