Plastech's Troubles Highlight Growing Risks For Minority-Run Auto Parts Makers

Implications: Plastech Engineered Products, the largest minority-owned auto parts maker, is fighting for more than its survival this week in bankruptcy court. The company's struggle symbolizes the troubles facing many minority-run suppliers in today's auto industry and threatening their viability.

Analysis: The headwinds causing layoffs, bankruptcies and consolidation throughout the supply chain typically hit minority-run companies harder because they are privately held and tend to be smaller, regional and niche players. Their size makes them less able to absorb rising health care and raw material costs than larger, more global suppliers, but they face the same cost-cutting pressures from automakers.

Plastech is in the spotlight because Chrysler pulled  $190 million in contracts from them after they asked for financial assistance for the third time in a year. Plastech said the move forced it to seek Chapter 11 bankruptcy protection. Chrysler wants to retrieve tools and other equipment that are used to make Chrysler parts and shift the work to another supplier. Plastech lawyers say that would force the company to liquidate.

Plastech's troubles may cause other automakers to take a look at their relationships with other minority-owned companies. The initiative with the minority companies began in the 1960's, but some have drifted from the original mission, increasingly turning to service providers rather than parts makers.

The Detroit Three continue to source a substantial amount of work with minority-owned vendors. Last year the three collectively spent $12 billion with minority suppliers, up 14 percent from 2006. Increasingly, however, that spending is shifting from component makers to regional service vendors, such as marketing firms, transportation companies and janitorial services.

Many minority suppliers are worried their financial problems may make it more difficult for automakers to award business to minority firms if those firms falter financially. Chrysler's tough-love approach with Plastech may mark the beginning of a new get-tough approach.

Access to capital can be particularly difficult for minority suppliers because they often carry heavier debt load than their non minority counterparts. Minority businesses are often first-generation businesses, and younger businesses often carry more debt associated with startup costs.

GM offers assistance to minority vendors, including consulting with them to improve processes and providing executive "champions" to make sure their voice is heard at the highest levels of the company. But the days when GM would buy from a minority supplier even if their cost was higher, are over.

Ford has offered financing options for its minority vendors by making long-term commitments that the vendors can "take to the bank."

Toyota made sourcing from minority companies a priority at its San Antonio truck plant where Tundra pickups are built. Also, Toyota, along with Chrysler, have both encouraged their larger suppliers to seek out minority-owned partners.

All of the automakers move to global purchasing-where components from one company are sourced to factories worldwide-make it difficult for regional minority suppliers to gain work on an increasing number of platforms.