An ill-advised off-the-cuff comment about the tooling industry by a General Motors Corp. executive earlier this month could evolve to a watershed change in the long-standing supply-chain relationship between hundreds of tooling suppliers and GM if discussions turn into results.
Payment has been a festering issue for toolmakers that make stamping dies, injection molds, fixtures and other equipment used to shape parts for the Big Three suppliers.
Under current practice, North American toolmakers say they don't get paid at all until an average of five to 18 months after the tools are shipped. Finished tools are sent to a Tier 1 supplier to build parts for a Big Three end user, but the automaker pays for the tooling and channels that payment through the Tier-1 supplier. However the Big Three don't pay for the tooling until it has gone through a production part approval process, known in the industry as PPAP.
The practice is in stark contrast to that of Toyota, Honda and other transplants, which make several payments over the life of a contract.
But for the first time in years, GM is meeting with tooling industry representatives to discuss possible changes in how GM sources its tooling and how it pays for it.
The discussions were prompted by a comment Stuart Spiers, GM director of global cost engineering, made at an Original Equipment Suppliers Association event March 11 in Troy, Mich.
In a presentation called The Smart Approach to Tooling, Spiers said that GM buys about 49 percent of its tooling from companies in low-cost countries such as India and China, and if the chairman had it his way, it would be 100 percent.
Spiers later apologized, calling the comment terrible.
But the damage was done. The audience was composed of North American suppliers and the reaction led to, among other actions, a March 19 letter to then GM Chairman and CEO Rick Wagoner from the Washington-based National Tooling & Machining Association demanding an explanation for the comments, especially given that General Motors is requesting taxpayer assistance by way of loans from [the] U.S. Treasury.
The comment also opened the door for the NTMA, the American Mold Builders Association, the Canadian Tooling & Machining Association and other industry groups to renew a call for GM to discuss a proposal drafted in January that would provide toolmakers with 90 percent payment within 60 days after shipment, with the remaining 10 percent held back until after the tooling is approved by GM.
GM agreed last week to two meetings, the first of which was held Tuesday when leadership of the NTMA and its Canadian counterpart met with Spiers and other GM executives.
NTMA officials say GM acknowledged the group's concern about the time it takes for sub-Tier 1 suppliers to be paid, and the GM executives agreed that it was a problem.
GM wants to see specific examples, said NTMA Chairman Ron Overton. They're saying they didn't realize it was to that extent and they have a hard time believing it based on their data, so they want to see from us specific examples of those kinds of time frames.
Another meeting is slated for mid-May, and working groups are being formed to tackle the issues.
We felt that the meeting was very proactive, we were encouraged by it, and while we have our skepticism about the way things could potentially go, the door is open and we're looking forward to a continued relationship with GM as we work to understand some of the issues that are facing the automotive industry, said Robert Akers, chief operating officer of the NTMA.
Neither Akers nor Overton can remember such discussions ever occurring between GM and representatives from its tooling suppliers.
[The controversy] gave us the vehicle to allow us to have an open dialogue, Akers said.
Craig Wiggins, president of Tecumseh, Ontario-based Tooling & Equipment Capital Solutions Inc., had a meeting with GM on Thursday to discuss the proposal, which his firm authored.
We tried to focus that meeting on common ground safe passage, he said.
Safe passage refers to assurance by GM that the payments it makes to its tooling suppliers safely navigate through the supply chain to the tooling companies.
During the Thursday meeting, Wiggins said he and other company executives laid out problems toolmakers face, citing the bankruptcies of Plastech Engineered Products Inc. and Blue Water Automotive Systems Inc. as examples of what can happen under the current system.
For example, when Plastech filed for Chapter 11 bankruptcy protection Feb. 1, 2008, it owed $13.4 million to tooling vendors because Chrysler had not paid Plastech for those costs. A similar situation occurred with Blue Water.
Wiggins said he met with a different set of GM purchasing executives than NTMA and got a very different reaction.
We are not seeing those issues with tooling suppliers to GM and we see no reason to pursue it, Wiggins recalled Kim Brycz, GM executive director of current and future business, as saying in the meeting.
It's unconscionable, Wiggins said. The matter is they're ignoring evidence.
GM spokeswoman Sheryl Arb declined to comment on the Thursday meeting, saying GM doesn't share information from meetings between GM purchasing executives and another private business.
NTMA is distancing itself from Wiggins.
We support that program as it's written, but not some of the comments and some of the positions that Craig Wiggins has taken, Overton said.
Overton said Wiggins is trying to force some of the issues on GM, and in our opinion, that's not going to work and that's not going to happen.
I want to make very clear, it's my understanding that Craig Wiggins has indicated that he has the authority to speak on behalf of our organization at the CTMA, but let this be official record, that he in no way has the authority to speak on behalf of our organization. I can tell you that for a fact, he said.
Mark Rusch, chief financial officer of Warren, Mich.-based manufacturer of plastic injection molds Proper Group International, said he hopes the discussions lead to changes.
He said the current system forces his company, and others like it, to carry the upfront cost of a contract for well over a year before seeing a penny from the customer.
Nobody wants to put any money down, they want the tooler to carry the entire program from design, construction, manufacture, delivery all the way through until full approval, even though you've delivered your tooling and met all your contract terms, he said. You're forced to wait until the funds are available, and then some.
Toolmakers face the prospect of never being paid if a Tier 1 supplier using their tools to build parts for an original equipment manufacturer files for bankruptcy, a fear that has gained traction as many large suppliers are strapped for cash and could face bankruptcy.
Proper Group was among suppliers hurt when Blue Water filed for Chapter 11 last year.
I had to hire an attorney last year and had to spend $100,000 just to collect what was legally owed to us, Rusch said.
Tooling firms can protect themselves by placing a lien on tooling for which they have not received payment prior to shipment under the Michigan Mold Lien Act. The lien gives the toolmaker status of a secured creditor, bolstering its chances of being paid if a customer files for Chapter 11 bankruptcy.
But many Tier 1 suppliers require toolmakers to waive those rights in order to do business, Rusch said.
A lot of these tooling suppliers, by not getting paid in any type of progressive fashion, they're having to fund that tooling through financing and that could be a year or two years down the road until they get paid, said Laurie Harbour-Felax, president of Royal Oak-based Harbour-Felax Group. The risk here is there's no credit in the market.
On top of that, the fragile state of the Tier 1 supply base is putting tooling supplier payments at even more risk.
If the Tier 1 supplier is in their own financial crisis, they may divert that money somewhere else and not pay the tooling supplier, Harbor-Felax said.