Trickle-downsizing — auto industry turmoil wracks parts suppliers

From a one-man office in Grand Haven, John Rickfelder sells automotive components directly to the Big Three. His employer, Los Angeles-based Judco Manufacturing, employs nearly 300 people who make electrical switches and other components. Up until two years ago those workers were employed in Los Angeles, but in order to meet price demands of the Big Three, the company moved production to Honduras. Wages there were 90 percent lower than in the United States. “I’m seeing a constant movement of component work leaving for Mexico, China, South America and Central America,” Rickfelder said.

Many auto parts suppliers are moving jobs overseas, downsizing or quitting the business altogether in response to ongoing challenges in the domestic auto market. The auto parts sector is an important part of Michigan’s economy, providing 10 percent of all jobs.

A car is more than the sum of its parts, and Michigan’s automotive economy is much more than the Big Three. For every one automotive assembly job, there are about four parts supplier jobs. According to industry analysts, each assembly job also accounts for three to four additional jobs in local businesses. As the Big Three restructure, downsize and outsource, suppliers have scrambled to remain viable and competitive. Some have survived, but many have not.

“We have a lot of consolidation going on in the supplier community. There are bankruptcies, companies going out of business, global purchasing — the turmoil here is absolutely huge,” said David Cole, chairman of the Center for Automotive Research. “The cutbacks and buyouts really ramped down production at the end of the year. And that is difficult for suppliers because their purchase orders and sales have been hit very, very hard.”

Continued -In the last few years, the majority of tier-one suppliers, those selling directly to the Big Three, have filed bankruptcy. Tier-two and tier-three companies, those who sell to the major suppliers, subsequently suffer the consequences of the sector’s upheaval: Chaos trickles down.

The auto-parts manufacturing sector accounts for 523,700 jobs or about 10 percent of total state employment in Michigan — the highest proportion of any state economy. According to the Center for Automotive Research, motor-vehicle parts supplier operations contributed 145,800 direct jobs, 192,732 indirect jobs (people who work to supply the parts manufacturers) and 185,164 expenditure-induced jobs (jobs created coming from consumer spending of direct and indirect employees).

“Over a five-year period, 90 percent of the tier ones are or will be filing bankruptcy,” said Laurie Schmald Moncrieff, third-generation owner of Schmald Tool & Die in Burton. As the Big Three make fewer cars, the economic and employment impact for Michigan suppliers and communities is profound.

“If you drive down some of the heavy industrial streets in Detroit, like Groesbeck, there is one after another of small manufacturing factories for sale,” said Brian Sullivan, director of sales and marketing for the Tooling, Manufacturing and Technologies Association, a national trade association representing small manufacturers. “It is like ‘The Grapes of Wrath.’ People are leaving and trying to find another place to make a living.”

Sullivan attributes the harsh economic climate for small manufacturers to “bad trade laws” and foreign competitors not adhering to trade agreements. Moncrieff agrees, noting: “The Chinese government, although illegal under WTO (World Trade Organization) rules and trade agreements, picks up a third of the cost of new equipment, and the Bank of China picks up a third. So somebody who owns a company in China only has to pick up a third of the cost of new equipment.”

But while keenly aware of foreign competition, Moncrieff sees the situation’s complexity. Small manufacturers face higher overhead costs, and  many are over-leveraged. They also face increased regulatory compliance requirements. She said many companies, complacent from years of ample business, were caught off guard by the impact of Big Three restructuring.

“There is going to have to be a consolidation. The situation a lot of people are in is they can’t afford to stay in business and they can’t afford to get out,” Moncrieff said.

“What a lot of small manufacturers are doing is rather than try to sell their business because they see the handwriting on the wall, they simply close the door. They just lock the door and they go away,” Sullivan said.

But Irvin Swider, president of Future Products Corp. in Clawson, offers another model for coping with the tough environment. His company, founded 44 years ago by his father, is a tier-two tooling company that has no debt, owns all its machinery and facilities and has a corps of 65 long-term, highly skilled employees. Swider is aware of the challenges in the sector, but committed to sustaining and building his business in Michigan.

While automotive demand is shrinking, Swider is seeking opportunities in other sectors. “The bottom line is there is too much supply for the demand right now,” Swider said. “We have started diversifying into the medical sector and aerospace. We also do tooling for appliance and HVAC (heating, ventilating and air conditioning) manufacturing.”

Ultimately Swider pegs hope for his company’s future to the quality of his employees: “I could not go to Shanghai and open this business. Who would I have to do the work? These are highly skilled laborers. The people are everything.”