Leon Tupper gets fussy when sorting through business opportunities for his company, Gilreath Manufacturing Inc. of Howell, Mich. Gilreath's options have, at times, come at lightning speed. Automakers and Tier 1 suppliers are anxious to work with the minority-owned injection molder. But Tupper, the company's president, consistently turns down many contracts and possible partnerships.
"We're very careful about what we choose," Tupper said. "Some can look like opportunities when, in fact, they are not. If [a program] keeps us at the entry level for technology, it doesn't have a successful end. When you peel the core layers of the onion, it's hollow inside."
The automotive industry is a leader in nurturing minority-owned suppliers, including plastics processors.
But while the industry's successes are well-documented and make for good public relations, some elements are hotly debated.
Even supporters of the programs admit that they do not always create strong minority-owned companies. And many complain that minority companies are stuck with less-than-desirable work.
Contracts set aside for minority-owned firms frequently require no acumen in technology or function, said Anthony Frabotta, chairman of Follmer, Rudzewicz & Co. of Sterling Heights, Mich.
"They save the cream for someone else," said Frabotta, who is a consultant to several minority-owned processors.
"A lot of those [minority] companies will only succeed if they can get beyond their core injection molding and learn new processes or value-added work. They're not growing enough to shoulder a downturn."
Amplifying the problem, a few high-profile minority-owned companies have experienced embarrassing financial failures.
However, automakers' minority programs have helped turn Gilreath Manufacturing around. Tupper and an ownership group bought the company in late 1991, after a free fall that landed it in Chapter 7 bankruptcy and on the edge of liquidation.
Tupper gradually re-cemented relations with several automakers. The company now expects sales of more than $40 million in 2000, nearing its pre-bankruptcy levels of the late 1980s.
Officials at the Big Three carmakers say they are not providing a social program or corporate welfare, although that is the genesis of their programs.
The first efforts started in 1967, with race riots and social unrest providing the firmament to develop underutilized companies in the inner cities.
In 1993 those efforts expanded into some real meat with the Big Three's announcement of their goals to source 5 percent of their purchases from minority-owned companies. Soon after, the carmakers asked their Tier 1 suppliers to do the same.
As of the end of 1999, none of the carmakers have achieved that 5 percent goal, which would have amounted to about $3 billion in total purchases. Ford Motor Co. of Dearborn, Mich., expects to hit the target this year, said Renaldo Jensen, Ford's director of minority-supplier development.
DaimlerChrysler Corp. is about two-thirds of the way there, said Jethro Joseph, senior manager for special-supplier relations. But each year it becomes tougher to reach the goal.
"If you consider the numbers we've done, though, it's staggering," said Joseph, who is based in Auburn Hills, Mich. "We set very high goals, and that's the beauty of it. I think influencing the complete supply base to do this could get us there."
Automakers make a hardened marketing case for the programs. They point to a growing number of minority car buyers, and at U.S. Census figures suggesting that the Hispanic and African-American populations will be in the majority by 2050.
"We need to do more to reach minority people in the cities," said J. David Allen, director of minority-supplier development at Detroit-based General Motors Corp. "If we empower people by helping them get good jobs with our suppliers and better themselves, we can improve our market position."
The minority programs target certain groups, including companies owned by African-Americans, Hispanics, Native Americans and Aleutian Eskimos.
Women who are in a majority ethnic background are excluded.
To be included, companies must be certified by regional centers of the New York-based National Minority Supplier Development Council. To qualify, the company must be at least 51 percent owned by a minority person and a minority person must run day-to-day operations.
"We actually walk through facilities," said Delbert Gray, president and chief executive officer of the Detroit-based Michigan Minority Business Development Council. "The person must sign checks, do the hiring and firing, be known on the manufacturing floor. We even look at birth certificates to document ancestry."
The national council is considering altering the certification rules to allow minority-owned firms to raise money through public offerings. If a company decides to sell preferred stock publicly to raise equity capital, the ownership share could slide to 25-30 percent, Gray said.
U.S.-based carmakers also have a three-year pilot program, expiring in 2001, to allow public ownership. That memorandum of understanding, signed jointly with the Small Business Administration, allows for 10 percent minority ownership if a company sells stock publicly.
