Quality Magazine

Manufacturers Testify on Need for Greater Access to Credit

February 26, 2010

WASHINGTON, DC –Today Wes Smith, president of E&E Manufacturing, testified on behalf of the Motor & Equipment Manufacturers Association (MEMA) before the House Committees on Financial Services and Small Business focusing on the continued inability of parts manufacturers – particularly smaller manufacturers – to obtain the credit necessary to operate at a level that will sustain a healthy supply base and domestic auto manufacturing industry.

Motor vehicle parts manufacturers are the nation’s largest manufacturing sector. During the past three years, MEMA estimates that the country has lost more than 100,000 supplier jobs; while the Bureau of Labor Statistics estimates that automotive suppliers alone will lose an additional 100,000 jobs over the next decade.

Smith’s testimony also called attention to the fundamental sources of risk that remain in the automotive industry: production volumes, asset valuations and supply base consolidation. He urged Congress to support H.R. 4269, the Manufacturing Modernization and Diversification Act, which would expand nationally a successful program started in Michigan that would address critical issues for suppliers and lenders. The testimony also called for the exploration of a national industrial bank to provide stable funding for all manufacturers, including parts suppliers.

The testimony stated that even with an expected increase in light vehicle production this year, there still must be increased access to capital through the entire supply chain in order to rehire workers, purchase raw materials for production, and retool for new programs. Longer-term capital needs for restructuring, new model launches, and technology development are also a concern.

Smith maintained that these problems are magnified for smaller suppliers. “Suppliers often invest millions of dollars up front in the design, engineering and tooling for a component on a new vehicle program. The supplier might not begin receiving any cash flow on their investment for 12 to 24 months and will not completely be reimbursed until the product ends production in another 36 to 60 months,” Mr. Smith stated. He also indicated MEMA’s support of the Administration’s Small Business Lending Fund Act that would establish a small business lending fund for banks with $10 billion of total assets or less.

“Given the supply base’s significance to the economy and innovation, it is imperative that the government, the industry, and financial communities work together to provide access to credit at reasonable terms.”