Auto Supply Firms Try to Keep From Spinning Their Wheels

Telegram & Gazette (Worcester, MA)

July 1, 2009

Like dominoes lined up one behind another, the economic woes of the automotive manufacturing industry have become the hardships of companies that sell products and parts to that industry.

As Chrysler, General Motors and Ford Motor Co. struggle to restore their businesses to profitability, it is not just three large distant corporations that are facing hard times and closing their plants. Companies operating in Central Massachusetts also are affected, and they are looking to take the steps needed to keep their businesses viable and wait out the economic storm hitting firms worldwide.

John Wilkerson, a spokesman for TRW Corp., said what was a profitable business turned sour in the past eight to 10 months. Nationally, TRW saw a significant percentage drop in sales, pulled down by the 40% reduction in the automotive market.

TRW’s plant in Westminster, MA, has not seen quite that much of a drop, but the company is taking steps to deal with the economic downturn to reduce its costs but not lose its skilled workers. “We’re trying to keep as many people working as possible,” he said.

TRW is a Tier 1 supplier for the automobile manufacturing industry. In Westminster, it makes fasteners to attach wiring, trim, pipes, hoses and other items. Elsewhere, it makes braking, steering and cognitive safety systems, as well as engine components. Although its products have broader applications, the automotive manufacturing industry is a major part of its business.

Mr. Wilkerson said although some reports project an economic uptick in the fall, the automotive companies are still working off inventory left on lots when the economic bubble burst in November. Until the inventory is reduced, the manufacturing plants will not get back into full production, allowing TRW to increase its manufacture of products needed to build the cars.

Full production also may be at lower levels than experienced before the economic troubles set in. “We’ve got to have people buying cars,” Wilkerson said, adding that the banking industry also needs to get back on its feet. “One of the biggest factors is not having available credit to buy a vehicle.”

When banks ran into trouble because of loans, credit tightened up, and car manufacturers saw their customer base disappear. The federal government is not helping the suppliers much, either. The government sent billions to bail out banks and General Motors, but when the trade association for the automotive suppliers sought $8 billion to $10 billion beyond the $5 billion they were promised in the spring, they were rebuffed. “The banks were first in line and the automotive industry next,” Mr. Wilkerson said.

But companies can’t wait for federal help and are looking to help themselves as much as possible through the slow economy. In Westminster, TRW has kept its customer base diverse. “We don’t have any one customer higher than 17% of sales,” Mr. Wilkerson said. “We don’t have a single customer, program or platform that is a high percentage of sales.”

The Tier 1 suppliers are not alone in facing the economic challenges of the past six or seven months. Richard B. Kennedy, president of the Worcester Regional Chamber of Commerce, said Tier 2 and Tier 3 companies also are looking for ways to remain viable until the automotive industry rebounds.

He said companies such as L.S. Starrett Co. in Athol and Saint-Gobain Abrasives in Worcester supply materials and equipment to companies creating parts for the automotive manufacturing industry. “It’s the ripple effect that tends to hit downstream,” he said.

L.S. Starrett Co. provides measuring tools to manufacturers, including the automotive industry. Saint-Gobain makes grinding wheels, abrasives and sandpaper used in automotive manufacturing and automotive repair, as well as by suppliers of parts for those industries. “Their products are used across the board,” he said.

Douglas A. Starrett, president of L.S. Starrett Co., said the problems within the automobile manufacturing business sent shock waves through the entire industry. “Our customers, distributors and users became nervous and cut back on buying,” he said.

The cutbacks also left a significant amount of inventory on the shelves, which he said will hold back recovery even when the companies start making cars again. Even companies with low inventories remain wary and are not restocking at pre-economic crisis levels

“I don’t think anybody yet is experiencing what is going to happen,” Mr. Starrett said, although he predicted that as the impact of the car manufacturing problems filter down through the tiers, as many as 1 million jobs could be affected.

L.S. Starrett Co. was forced to reduce hours this spring, cutting workers back to 20 hours per week. Later, the company laid off about 60 employees. The workers on partial layoffs were allowed to maintain benefits by the company. “We want to retain employees and maintain skill levels, but that is only going to take us so far,” Mr. Starrett said.

The company also is looking to consolidate some of its tool-manufacturing operations from older buildings to save on operating costs. In the midst of all the economic turbulence, the company is attempting to install a hydroelectric turbine, which could generate 20 to 25% of its electricity.

The move is another way the company is looking to reduce costs. “It’s a big investment on our part—close to $1 million,” Mr. Starrett said. “We feel we have to make this thing work.”

Saint-Gobain Abrasives also is trying to keep its costs down without losing skilled employees. Douglas I. Nixon, plant manager for the company, remains hopeful of an automotive turnaround. He said the company is working to keep its skilled work force. “We are trying to retain our employees for a lot of reasons. We do see an upturn in the economy happening, and when it does, we don’t want to have to train new employees.”

The company has placed employees on furloughs. It is avoiding layoffs, but the workforce is being reduced some because retirees are not being replaced.

Mr. Nixon said there have been signs of improvement in the auto industry, but Saint-Gobain is hoping for an economic upturn from all sectors of the economy. Among the markets that are down right now are steel manufacturing, woodworking and housing, all of which use the company’s products.

He said business has picked up in companies geared toward extending the life of products. “One of the aspects of the auto industry slump is that people are keeping their cars longer. There is a greater demand for body work and repair businesses.”