Ripple effect from GM strike builds
Distributors face revenue, cash flow pressures as shutdowns cripple parts suppliers
By Ken Brack -- Industrial Distribution, 8/1/1998
Flint, mich.--Distributors that sell to General Motors plants and parts suppliers struggled with mounting losses as shutdowns continued last month.The strike that began June 4 at GM's metal stamping plant in Flint led to shutdowns of more than 26 assembly plants and 100 parts plants through early July. While distributors scrambled to find new business and head off cash flow and revenue shortfalls, some firms also spent the time reorganizing to become more competitive.
Within a few weeks of the first plant shutdowns a ripple effect had begun: new orders from parts plants dried up and distributors selling to GM's first- and second-tier suppliers saw sharp reductions. Some distributors juggled cutting their costs with layoffs and curtailed orders while also planning for a startup of GM's production.
"Between 70 and 75 percent of our business is with GM and right now we're virtually at a standstill,'' Donald Robertson, vice president of sales at Hubbard Industrial Supply Co. in Flint, said in late June. "We're not completely at a halt because they have some departments running and still shipping, but we're down at least 50 percent at this point."
He predicted that if the shutdown of GM's Michigan plants continued for two months his business would be off as much as 18 percent for the year. While his salespeople hustled for new business, Robertson did not expect a great amount of fresh leads initially, since "our business is geared to the long haul."
Motion Industries, Inc., which services 119 GM facilities in North America with bearing and power transmission products, sees a trickle-down effect from the strike on its sales to GM suppliers, said Mark Sheehan, a vice president and general manager of MI's North Division.
He said the strike would affect the division's third quarter operating results. Sheehan said that GM's initial shutdown of all North American manufacturing locations resulted in two or three lost days of sales to GM.
"It's the thousands of other customers of ours who make parts for GM that concerns us the most," he said. "Trying to determine what the ripple effect will be from a GM 'cold shutdown' is impossible to predict."
"We're very concerned about the strike continuing through August of this year," he continued. "Our strategy in general is to 'ride it out.' Unlike GM's manufacturing suppliers, we won't shut down our operations. Aside from GM and their parts suppliers, the economy is extremely strong, therefore we need to be running full strength."
Other distributors quickly took steps to reduce costs as they braced for a potential summer-long shutdown. Mahar Tool Supply Co., Inc, a major cutting tool supplier to GM plants in Michigan, postponed purchasing orders except for items with long lead times such as eight to 12 weeks. The $50 million-plus company also halted spending on non-essential things such as training and entertainment, CEO Barbara Lincoln said.
By June's end the firm had also laid off eight part-time employees at three branches heavily affected by the strike, while six full-time workers took voluntary layoffs. More than half of Mahar Tool Supply's overall business is with GM, including about 35 percent of its tool management operations. Mahar had expected about a 30 percent increase in sales this year.
Lincoln wanted to delay further layoffs as long as possible. "It's always a hard thing to do because these are our future, these (people) are America's future," she said. "Some of them are paying for cars and apartments and education. It's hard to lay anybody off. You know how important that paycheck is to them."
Meanwhile, the rest of the company's 100 employees focused on preparing for the startup of GM plants. "Our goal during the strike period is to improve our processes in our organization so that in the future we can better serve our customers," Lincoln said.
Employees at Hubbard Industrial Supply used some of the "free time" for training and exploring new ways to market its products. While vacations for about 70 employees were timed to coincide with GM's traditional two-week vacations early in July, Robertson expected layoffs to begin if the strike was not resolved by the end of last month. At press time, talks between GM and the UAW had broken off. Motion Industries, meanwhile, did not anticipate layoffs at any of its 58 branches.
Distributors managing commodities and inventory for GM plants faced the added challenge of preparing for a full production startup while providing materials to parts plants that continued to operate, even at scaled-down levels.
"We're getting quite a bit of cooperation from our suppliers," said Steve Gibbs, office manager at Mahar Tool Supply's main branch in Saginaw, Mich. "They're holding back our orders until we release them."
Martin Supply Co., Inc., which has an integrated supply contract with a GM plant in Tuscaloosa, Ala., saw little difference in sales through early July because it provides supplies and one-time equipment when crews do preventive maintenance during scheduled shutdowns. "If this thing goes into August there may be more of a profound effect but today we don't really know what it is," said Doug Ruggles, president of Martin Plant Services, a company division.
Some distributors were squeezed by customers that continued to order tools and build products in anticipation of plant re-openings, but insisted they could not pay for them. Some of the distributors' own suppliers would not ease payment terms, meanwhile. Jim Markel, an outside salesman with Grinding Supplies Co. in Oak Park, Mich., says that happened with a manufacturer of control arms for trucks, among others.
Markel said the customer told Grinding Supplies to "work with me when things are tough or you can't work with me when things are good. I relate that to my managers and they have to make a decision and most of the time we have to work with them."
Through mid-July, Fastenal Co. said the strike would cost it $500,000 each month, or about one tenth of one percent of its projected annual sales. Manufacturers such as Cooper Industries and Cincinnati Milacron Marketing Co. also lowered their earnings estimates because of the shutdowns.
While lamenting the disruption to business, several distributors expressed sympathy for union autoworkers who went on strike and for more than 150,000 workers idled at other plants because of it. GM officials drew a line in the sand at the Flint plant as part of their effort to jolt the company from its lowest ranking for efficiency in the industry. The United Auto Workers says the strike was called because of disputes over work rules, the outsourcing of parts manufacturing and longstanding health and safety issues.
"This thing's getting serious. It's hitting all the little parts suppliers, it's hitting everybody," said Markel. "The trickle-down effect is awesome."
Fuller said that after years of watching GM close operations in Flint, many employees in his company sympathized with autoworkers -- at least early on. "We felt that rather than let the slippage continue, this show, this demonstration to the company, you'd hope it would help bring back the community," he said.
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