Illusive Wheel Power
At its fifth annual automotive symposium held in Detroit in September, the Rainbow/PUSH Automotive Project announced that it is conducting an extensive review of the nation’s 18 automotive manufacturers. Coordinators of the project, an initiative of the Rainbow/PUSH Coalition founded by civil rights activist the Rev. Jesse Jackson, want to know if the carmakers are “fulfilling or abandoning their diversity initiatives.” The review will rank each company on employment, human resources, procurement and minority contracting, board representation, marketing and advertising, financial professional services and the expansion of minority auto dealerships. “We who drive cars must get more than the ride,” Jackson told reporters during the symposium.
The multibillion-dollar automotive industry, the largest employer and purchaser of goods and services in the United States, offers mixed opportunities for professional African-Americans and entrepreneurs. Growth is evident in some areas, as initiatives by manufacturers and Tier One automotive suppliers to expand growth opportunities for minority-owned vendors kick in. In many instances, however, progress has slowed or stalled. In other cases, gains have been lost.
Pain With Little Gain Often, African-American-owned companies are struggling with the same issues they dealt with in the past: lack of access to capital and resources to grow competitive businesses. Many are too small to offer competitive salaries for the best and the brightest in the work force and must cope with managers and employees who may not bring innovative thinking or business acumen to the work environment. Equally frustrating is their inability, for financial and other reasons, to tap into the lower-cost goods and services available in China and other developing countries, which, in turn, makes it difficult for them to competitively bid on projects in the United States. On the professional side, there are still no African-Americans positioned to become president or chief executive officer of an automotive company. In the more than 100-year history of the industry, no African-American, woman or other minority has been appointed to those positions.
Yet, African-Americans are a driving force in auto sales. In 2000, African-Americans bought more than 800,000 new vehicles and are projected to purchase more than 1 million new vehicles annually by 2011. Collectively, African-Americans represent more than $572 billion in buying power. Small wonder that the Rainbow/PUSH Coalition’s Corporate and Procurement Practices Survey, to be released in January, will scrutinize the hiring, buying, lending and management of carmakers. “We also want our share of the contracts, our share of the dealerships, our share of the jobs and our share of whatever is in this great industry. We want to do business,” Jackson told reporters.
Jackson noted that some automakers have seen a decline in the number of African-American car dealers, that minorities are often the victims of predatory lending and that foreign automakers are lagging behind their domestic rivals in buying parts from minority suppliers and hiring a diverse work force. The Consumer Federation of America, for example, called on Honda Motor Co. and its dealers to end undisclosed lending practices that discriminate against African-American car buyers, following a report that concluded that African-American borrowers consistently pay higher finance markup charges than white customers when they finance their cars at dealerships through American Honda Finance Corp. The report, prepared by Dr. Mark Cohen of Vanderbilt University, is based on the records of 383,652 A.H.F.C. customers between June 1999 and April 2003.
Keeping Track Minority suppliers contend that the commitment to minority suppliers varies from company to company. They want automakers, through minority supplier councils within the companies, to develop more rigorous auditing of minority purchasing and to establish consequences for Tier Ones, or prime contractors, who fall short of minority subcontracting goals. “You may have a few Tier Ones who believe in the program; the other ones go through the motions,” says Dave Bing, chairman of the Bing Group, a Detroit maker of metal stampings and other parts, who is leading a full-court press on U.S. automakers to keep minority purchasing alive.
Still, automakers have steadily increased their minority content in the past several years. In 2003, General Motors spent $7.2 billion on parts built by minority-owned companies. Ford Motor Co. spent $4.6 billion and the Chrysler Group spent $3 billion. E. Delbert Gray, president of the Michigan Minority Business Development Council, whose members include a significant number of minority-owned automotive supplier companies, says 78 of its members are doing $30 million or more in annual sales, with the remaining 1,622 members doing $10 million or less.
Growing and Competing Minority-owned auto suppliers who want to stay competitive and grow their businesses are pursuing strategic alliances or joint ventures with other minority-owned companies in order to compete for larger automotive contracts. It’s an emerging trend still to be embraced by many minority-owned businesses. Increasingly, however, minority business owners recognize that if they don’t change their way of thinking, they will eliminate themselves as competitive contenders. “Minorities need to step out of their comfort zone and look at creative ways to create synergy with other companies,” says Glenn Stafford, owner of VAS Consulting, a Farmington Hills, Mich.-based firm that assists Tier Ones in increasing their minority supplier spending and works with minority suppliers in growing their businesses. “Ninety-five percent of the minority suppliers are small or doing less than $30 million in annual sales, but the experts are indicating that to grow and compete in the competitive auto market, suppliers must have revenues of several hundred million dollars to leverage its volume. They need to look at how to achieve low-cost content without killing the content,” Stafford says.
Historically, minority-owned businesses have struggled to overcome barriers to the capital they need to expand services and product offerings. One typical solution was to pursue a joint venture with a majority-owned Tier One supplier, which resulted in the larger company taking a 49 percent or less ownership position in the minority-owned business. Such opportunities are rare today, leaving the vast majority of minority-owned businesses without viable avenues for growth.
Slowly but steadily women and minority business owners are warming to the idea that to be competitive they may need to join forces with another woman- or minority-owned company and share some control.
Mixed Dealership Opportunities Opportunities with dealer ownership are mixed, too. Of the nation’s 28,514 dealerships in 2003, 655, or 2 percent, were owned by African-Americans, according to the National Association of Minority Automobile Dealers. When other minorities, such as Asians and Hispanics, are included, that grows to 1, 577 dealerships, or 5.5 percent of the nation’s dealerships. The number of African-American dealerships grew 23 percent between 2002 and 2003, but overall ethnic dealerships increased a mere 0.43 percent, NAMAD reports.
Despite the increases, the performance falls short of NAMAD’s goal, which is to have 15 percent of every auto manufacturer’s retail network majority-owned by ethnic minorities. NAMAD says it reached an agreement this year with 14 manufacturers, all of whom have signed memorandums of understanding, of working toward realistic goals to ensure parity for all ethnic minorities. “These 14 manufacturers know the value that diversity brings to the bottom line. We will continue to work with them to ensure that all qualified ethnic minorities have at least an opportunity to compete,” says Steve Harrell, NAMAD’s chairman.
Same Old Battles While NAMAD’s efforts are commendable, auto dealers cannot understand why they are still fighting the same battles waged 20 years ago. Bill Shack, owner of Shack-Findlay Honda in Henderson, Nev., compares the current lackluster statistics with the high hopes he and other minorities had in the 1980s when automakers began adding minority dealers to their ranks. “Racism is not dead. It’s alive and well today, and growing in America,” he says. What’s needed, he says, is a new look into why more progress hasn’t been made. Automakers should stop using each other’s poor records as benchmarks and look inward at how they perform on hiring, buying and lending to minorities relative to the percentage of minorities who buy their vehicles and live in their markets. “There should be some reward and punishment on these diversity issues,” he says.
By Jacqueline Mitchell