Auto-Parts Suppliers Brace for Downturn

Michael Aznavorian knew he couldn't rely on Detroit's Big Three. Aznavorian, president and co-owner of Plymouth (Mich.)-based Clips & Clamps Industries, had been selling his metal brackets to U.S. carmakers. But three years ago, as foreign automakers continued to grab market share, Aznavorian set his sights on joining their supply chain. He now provides clamps to a number of so-called Tier One suppliers who in turn use them in components for Toyota, Honda, and Nissan. Foreign carmakers assembling in the U.S. now account for one quarter of the company's $10 million in sales. And while both domestic and foreign manufacturers have slashed production, forcing Clips & Clamps to lay off 18 of its 54 employees in the second half of 2008, Aznavorian thinks that when the recovery comes, foreign carmakers will rebound faster. "You can't sit around waiting for the Big Three to come back," says Aznavorian, who's also hustling to find new customers in industries such as agriculture.

With U.S. auto production down about a third over the past year, Craig Fitzgerald, an analyst at consultants Plante & Moran, says more than half of North America's 1,200 small auto suppliers—"small" being defined as those with under $20 million in sales—will vanish into bankruptcies, mergers, and liquidations within the next three years. But some are positioning themselves for a rebound, expanding their customer base to include foreign carmakers. They're also moving aggressively to become more efficient, reducing downtime and producing less scrap metal.

Certainly getting in with the Hondas and Toyotas of the world is a smart move. Aznavorian says their demand and production schedules tend to be more predictable than those of U.S. carmakers. But winning their business can be a long and grueling process. Aznavorian became a regular only after he developed some clips that solved a problem for a larger supplier, which then took him on as a subcontractor. "We got some difficult jobs and had to prove ourselves," says Aznavorian. "This takes years." It also takes a clean balance sheet, as carmakers increasingly are scrutinizing the financial strength of their suppliers.

JUST HANG ON

While entering new markets sounds smart, there are few substitutes for the high volumes of the car business. David Sofy, president of HMS Products, a $7 million, 50-person company in Troy, Mich., has seen a slowdown in the sales of his equipment, which automates metal stamping for both the auto and appliance industries. He's considering selling his machines to makers of wind turbines, but knows the potential is limited. "They just don't have the numbers," says Sofy.

For some, the goal is just to hang on. In early December, Bill Miller, president and co-owner of Miller Industrial Products, laid off his 36 employees, leaving only himself and a receptionist at his Jackson (Mich.) plant. These days Miller brings a few workers back to fill the occasional orders for machining of metal castings and forgings, generating enough money to keep the heat on and thereby preserve his equipment. Still, says Miller, "I'm not giving up."

Return to the BW SmallBiz Feb/March 2009 Table of Contents

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