Allowing public ownership speaks to a significant problem with minority programs. While minority-owned companies have increased in number, few have sales of more than $100 million, Jensen said.
Automakers would like companies that size, with the mass to go global and take on engineering, he said. Ford, for one, would like to help nudge several suppliers past the $1 billion mark in sales, Jensen said.
"We're providing a framework for suppliers to get more competitive," he said. "Some of these companies are at a crossroads. To grow, they have to get financing other than bank debt."
But, so far, few minority-owned companies have taken advantage of the change. Some could be waiting for the national council to approve the ownership change, sources said. The national council plans to take up the issue this spring, Gray said.
But some firms oppose the change, saying it dilutes both the spirit and practice of a minority-owned business.
"It seems a bit short-sighted," said Henry Jackson, president of injection molder Jackson Plastics Inc. of Nicholasville, Ky. "Long term, you'd surrender minority control to a board of directors or outside investors. The whole idea of helping the minority community gets lost."
Jackson, a former chief financial officer with a division of Clark Equipment Co., said other avenues of raising money, such as from venture capitalists, work equally well without the ownership downside.
One of the auto industry's larger minority-owned plastic companies, Florida Production Engineering Inc. of Dayton, Ohio, has not applied for minority certification.
The company has nothing against the minority program, said Ernie Green, FPE's president and co-owner. FPE, a maker of such niche molded products as door-latch modules and plastic weatherstripping, has fought for opportunities on its own merits as a good supplier and not as a member of a minority group, Green said.
"But that's not true for all companies," said Green, who founded the company in 1987. "Many minority-owned companies are first generation. Because of their size, they're leery and afraid to fail. If we started today, we might have looked at certification."
Still, some small-sized molders are starting to thrive in the current environment. D&R Technology LLC, a supplier in Addison, Ill., is starting work on major new business with Delphi Automotive Systems, said D&R President David Purdie.
D&R, founded in September 1998, makes insert-molded, printed circuit boards and electrical assemblies. It has 12 injection presses, ranging in clamping forces from 50-200 tons, and four more are on order this year, Purdie said.
But even Purdie advises minority processors to be cautious.
"Unless someone mentors you, you can't always afford the risks," said Purdie, who has started four other automotive companies. "It's not a benevolent business. If someone throws a bone at you, you have to make sure it has a lot of meat on it."
There have been noted failures among minority processors, sometimes the result of companies being overwhelmed by the wrong contracts. The most recent has been Chivas Products Ltd. of Sterling Heights, which formed a joint venture with Continental Plastics Co. of Fraser, Mich., in 1998 after entering Chapter 11 reorganization.
Automakers are forming a fire wall to protect against such problems. DaimlerChrysler's suppliers are rated on how well they work with minority-owned companies, gaining minority-sourcing credits with the automaker.
Ford helps suppliers in such areas as lean manufacturing, engineering mentoring, quality-solving methodology and financial controls.
"We want to give them every opportunity to compete," said Eddie Floyd, Ford business manager for minority-supplier development.
Supplier Johnson Controls Inc., with automotive headquarters in Plymouth, Mich., is rated by Ford under a point system, said Reginald Layton, JCI minority-business-development manager.
That system involves more than minority content. The automaker looks at mentoring relationships and minority sourcing in different regions of the country, Layton said.
"Depending on the answer, you get marked in red, yellow or green," Layton said. "You don't want to be in the red."
JCI paid its minority suppliers a total of $235 million last year.
Outside the automotive industry, other companies are setting minority-sourcing targets. Cincinnati-based Procter & Gamble Co. plans to source 6 percent of its purchases with minority-owned companies this year, said spokesman Simon Denegri.
P&G expects to spend $540 million on purchases from minority-owned suppliers in 2000, up from $475 million in 1999, he said.
"The sourcing more accurately reflects where our products go," Denegri said.
Still, the minority base needs more help, Joseph said. Parts suppliers might think minority-owned companies are 95 percent of the way to success; DaimlerChrysler believes those companies are only 65 percent there, he said.
"There's a gap there that we'd like to eliminate," he said.