WSJ: Big Three Restructuring Hits Minority Suppliers

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The Wall Street Journal

Big Three Restructuring Hits Minority Suppliers

Black-Owned Firms Shrink Or Close Down in Michigan; Auto Makers Revise Policies
By JEFFREY MCCRACKEN
August 5, 2006; Page A1

Detroit's Big Three auto makers, long among the biggest customers for minority-owned U.S. companies, are slowing growth of minority purchasing or scaling it back, and they are changing some practices that once gave such companies an edge. The shift, which Big Three executives say is a necessity as they restructure to face global competition, is forcing a shakeout among some minority businesses and contributing to thousands of job losses, particularly in the Midwest.

For more than 35 years, since the 1967 riots that shook inner-city Detroit and left 43 people dead, the Big Three have taken a leading role in promoting the idea that minority-owned enterprises deserve special attention, if not preferential treatment. Over the years, Detroit's chief executives have personally championed minority purchasing, and the companies have touted their commitments in marketing. After rapid growth through the early part of this decade, senior purchasing executives at General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group project their minority purchasing will dip, remain flat or rise only minimally in 2006.

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As they try to save money by dealing with fewer suppliers, auto makers are increasingly shunning small companies with sales of $100 million or less. They also want suppliers to have operations in low-cost countries such as Mexico, China and India, but that is difficult for undercapitalized minority-owned businesses. Ford is trying to cut the number of its suppliers by half or more, which the auto maker acknowledges may hurt smaller minority firms.

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In Michigan and elsewhere in the Midwest, some formerly profitable minority auto suppliers are shrinking or closing as the Big Three retrench. Membership lists of organizations like the National Association of Black Auto Suppliers and the Michigan Minority Business Development Council are dotted with companies that have gone out of business or filed for bankruptcy in the past two years. The troubles aren't limited to small minority businesses, of course. In the last 18 months, multibillion-dollar suppliers such as Delphi Corp., Dana Corp. and Collins & Aikman have filed for bankruptcy. Unlike the big companies, which can restructure their debts and emerge from bankruptcy, small companies often liquidate themselves.


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