What the auto bailout means to small business
Posted by: John Tozzi on December 12, 2008
The New York Times today looks at how suppliers are being affected by the trouble in Detroit. If GM or Chrysler files Chapter 11 — a growing possibility since the Senate failed to vote on the bailout bill last night — suppliers large and small that are already waiting on months of late payments could go under. That would disrupt the supply chain for the relatively healthy foreign automakers in the US and for Ford, which says it has enough cash to get through the next year.
At the end of the story, reporters Bill Vlasic and Leslie Wayne check in with a 35-person supplier:
The same is true for companies further down the supply chain like TNT-EDM, a precision tool and die shop in Plymouth, Mich., that provides parts used by larger suppliers like Dura.
“It’s like the dog chasing the tail,” said Tom Mullen, the company’s chief executive. “When G.M. isn’t paying the tier one guys, they are not paying us. It’s like a spoke on a hub that keeps falling off a bit. Normal course of business, we’d get paid in 35 to 45 days, 60 days max. Now, if you get paid in 120 days, you are doing good.”
Mr. Mullen has seen his revenues fall from $15 million a year over the last few years to around $10 million, while saying that his plant has capacity to run at $20 million a year. He has held off investing the $1 million to $2 million he spends annually in new equipment and he has cut back on the hours of his 35 employees to avoid layoffs.
“Everyone is stretched like a bungee cord,” he said. “We are waiting to hit the bottom of the river and waiting to be slingshot back up, hopefully.”
As we’ve written before, small businesses have a lot at stake in the Detroit bailout. If one of the Big Three files for bankruptcy, does that mean the bungee cord snaps?