Leon Tupper gets fussy when sorting through business opportunities for his company, Gilreath Manufacturing Inc. of Howell, Mich.
Gilreath's options have, at times, come at lightning speed. Automakers and Tier 1 suppliers are anxious to work with the minority-owned injection molder. But Tupper, the company's president, rejects many contracts and possible partnerships.
'We're very careful about what we choose,' Tupper said. 'Some can look like opportunities when, in fact, they are not. If (a program) keeps us at the entry level for technology, it doesn't have a successful end. When you peel the core layers of the onion, it's hollow inside.'
The automotive industry is a leader in nurturing minority-owned suppliers.
While the industry's successes are well documented and make for good public relations, some elements are hotly debated.
Even supporters of the programs admit that they do not always create strong minority-owned companies. And many complain that minority companies are stuck with less-than-desirable work.
Contracts set aside for minority-owned firms often require no acumen in technology or function, said Anthony Frabotta, chairman of Follmer, Rudzewicz & Co. of Sterling Heights, Mich.
'They save the cream for someone else,' said Frabotta, who is a consultant to several minority-owned plastics processors.
'A lot of those (minority) companies will only succeed if they can get beyond their core injection molding and learn new processes or value-added work. They're not growing enough to shoulder a downturn.'
SOME HAVE FAILED
Amplifying the problem, a few high-profile minority-owned companies have experienced embarrassing financial failures.
However, automakers' minority programs have helped turn around Gilreath Manufacturing. Tupper and an ownership group bought the company in late 1991, after a free fall that landed it in Chapter 7 bankruptcy and on the edge of liquidation.
Tupper gradually renewed relations with several automakers. The company now expects sales of more than $40 million in 2000, nearing its pre-bankruptcy levels of the late 1980s.
In 1993, officials at General Motors, Ford Motor Co. and what was then Chrysler announced their goal to source 5 percent of their purchases from minority-owned companies. Soon after, the carmakers asked their Tier 1 suppliers to do the same.
At the end of 1999, none of the carmakers had achieved that 5 percent goal, which would have amounted to about $3 billion in total purchases. Ford expects to hit the target this year, said Renaldo Jensen, Ford's director of minority-supplier development.
DaimlerChrysler Corp. is about two-thirds of the way there, said Jethro Joseph, senior manager for special-supplier relations. Each year it becomes tougher to reach the goal.
'If you consider the numbers we've done, though, it's staggering,' said Joseph. 'We set very high goals, and that's the beauty of it. I think influencing the complete supply base to do this could get us there.'
Automakers make a hardened marketing case for the programs. They point to a growing number of minority car buyers and at U.S. Census figures suggesting that the Hispanic and black populations will be in the majority by 2050.
'We need to do more to reach minority people in the cities,' said J. David Allen, director of minority-supplier development at GM. 'If we empower people by helping them get good jobs with our suppliers and better themselves, we can improve our market position.'
The minority programs target certain groups, including companies owned by blacks, Hispanics, Native Americans and Aleutian Eskimos.
Women who are in a majority ethnic background are excluded.
To be included, companies must be certified by regional centers of the New York-based National Minority Supplier Development Council. To qualify, the company must be at least 51 percent owned by a minority person and a minority person must run day-to-day operations.
'We actually walk through facilities,' said Delbert Gray, CEO of the Michigan Minority Business Development Council in Detroit. 'The person must sign checks, do the hiring and firing, be known on the manufacturing floor. We even look at birth certificates to document ancestry.'
The national council is considering altering the certification rules to let minority-owned firms raise money through public offerings. If a company decides to sell preferred stock publicly to raise equity capital, the ownership share could slide to 25 to 30 percent, Gray said.
U.S.-based carmakers also have a three-year pilot program, expiring in 2001, to allow public ownership. That memorandum of understanding, signed jointly with the Small Business Administration, allows for 10 percent minority ownership if a company sells stock publicly.
OPPOSING THE CHANGE
But some firms oppose the change, saying it dilutes both the spirit and practice of a minority-owned business.
'It seems a bit short-sighted,' said Henry Jackson, president of injection molder Jackson Plastics Inc. of Nicholasville, Ky. 'Long term, you'd surrender minority control to a board of directors or outside investors. The whole idea of helping the minority community gets lost.'
Jackson, a former CFO with a division of Clark Equipment Co., said other avenues of raising money, such as from venture capitalists, work equally well without the ownership downside.
One of the auto industry's larger minority-owned plastic companies, Florida Production Engineering Inc. of Dayton, Ohio, has not applied for minority certification.
The company has nothing against the minority program, said Ernie Green, Florida Production Engineering's co-owner. Florida Production Engineering, a maker of such niche molded products as door-latch modules and plastic weather-stripping, has fought for opportunities on its own merit as a good supplier and not as a member of a minority group, Green said.
'But that's not true for all companies,' said Green, who founded the company in 1987. 'Many minority-owned companies are first generation. Because of their size, they're leery and afraid to fail. If we started today, we might have looked at certification.'
Still, some small-sized suppliers are starting to thrive. D&R Technology LLC, a supplier in Addison, Ill., founded in September 1998, is starting work on major new business with Delphi Automotive Systems, said D&R President David Purdie.
WARNING TO MINORITIES
But even Purdie advises minority processors to be cautious.
'Unless someone mentors you, you can't always afford the risks,' said Purdie, who has started four other automotive companies. 'It's not a benevolent business. If someone throws a bone at you, you have to make sure it has a lot of meat on it.'
There have been noted failures among minority processors; sometimes the result of companies being overwhelmed by the wrong contracts. The most recent has been Chivas Products Ltd. of Sterling Heights, Mich., which formed a joint venture with Continental Plastics Co. of Fraser, Mich., in 1998 after entering Chapter 11 reorganization.
Automakers are forming a fire wall to protect against such problems. DaimlerChrysler's suppliers are rated on how well they work with minority-owned companies, gaining minority-sourcing credits with the automaker.
Ford helps suppliers in such areas as lean manufacturing, engineering mentoring, quality-solving methodology and financial controls.
'We want to give them every opportunity to compete,' said Eddie Floyd, Ford business manager for minority-supplier development.