By Dan Shaw, Evansville Courier & Press
It's been nearly two months since the federal government announced a $17.4 billion bailout for General Motors and Chrysler.
The money was meant to help not only those companies but others down the supply chain as well. So how much of it has gone to local parts makers?
"We haven't seen any new orders whatsoever," said John Gannon, president of Master Manufacturing, which makes metal brackets and clips found in a variety of automobile parts.
In part because of the low orders, the company's factory, east of the Whirlpool plant on U.S. 41, was shut down an extra two days around Christmas. It also operated with a skeleton crew during the recent ice storm.
"That helped us," he said. "We missed a couple of days of production."
Master Manufacturing is not the only local supplier receiving little help from the automobile bailout. Earlier this month, Kimball International, based in Jasper, said a low demand for the electronic components it makes for the automobile industry played a large part in driving down its total sales. The company's net sales fell to $327.6 million in the second quarter of its 2009 fiscal year, down from $347.8 million in the same period a year ago.
"We clearly know that world demand will go down," James C. Thyen, Kimball president and chief executive officer, told investors and analysts. "We just don't know how much farther and for how long."
To mitigate the harm, Kimball and other suppliers have relied on the same strategy: diversification. The company's automobile parts now compose only 11 percent of its electronic products and 6 percent of its total products, which also include furniture used in offices and hotels. Before then, "the lion's share of our business was in automotive," said Martin Vaught, a company spokesman. Now the emphasis has shifted to electronic components used in the medical industry.
Master Manufacturing has likewise lowered its dependence on the automobile industry. During the past decade, sales of car parts have gone from nearly 50 percent of its total business to less than 20 percent. The change should help it avoid layoffs, Gannon said.
"We are quoting a lot of things, shopping around and bringing business back from overseas," he said. "Some of it is coming through."
Other companies are far more vulnerable. The Pittsburgh Glass Works on U.S. 41 was only running production lines about eight weeks of the first 12 of the year, said Don Michelotti, director of plant operations.
"My customers have not built cars in the whole of January," he said. "We still haven't seen an uptick in the forecast. Things are getting worse."
The Evansville factory makes the glass used in windshields and similar parts. Its two most important customers are General Motors and Chrysler, the two automobile makers suffering the worst in the current recession.
Last year, Pittsburgh Glass Works, formerly PPG, said it was closing its operation in Oshawa, Ontario, and two satellite plants in Canada and New Jersey. Not long afterward, the company announced plans to shut down another in Evart, Mich., and hinted that at least one more closing was likely to come.
Fearing more news like that, organizations representing the industry have begun talking to federal leaders about the possibility of giving direct help to parts makers. The proposals discussed would use about $25 billion for that purpose.
One would give General Motors and Chrysler access to $7 billion from the Troubled Asset Relief Program to ensure they can pay their bills promptly. Another would have the government guarantee payments promised by U.S. automobile companies to their suppliers. A third would give suppliers direct access to $8 billion in TARP money.
All this comes while GM and Chrysler are under pressure to show federal officials they can become successful ventures again. Their deadline for making that case is Tuesday.
Craig Fitzgerald, an auto analyst with the accounting firm Plante & Moran, said the trouble with the proposals now being discussed is that many of them would only help suppliers in the "first tier," which are those that sell parts directly to the automobile manufacturers. Companies in the "second tier," which makes parts for other suppliers, will gain few benefits.
"It would be a significant help to the supply base," Fitzgerald said. "However, the same conditions exists one and two and three levels lower."
Some sort of aid needs to go to those further down the chain, he said.
"It's only as strong as the weakest link," he said.
Some observers have said Congress should to try to stoke demand through tax incentives given to those who buy new cars.
But Fitzgerald doubted such a plan would rouse many customers, especially with unemployment rising.
"I don't think lowering the cost a little bit is going to cause them to get our their wallet," he said. "If you don't have a job, you are not going to buy a car."