Cash-strapped small and midsize
companies that supply critical parts to industrial giants are seeking a $30
billion U.S. loan-guarantee programme and pressing General Motors Co. to speed
up payments in hopes that other manufacturers will follow.
Representatives of U.S.
metal-stampers and tool-and-die concerns, which make machinery and molds that
create parts such as car doors and refrigerator bodies, will meet Tuesday with
Commerce Department officials and Ron Bloom, the Obama administration’s
manufacturing czar. They will press for a programme financed by the Troubled
Asset Relief Programme to ease lending guidelines that have frustrated these
The companies are trying to seize
on a proposal by President Barack Obama in February to use TARP funds to boost
small-business lending. Many tool-and-die and machining companies have been
going out of business because they must pay up front for materials but wait
months to get paid by their customers. Adding to the problem, banks have
Roughly 15 per cent of U.S. tooling
and machining companies went out of business last year, bringing the total
remaining to between 20,000 and 25,000, according to the National Tooling and
Machining Association. The group says the number has declined 30 per cent over
the past decade.
Administration officials didn’t
have an immediate comment on the tooling makers’ loan pitch.
After the meeting with White House
officials, industry association leaders will take their cause to GM in a
session expected before the end of March.
GM—controlled by the U.S.
government since its bailout last year—is one of the tooling and machining
industry’s largest customers, and these suppliers hope the car maker will
establish an industry benchmark. The tooling companies seek a more favorable
pay schedule, getting paid a third when they win a job, a third when work is 50
per cent complete and a third at completion.
Alan Adler, a GM spokesman, said
the company is “moving in the direction” of progressive payments to
tooling suppliers. “Obviously there have been a lot of suppliers impacted
by the economy and our bankruptcy. A healthy supply base is critical to
GM,” Mr. Adler said.
Tool makers, metal-stamping
companies and industrial mold makers provide essential building blocks for
nearly every manufactured product, from cars to appliances to gas-drilling
suppliers. Most of these companies have annual sales of $5 million to $20
million and employ 50 to 150 workers.
Since the recession began, small
and mid-sized tooling and machining companies have faced a harder time getting
credit. Even some with solid balance sheets and strong order backlogs have been
denied routine financing to meet payroll and expand capacity. Banks focus on
2009 results, a dismal year for the industry, without weighing a company’s
borrowing history and booked future sales.
Moreover, tooling concerns say,
customers who have cash problems of their own have delayed payments beyond 90
days. Delayed payments hamper the tooling makers’ ability to obtain loans,
leading to bankruptcies.
Wes Smith, president of E&E
Manufacturing Co., a metal-stamping company in Plymouth, Mich., and a board
member of the Precision Metalforming Association, plans to tell the White
House’s Mr. Bloom that the administration’s use of TARP funds for
small-business lending is a good idea but doesn’t go far enough. “You’ve
got to get the banks in a condition that they can lend money,” he said.
Mr. Smith and others want new
guidelines for banks to make it easier for them to grant loans, arguing that
capital requirements are preventing many banks from lending.
In some cases, tooling companies
say banks have compounded the problem by restricting the amount of business
they will do with the customers of tool makers, the big auto-parts suppliers.
“Banks are still very hesitant
to loan to people doing automotive work,” said Ron Overton, president of
Overton Industries, a tooling company in Indianapolis.
Some companies, such Metal
Processors Inc., a 54-year-old tooling company in Stevensville, Mich., were
healthy before the downturn but are now struggling to survive.
Demand has picked up for the
company, which makes tooling machines used by the automotive metal-casting industry.
But it is still suffering a hangover from seven of its 25 customers going
bankrupt in the past two years.