Has The OEM American Automotive Industry's Backing of Minority Business Enterprise Development Finally Come To An End

Implications: Minority business enterprise development was most 'successful,' in terms of volume of dollars generated,in the OEM American automotive industry. The big question always was: Did minority suppliers make money for themselves and save money for the OEM American automotive industry? There is no central place to go to look at the financial results of minority business enterprise as it relates to the OEM American automotive industry. Is this because this segment of minority business enterprise has never made a profit? 

Analysis: Plastech Engineering, Inc, a $1.07 billion in annual sales minority business enterprize is. or, it now looks like, was the largest minority owned -Korean-American- plastic parts manufacturer in the USA. It was almost exclusively a supplier to the OEM automotive industry in the USA so much so that it was the industry calls a 'captive' supplier, i.e., it had nowhere else to go. This dual status, minority and captive, was the reason both for Plastech's success and its failure.

Plastech Engineering, announced late on Friday, February 1, 2008, that it was filing for Chapter 11 Bankruptcy.

The history of minority supplier development in the OEM American automotive industry supply base as a proactive outreach type of preference program by the purchasing departments of the former Big Three can be divided into two periods.

The early period, 1969-1980, which followed on the legislation creating the Federal office of economic opportunity, the Equal Employment Opportunity Council, the EEOC, and that agency's offshoot, the office of Minority Supplier Enterprize Development, and the later period, after 1980, when the OEM automotive industry took the programs in hand and engineered the creation of a succession of larger and larger mentored 'fronts' both to reduce the huge number of undercapitalized inexperienced firms being expensively reviewed and to hand off the responsibility for minority content to suppliers who the industry believed could help defray the large expenses of monitoring such programs and who could be pressured to do this by an insistence from the Big Three that it was in the best interest of the supplier's own survival by insisting on ever growing levels of 'minority content.'  

In the Detroit metropolitan area a tiny cadre of overwhelmingly African-American 'entrepreneurs' almost always with professional sports backgrounds or involvement in programs funded by or encouraged by the EEOC were picked by Tier One suppliers to the OEM automotive industry to be gifted with loans, personnel, and facilities completely outside of their competence to become the largest company 'owners' of OEM automotive suppliers qualified to be accepted by the Michigan Minority Business Development Council as "minority owned and operated."  This allowed the production of 'their' companies to be counted by its purchasers as minority content and so to fulfill Federal requirements and guidelines.

By the 1990s the OEM automotive industry had created, and it knew it had done so, an entitlement for a very few lucky entrepreneurs. The industry internally calculated that for each minority content dollar spent on purchasing goods and services it lost 3 1/2 to 7% of that dollar against one that would have been spent on the same product or services selected from open color-blind competition. 

It has been estimated that in the last 15 years the 'minority content spend' has cost the OEM American automotive industry as much as $10,000,000,000.00 in lost profits! Additionally such programs have also put marginal majority owned firms out of business before many of their ideas could even be tested.

Ironically, it was the Chrysler Corporation, which went through many many audits during the last 15 years as it struggled to survive, where overpriced minority content was first questioned and discarded when found to be noncompetitive.

Analyses of the failure of the OEM American automotive industry have so far been empty of commentary about the costs of the minority enterprize development programs and the cost in money and innovation of mandatory minority content requirement. This is because the companies and the analysts both fear social ostracism and being cut off from access to the political class and its taxpayer funded largesse if such an issue is raised.

Ironically, Plastech Engineering came into existence because of a General Motors initiative in the mid 1980s. At that time African-Americans in the automotive supply industry in Detroit had essentially closed off access to membership in the MMBDC and thus to the purchasing departments of the OEM American automotive industry to all but African-American entrepreneurs.  GM petitioned the EEOC to become proactive in supporting all minority groups listed in the Civil Rights legislation that had enabled the EEOC, and the Reagan administration conceded the point and brought appropriate pressure to bear on the MMBDC.

One beneficiary of this was a Korean-American who had married an American, and become known as Julie Brown. She and her husband had financial and engineering backgrounds and proved to have excellent organizational skills. Over the next 20 years Ms. Brown took advantage of her minority status and her business skills to build a freestanding, as opposed to 'mentored', plastic parts manufacturing business, which by 2007 had an annual revenue of more than 1 billion dollars.

Unfortunately Plastech Engineering's size was not matched with congruent profits. The company should probably have folded several years ago due to raw material cost increases alone. But the 'need' for minority content and the sheer size and involvement of Plastech Engineering in many OEM automotive 'programs' gave the OEM automotive companies the impetus to continue to lend capital and award even more business to Plastech.

The straw that probably broke the camel's back came late last year when burdened with 200 million dollars in 'loans' to allow it to complete and deliver on time from programs for the Big Three Plastech asked for another 47 million dollars in loans and price increases. Chrysler dropped out and re-sourced,as they say in Detroit, its Plastech Engineering business to lower priced competitors without regard to their minority status.

Although GM's global purchasing director Bo Andersson has so far never looked beyond the end of the week when it comes to long range planning even he could not justify to his cash strapped company's board, which has always supported his clueless outsourcing to China strictly on the basis of price, lending money and paying more for parts than it would from other suppliers including the Chinese. Ford's Tony Brown is following the lead of his colleagues at GM and Chrysler.

OEM Automotive looks upon resourcing an existing supplier's business as a termination of all contacts with the existing supplier other than for the recovery of tooling, parts, and work-in-progress inventory. 

Julie Brown who only two years ago was trying to buy bankrupt Collins & Aikman will now face the latest generation of vulture capitalists such as Wilbur Ross and Carl Icahn who have no interest in minority content but are interested in restructuring the OEM automotive supply industry in the US to eliminate legacy costs and make it profitable as 'insourcing' begins for American companies that are shocked by the costs of raw materials and the spiraling costs of Chinese labor.

Insourcing by privately owned firms that have no social engineering agendas other than to maintain and create jobs and make a profit while doing it will create no impetus to place  orders with a Plastech Engineering, no matter how it is restructured, unless those orders are at lower costs that they are now paying.

The same will be the attitude of publicly owned firms now trying to survive. 

No one has a problem with a firm owned and operated by a disadvantaged person being given a bid package or a place in line alongside older more established firms, but there is no longer any entitlement to special pricing or loan terms possible from the devastated OEM American automotive industry.

Efficiency, productivity, and innovation are American industry's only hope for survival.

The age of privately funded social engineering has been a disaster that played no little part in the demise of the OEM American automotive industry. The experiment has now ended.

Plastech Engineering is perhaps a victim of the age of true globalization where social engineering in America has become just too expensive for a private sector anywhere.