As executives, politicians and lawyers try to chart a course for North America's auto industry, some of the smallest companies at the bottom of the auto supply chain are busy trying to secure their own future.
With General Motors Corp. and Chrysler LLC pondering bankruptcy within weeks, mold makers and their support groups are lobbying members of Congress, working with the White House's automotive task force, meeting with automakers and screening their customer base, diversifying into other industries and using mold lien laws when they're available.
Toolmakers have taken losses in the past year as major molders filed for bankruptcy, with payments owed to them tied up in court or paid off at less than full value. No one knows how a bankruptcy by GM or Chrysler would affect them and other sub-suppliers — though there are estimates the impact could reach half of the companies, so the firms and their backers are doing their best to stabilize their futures.
“There are a lot of short-term and long-term issues to address, but now our immediate concern is bankruptcy,” said Rob Akers, executive director of the National Tooling & Machining Association of Fort Washington, Md.
NTMA has been part of a group of sub-suppliers reaching out to the White House Automotive Task Force created by President Obama, urging it to consider relief for mold makers and other small firms.
The American Mold Builders Association in Rolling Meadows, Ill., is encouraging its members to write to members of Congress, even offering a sample letter suggesting what they might say: “Our industry is presently in the cross hairs of the financial troubles that are being experienced at General Motors and Chrysler.”
It estimates that 35-50 percent of the tool and die industry could be forced into bankruptcy if either GM or Chrysler enter bankruptcy, with that number climbing if both do.
The federal government has made $3.5 billion available to direct suppliers of GM and Chrysler — with another $1.5 billion available if Ford Motor Co. sought federal bailout money — but lower-tier suppliers like mold makers cannot access the cash or payment guarantees.
NTMA and other associations had hoped to include sub-suppliers in the program, but were unable to include them in the immediate bailout package. However the groups are continuing to work closely with the auto task force to urge recognition for toolmakers and other small firms. NTMA has also opened direct discussions with GM to help resolve long-term problems like complications to the part-approval process — called PPAP — which also slows payment.
The biggest worry, though, is that if GM or Chrysler enters bankruptcy protection, toolmakers with payments pending will not receive full payment or be paid quickly — even for work completed months ago. With that income either gone or tied up in legal battles, and credit hard to come by, mold shops may be unable to pay their bills and be forced out of business.
Typically in the auto industry, toolmakers bid on projects two years or longer before production begins, but they do not receive payment until the direct suppliers begin making parts. Payment for those tools is also funneled through the molder, which can further slow the amount of time before mold-making firms receive any cash. That means it could take anywhere from five to 18 months for payment during good times and it increases the danger that payments could be further delayed, or halted altogether if any one of the companies enters bankruptcy.
Those concerns have helped generate more interest in mold-lien laws — which allow toolmakers to place a legal claim on a mold until they receive full payment for it.
“The lien law is one of the most significant pieces of legislation of the past 20 years for mold makers, but it isn't perfect,” said Jeff Mengel, a partner with consulting group Plante & Moran PLLC, based in Chicago. “But it's nice to have any kind of leverage.”
The laws vary from state to state, and only a handful of states have laws targeted toward toolmakers. Michigan's law, for instance, includes a loophole that allows mold buyers to opt out of the lien programs, essentially telling toolmakers that they will not accept liens, Mengel said.
Ohio toolmakers knew of that problem when they began creating their own law in 2004, and closed that clause in their state's legislation.
“It makes us a secured creditor,” said Larry Durivage, owner of injection-mold toolmaker Durivage Pattern & Manufacturing Inc. of Williston, Ohio, who helped lead the creation of Ohio's law.
Mold makers have to file the appropriate paperwork to put a lien on the tool, which can add to costs, but Durivage said it adds a layer of security that the company will get some payment. Whether he uses a lien on a tool depends on how financially stable he feels his customer is — and his likelihood of getting paid.
With some customers, he said he uses the law on every tool, and the current economy also is playing a part in his decisions.
“We're doing it a lot more diligently now,” he said.
The laws are not perfect. If a customer goes into bankruptcy still owing money on a tool, it will be up to a judge to determine who gets paid and when, Mengel pointed out.
“It isn't the final answer, but it's an arrow in the quiver that wasn't available before,” he said.
And a lien does give toolmakers a legal claim on the tool, rather than tossing the claim in with other unsecured creditors in a bankruptcy.
“If their bank is going to get a dollar for every dollar they're owed, then I get a dollar,” Durivage said. “If they get 50 cents on the dollar, I get 50 cents on the dollar.”
Akers said the best thing toolmakers should be doing now to protect themselves is simply taking a look at the rest of the supply chain. If their immediate contracts are with direct suppliers that are fiscally stronger, their chances of getting full payments improve. Direct suppliers with shaky finances are riskier business decisions at this time.
“Look at the position of their direct customer,” Akers said. “How is that going to affect you?”
And toolmakers who haven't already tried to expand beyond the auto industry must begin now.
“Diversify, as much as you can,” said Gary Kimmen, president of Top Craft Tool Inc. in the Detroit suburb of Clinton Township.
His company, which does machining and tooling and makes automation equipment, actively began pursuing business with a variety of customers three years ago, and successfully moved the auto industry from its largest business base to its third-largest base, with military now at the top of its customer list.
Top Craft is part of the Global Tooling Alliance — a collection of 19 independent tool and die shops that pool resources and work together to bid on large contracts. Topcraft and some other GTA members will take part in the Society of Automotive Engineers' 2009 World Congress, set for April 20-23 in Detroit, to introduce themselves to potential customers. Alliance members first took part in the event in 2008, and attracted enough business from new customers that they are returning this year.
“We're trying all kinds of new things,” Kimmen said. “We've got to attack the economy and do what we have to do — hurry up and diversify and be prepared for when the jolt hits.”