Credit is Tight for Smaller Manufacturers, Auto Suppliers

By October 13, 2009Economy, Trade

Sen. Sherrod Brown (D-OH) held a Senate Banking Committee hearing Friday, “Restoring Credit to Manufacturers.” Among the witnesses was David Andrea, Vice President of Industry Analysis and Economics,
Motor and Equipment Manufacturers Association — the auto parts suppliers’ trade association. There’s not enough attention paid to the impact of the troubles of the major domestic automakers on their suppliers, and we commend Andrea’s testimony as a sobering update:

Our research indicates that there have been 47 identified major suppliers that have filed for Chapter 11 protection this year. We have no definitive number of suppliers who have closed facilities, but Plante and Moran estimates that up to 200 suppliers have liquidated.

The result of this painful cost cutting and restructuring is a much lower breakeven point for the supply base. In the September survey of OESA members (See Attachment 4), the median breakeven unit level for 2010 is 9.5 million units. The respondents, in turn, estimate 2010 North American production volume will be 10.1 million units. This means that even with a modest increase in production, suppliers, on average, should be above their breakeven point next year. However, currently there is significant pressure on the entire system to access adequate working capital to bring the manufacturing system back up.

He also has policy recommendations.

Also testifying was Robert C. Kiener, Director of Member Outreach, Precision Machined Products Association. Excerpt:

A survey of metalworking companies shows 72 percent anticipate challenges accessing adequate lines of credit when volume grows. We are already seeing companies that are trying to expand their operations due to consolidation in the industry who are not able to access capital to fill job orders, purchase steel, and hire workers. The cash-for-clunkers program is a perfect example of the challenges ahead. As dealers and automotive manufacturers have depleted their inventories, they are looking to suppliers to increase their output. Similarly, manufacturers of wind turbines and solar panels will see shortages of domestic suppliers if SMMs cannot adequately ramp up production to meet a surge in demand as federal funds continue to flow to those technologies.

The current system does not even reward our small business exporters, as manufacturers are unable to borrow against their foreign sales even if their customer’s headquarters is in the U.S. A lack of access to capital to fill these job orders will cause disruption in the supply chain, risk our national and economic security, and Americans will lose the opportunity to sustain and create jobs to overseas competitors.

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