TEXT OF STORY
Kai Ryssdal: Back before Christmas, and for months before that, there were two big arguments against a bankruptcy filing by one of the big carmakers. One being: Who’d buy a car from a bankrupt company? And the other being: It wouldn’t be just GM or Ford going under, it’d be the thousands of suppliers that sell the parts cars are made of. Two-thirds of the everything in a car that rolls off a Big 3 production line is actually made by those thousands of auto parts companies. They’re family-run businesses and big multinationals alike. They employ almost 75 percent of all the auto worker in this country. And they in turn depend on products from other companies. Marketplace’s Alisa Roth went to Michigan to see the chain reaction that’s been set off by Detroit’s problems first hand.
ALISA ROTH: The headquarters of Dirksen Screw Products is in Shelby Township. It’s a quiet suburb north of Detroit. Clif Dirksen’s father and uncle started the business 70 years ago. Back then, they were making parts for airplanes and munitions in World War II. It’s still a family business. But these days, Dirksen’s products mostly end up in cars and trucks.
CLIF DIRKSEN: : All over the vehicle — in the engine, transmission, seats, recliners, steering column.
These aren’t the kinds of things you buy at your local auto parts store. And you probably wouldn’t recognize them if your mechanic said he needed to replace one. Think small metal tubes, finger width and maybe a knuckle long. And they are cut to precise specifications — threading, holes, grooves.
But they start out as bars of steel, brass, aluminum, stainless steel — which are stacked on long wooden shelves that run almost to the ceiling on one side of the plant. Squat machines grind the metal bars down and then cut them to size. But the day I visit only about a third of the machines are running. It’s been like that for a while. His biggest customer is Chrysler.
DIRKSEN:: Our sales are down probably 50 to 60 percent from their normal levels.
Like most parts suppliers, Dirksen is in the middle of the supply chain. So slow business for him means slow business for the companies downstream: He’s buying fewer raw materials. And sending fewer of the parts he makes on for finishing, coating and other treatments. But business is also slow upstream. And Dirksen worries about his customers going out of business and still owing him money.
DIRKSEN:: We’ve had three of those in the last three or four months. And that’s where you really have to watch your inventory and make sure you have as little as possible but are still able to meet the requirements.
He’s started limiting the credit he’ll extend to some clients. And he pays a lot of attention to how much cash is coming in and when. He chases down customers who pay late. A couple of times, he’s even stopped shipment of his parts until he got paid.
Parts makers like Dirksen sell to the next level up the supply chain — the ones that are a step or two closer to parts the average driver would recognize. The slowdown in the auto industry has cut into their business too.
Autoliv is a big Swedish company that makes seat belts and airbags. The company just laid off blue collar workers at one of its plants in Utah. And several white collar workers in Michigan. It’s also scaled back hours at one of its Michigan research and development facilities. Art Blanchford’s in charge of the GM unit at Autoliv.
ART BLANCHFORD:: So we’re only open for four days at our technical center and paying everybody
20 percent less because we can’t afford to do more than that.
Consumers are buying fewer cars. So almost all the automakers extended the traditional Christmastime shutdowns at their plants. And with no orders coming in, parts suppliers followed suit. Most of them, including Autoliv, still aren’t running at capacity. But under-capacity might be just the least of their worries.
Suppliers usually get paid 60 days after they deliver their products. It’ll soon be 60 days since those extended shutdowns. And suppliers are waiting to see how much money they’ll get from companies above them in the supply chain. If it’s too little, they might not have enough cash to stay in business.
In Shelby Township, Mich., I’m Alisa Roth for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.
Give today and get our limited edition tote.