Auto-Parts Suppliers Continue Struggling for Credit from Leery Banks (transcript)

By Daniel Potter

In August, when carmakers boosted production because of the Cash for Clunkers program, auto parts suppliers saw a spike in demand too. Still, banks are leery of the car industry’s uncertain future. That’s made it hard for parts makers looking for a steady lender. WPLN’s Daniel Potter has this report.

Audio for this feature is available here.

Wise Industries in Old Hickory employs about 30 people, making floor mats and molded plastic parts for carmakers. Founder Ron Wise is at ease showing off his robots on the plant floor.

“In this area of the plant we’re making parts for Honda – these would be third-row seat components for the Honda Odyssey minivan.”

Two workers hand pound a sheet of carpet onto sharp tacks that line a metal frame, then feed it into a giant steel mouth.

“We’re taking this carpet, and we’re putting it into an oven, and we’re heating the material up until the glue becomes elastic, and we’re bringing it out into a mold and we’re compression molding a shape to it.”

Aside from Honda, Wise Industries does work for Chrysler, and plans to do work for Ford.

And Wise Industries is tiny in the supplier world – with total revenues this year projected at under $10 million. Other suppliers considered “small” run to the hundreds of millions.

But like many small auto suppliers, Wise Industries has a diverse product line. It also makes modular flooring for conventions, and shelving for work vans.

The company used to make truck bed liners, until last summer’s high gas prices killed demand for trucks.

Wise says that’s when his bank of three years cut ties.

“Fortunately we were able to sell one of our divisions of our company – this Bed Rug product line – which cleared our debt, but unfortunately left us with no working capital and without any bank willing to finance any automotive company going forward.”

Wise says his business depends on working capital – steady borrowing to buy raw supplies.

Without a stable lender, it’s been hard filling orders. Wise can’t afford to front the money for materials, and then wait two months to get paid after shipping his product.

He’s gone to over a dozen banks looking for credit.

“I was told by every bank that I applied for that ‘We’re not interested in automotive loans; try again in a year.‘”

This spring, Wise started looking into Small Business Administration loans.

Local banks make those loans, but they’re largely backed by the federal government, usually up to about 70 percent. As part of the Recovery Act, that guarantee is now up to 90 percent.

But even with the government covering most of the risk, banks weren’t interested in lending to Wise; many told him not to even bother filling out an application.

“They’re not your partner – they’re your banker.”

Jim Thigpen says banks simply have a “bad taste” from the car sector.

“I mean you don’t share your profit with them. So it’s a whole risk-or-reward type thing. I don’t want to sound callous or anything, but let’s get real – that’s what it’s about.”

Thigpen is president of the Tennessee Business and Industry Development Corporation, which acts as the SBA department for six banks around Tennessee. He sympathizes with suppliers struggling for working capital, but says banks wouldn’t be prudent to risk lending to them.

Neil DeKoker says that’s consistent across the entire industry. He runs the National Original Equipment Suppliers Association and says it doesn’t matter now whether a supplier is big or small.

“Even good suppliers are being viewed skeptically by and large because they’re associated with the automotive industry. And the industry as a whole is in fairly difficult shape.”

DeKoker has tracked about 50 parts supplier bankruptcies so far – nowhere near the fallout he would’ve predicted in this economy. He chalks that up to companies “hibernating” – slowing production in hopes of lasting until business can pick up again.

But he worries more bankruptcies are in store, since some parts makers will be too drained to survive the thaw.

“By going into hibernation they’ve had lower ongoing overhead and expenses than normal, so they’ve been able to last longer than we even thought they would, but when volumes start picking up again, they need to have money available to pay their employees that they have to bring back onstream, to pay for materials.”

But for Ron Wise, the search for a new lender may be drawing to a close. His sister works at a bank in Kentucky, and was able to convince the loan officer there to give Wise Industries a chance.

“It was nearly impossible. I think it absolutely helped that I knew someone – knew someone to at least get an audience with someone that would listen.”

That bank has tentatively agreed to lend to Wise, pending SBA approval of the loan.

Whether Wise gets that loan or not, he’s optimistic. He says while the auto industry isn’t building 15 millions cars a year anymore, it’s still building ten million – Wise says that’s enough to keep some people in business.