The West Midland automotive supply chain needs quick access to finance and better communications with vehicle manufacturers if it is survive the economic downturn.
That is the message from Accelerate, the Birmingham-based organisation set up 12 years ago to support a sector that is vital to the region’s economy.
Accelerate programme manager Rachel Eade sounded the warning following discussions with many West Midland companies. Talks were held to understand how the current trading conditions are affecting companies and to find out what needs to be done to avoid major job losses and company closures.
“Suppliers from all over the region are reporting deliveries being stopped with only a few days’ notice, inventories that are growing by the day and significant cash flow issues from unexpected monthly drops in turnover,” Ms Eade said. “What is blatantly clear is that trading conditions have changed so quickly it has caught many firms out, with September actually being a good month for the industry.
“The problem lies in the car makers halting production without any real notice, which means many suppliers have suffered significant drops in sales, coupled with costs having already being ploughed into raw materials, labour and the supply chain, along with the pending storage issues of having undelivered stock.”
It all adds up to a “very worrying picture” made worse by what seems to be a lack of communication on the part of the major manufacturers.
“They need to expect that some companies will not survive the extended shutdown without financial input,” said Ms Eade. “And then who will pick up the parts delivery when production restarts next year?”
The talks also highlighted other problems, including reduced lending facilities, removal of overdrafts, credit insurance and invoice factoring, inability to pay and retain staff and higher than usual levels of bad debt.
There were also stories of a Birmingham Tier 1 supplier losing 70 per cent of its business in one month and making 25 per cent of its workforce redundant; a short lead-time manufacturer seeing an unprecedented drop in orders; senior directors working on the shop floor after job losses, and a Black Country firm going into administration and taking two smaller suppliers with them.
“These are fundamentally good businesses, with efficient systems and an excellent workforce,” said Ms Eade. “The pace of the global slowdown, which has affected all industries at once it seems, is virtually impossible to stop and what we need to do is to find ways of supporting suppliers until the producers start making vehicles again.
“Firms have long-term contracts; what they need is quick and simple access to temporary funding to help them pay staff and retain production and this is what we are lobbying the Government for.”
Ms Eade said regional development agency Advantage West Midland, an Accelerate sponsor, is helping to provide viable businesses with access to business loans of between £50,000 and £250,000 to bridge the short-term lending gap via the Transition Loan Fund.
“This is an excellent start, but we need to build on this by making sure we have a range of support that is tailored specially to the region’s supply chain.”