Little guy gets the worst beating

DETROIT -- When General Motors and Ford Motor Co. slashed production this month it hit small and medium-sized suppliers like a ton of bricks.

Pain shot through the entire supply chain, leaving Tier 1s such as Delphi, Dana, Dura, American Axle and Visteon wincing.

But the real victims are Tier 2s and Tier 3s dependent on GM and Ford, such as Sennett Steel Corp. of Madison Heights, Mich., and BBi Group of Bloomfield Hills, Mich., a small supplier of sound insulation and interior trim.

In this crisis, the small fry have nowhere to turn.

"Small companies are much more likely to get into trouble" under these conditions, turnaround specialist Jerry Barefoot says. "The big companies owe too much to fail."

While some Tier 1s have eaten through their credit lines and threaten to exceed debt limits, they also are getting a lifeline from their bankers. Tier 2 and Tier 3 companies are on their own.

GM increased already-announced production cuts for the first three months of this year from 9 percent to 12 percent compared with the first quarter of 2004 and cut output 10 percent in the second quarter.

Ford added to first-quarter production cuts and cut output 1.2 percent in the second quarter.

For small suppliers, the cuts come on top of high steel prices and continued pricing pressure - obstacles they are ill-equipped to face.

Giants such as Collins & Aikman Corp., Dura Automotive Systems Inc. and others have seen their stock prices fall, but even credit downgrades and earnings disappointments haven't scared away their bankers.

"The big guys have access to big banks that can find cash," says an executive at one big supplier. "And the big guys can exert pressure on banks for favorable pricing."

There was no lifeline from bankers to Sennett last June, says Barefoot, a partner in the consulting firm Barefoot, Cramer & Associates LLC of Birmingham, Mich.

When the family-owned steel processor was unable to generate enough cash to service its debt, its bank slammed the lending window, Barefoot says. Sennett filed Chapter 7 liquidation in June in U.S. Bankruptcy Court.

This month, BBi Group filed for Chapter 11 creditor protection. The company could not offset high raw material prices and product launch costs.

Unlike Sennett or BBi, giant wheel maker Hayes Lemmerz International Inc. has many options. Hayes Lemmerz of Northville, Mich., had its credit outlook dropped to negative from stable by Standard & Poor's. But Hayes is preparing to issue $150 million of euro-denominated senior notes.

Dura's rating was reduced in November because Standard & Poor's said the company would be unable to pay down what is one of the industry's highest debt-to-capital ratios.

But when the Rochester Hills, Mich., supplier of driver and seat controls faced a possible covenant violation in its loan agreement because of its debt, its bankers loosened the limits.

In December, Metaldyne Corp. of Plymouth, Mich., threatened to exceed its borrowing limits because of higher steel prices and the cost of acquiring the former Chrysler group's New Castle, Ind., plant. So Metaladyne called in its bankers. New York banking giant JPMorgan Chase upped the supplier's borrowing capability, a spokeswoman says.

Collins & Aikman Co. last year lowered its cash flow expectations and spent heavily to win $900 million of new business. The plastic parts maker also is struggling under steep resin prices.

But Collins & Aikman of Troy, Mich., got a break from the financing arm of General Electric Co. for a five-year, $300 million accounts receivable arrangement to replace an existing one.

You may e-mail Robert Sherefkin at