Mold maker Rick Hecker's Eifel Inc. has survived more than 30 years in the auto industry, even as bigger players came and went.
Now with the industry waiting for the final fallout from Delphi Corp.'s Chapter 11 bankruptcy filing, he is taking steps to try to ensure his 16-employee shop's continued survival.
While his Fraser, Mich.-based company is in decent shape now, it will take a serious hit if more of its customers falter. So Hecker will take advantage of a state law that allows toolmakers to place a lien on the molds they make, assuring they retain ownership until they receive full payment.
Every mold heading out the door at Eifel in the future will have a lien placed on it.
``I never had to do that before, but for our peace of mind, I have to,'' Hecker said.
Eifel is not alone. In the wake of Troy, Mich.-based Delphi's Oct. 8 filing for protection in U.S. Bankruptcy Court in New York, companies all along the supply chain are taking steps to ensure they will have stability in the long run, even in a business where it may take 180 days to get paid for completed work.
``That's just a simple business decision to me,'' Hecker said. ``It doesn't take much to put a small business like mine out of business.''
Most businesses have no need to panic at this point, although it makes sense to take advantage of the tools available to suppliers, said Kim Korth, president of Grand Rapids, Mich.-based consultants IRN Inc. Delphi had a clear and organized entry into Chapter 11. It has laid the groundwork for manufacturing, deliveries and payments to continue on a very smooth path.
``In the grand scheme of things, I believe there is a sustainable business plan for Delphi,'' Korth said.
General Motors Corp. spun off its parts group to create Delphi in 1999. The company is the world's second-largest auto supplier, making parts ranging from instrument panels to chassis to electronic connectors. Its extensive plastics operations accounted for more than $1 billion in sales in North America alone last year.
Despite its size and market reach, though, the firm has struggled financially. Its history as a part of Detroit-based GM has meant the bulk of its workforce receives top wages similar to those at automakers, rather than at auto suppliers. It also carries the same pension commitments to workers as GM, which leads to higher personnel costs than its competitors.
At the same time, its biggest customer, GM, has been losing ground in North American vehicle sales even as raw material costs for Delphi climb.
Through the bankruptcy filing - which affects only its U.S. operations - Delphi plans to seek court backing for a restructuring that would allow it to cut its labor costs and close unprofitable facilities and product lines.
For months before the filing, Delphi sent out clear warnings that allowed other firms to prepare. Korth estimates that despite fears the Delphi filing would be followed by a wave of others, probably fewer than 50 of Delphi's 2,000 suppliers will suffer irreparable harm.
``They've been pretty open about things,'' said Jeff Mengel, a partner with consulting group Plante & Moran PLLC in Southfield, Mich. ``Some companies are gong to be hurt by this, without question, but they could have made things a lot worse than they are.''
Some companies may be at risk if they were waiting for a payment from Delphi prior to the filing - especially if their loan structures require them to carry a certain amount of cash on hand to avoid defaulting on their own debts, said Jim Gillette, director of supplier analysis for CSM Worldwide of Grand Rapids, Mich.
The major questions, though, are whether the bankruptcy judge overseeing Delphi's case will agree with the steps the firm is taking, and if the United Auto Workers will strike to avoid a cut in its members' pay and benefits.
A judge's ruling could end preexisting plans to pay suppliers, while a strike could shut down not only Delphi but GM and other automakers relying on Delphi parts.
``The anxiety will continue until there is more comfort with how things are going and whether the court agrees with what Delphi has been doing,'' Mengel said.
Delphi Chief Executive Officer Steve Miller believes the union will negotiate, since work interruptions would only hurt workers by forcing Delphi out of business.
``If we do this right, Delphi will remain strong,'' he said. ``If we do it badly, Delphi will collapse, and perhaps so will GM.''
The restructuring of Delphi even could benefit the North American supply base. As it looks to cut unprofitable product lines, there will be opportunities for lower-cost manufacturers to step in and take over that work. General Motors also wants to re-source billions of dollars' worth of parts.
The company has not identified what work it expects to shed through the restructuring process, which will not be complete until sometime in 2007.
Some of that work may go overseas, but much of it will be available in North America, Mengel said. The right companies with the right capabilities could cash in.
Korth said her firm is advising clients to take precautions - using tools such as lien laws to ensure payment on existing work - but also is advising them to maintain good relations with Delphi, since it probably will be a huge customer for years to come.
For now, everyone will have to wait and see whether Delphi's Chapter 11 filing will make sense for the industry in the long run.
``I keep trying to find something profound to say that says something about how this [process] is what's going to turn the industry around,'' Gillette said.