Surviving in the Automotive Industry; Minorities shift gears to cope
For decades General Motors Corp., Daimler-Chrysler AG and the Ford Motor Co. were the titans of the U.S. automobile industry. In recent years, however, Japanese imports have taken a huge chunk out of the Big Three’s market share, with Toyota Motor Corp. USA poised to overtake GM as the country’s No. 1 automaker. The Big Three are fighting back. Massive cost cutting has become standard operating procedure in their attempts to streamline production. For African-Americans and other minority suppliers, who represent a minuscule part of the industry, the fallout from this new paradigm is hardly positive.
“Depending on whom you are talking to and what you consider automotive, the market could easily be $200 billion, and I don’t think we as minorities represent 2 percent of that,” says Leon Richardson, first vice president of the National Association of Black Automotive Suppliers (NABAS).
Typically, most African-American-owned suppliers are first- or second-generation companies, which means they have been in existence for fewer than 40 years—not enough time to build a significant amount of equity in those businesses, Richardson says. “As a result, when the automotive companies start having financial problems, we just don’t have the cash reserves necessary to withstand long periods of drought when it comes to profitability,” he says.
Minority car dealers are faring no better, says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealerships (NAMAD). “We are only 5 percent of the retail network population right now, and most of that has been achieved over the past 15 years. We are still first-generation entrepreneurs in many regards and we are competing against tenth-generation entrepreneurs. Over the past three years, 79 ethnic minority dealers have been terminated from Ford Motor Co.,” she says.
Feeling the Brunt
Why the disparity in the way the Big Three’s woes are affecting minorities in the industry? Richardson cautions that this is probably not a deliberate act against minorities on the part of the Big Three. “The U.S. automotive industry is suffering as a whole. The African-American automotive suppliers are probably feeling the brunt of it because we were late to the party and we don’t have the financial resources that some of our competitors have.”
Vaden-Williams concurs, “I don’t want to leave the impression they don’t want to do a good job. I don’t know that they want to terminate people. But we are the last in, first out.”
Efforts by Black automotive suppliers to work with the foreign manufacturers are not panning out, Richardson says. “When [the foreign manufacturers] set up in the U.S., they bring their suppliers with them,” he says. “The transplants will make a claim that they are manufacturing in the U.S. and actually what they are doing is assembling in the U.S. There is not as much opportunity to participate when the work is being done abroad.”
Global sourcing, wherein the Big Three now buy lower-cost supplies overseas to further cut costs, makes matters worse for minority suppliers. However, “when they buy goods and services from China, there is an issue with getting those goods here, and we need to recognize what those issues are and exploit them,” Richardson says. “If we continue to operate the way we have in the past, globalization will kill us. But if we start operating in a creative manner, there is a way around this. We should be trying to figure out how do we compete with this.”
Addressing the Problems
The problems facing minorities in the automotive industry have not gone unnoticed by everyone. The Rainbow/PUSH Coalition recently held a series of events and symposiums to highlight the plight of minority entrepreneurs in the automotive industry. It also established the Detroit Bureau Automotive Project to “promote minority participation at all levels, as well as research automotive manufacturers’ diversity plans to ensure equal and fair consideration for minorities.” So far, these efforts have resulted in Toyota committing $7.8 billion to diversity.
In addition, the NAACP periodically publishes an “Automotive Industry Report” that scrutinizes various manufacturers and grades them according to their performance in five areas: employment, advertising and marketing, vendor relationships, service deployment and charitable giving.
While not discounting these efforts by minority advocacy groups, Richardson argues that minorities within the industry need to collaborate more. “We need to try to work more closely together, share best practices and support each other. It is incumbent upon successful minority automotive suppliers to work with smaller suppliers who don’t have the opportunity or skill set to work directly with the Big Three,” he says.
Vaden-Williams agrees that minorities should do more to help themselves. “I think we are going to have to develop our own buying programs to be able to buy things together so that we can compete with the economies of scale that are available to mega dealers.”
To some extent, the African-American community has been complicit in the downfall of minorities in the automobile industry, some say. According to Strategic Vision L.L.C., a public relations and marketing firm that studies why and how consumers make buying decisions, in 2005 Japanese-manufactured Nissan was the most purchased brand and Nissan Altima was the most purchased model among African-Americans. Strategic Vision also uses a “Total Quality Index,” which found that in 2003-2005, Nissan brands were No. 1 in almost every category.
Christopher Chaney, Strategic Vision’s director of business development, says, “African-Americans have a unique desire to express themselves as individuals, and Nissan was very strong when it came to design. It had good performance and other attributes overall but the design, the interior, were new.” His colleague, Alexander Edwards, adds, “They managed to get the interior to match the stylish exterior and that was balanced out with the need for individual expression and then it was also at a competitive price—putting those pieces together made for a very successful launch of the 2005 Altima.”
Richardson disagrees with the popular argument that imported autos are of better quality. Rather, he contends, bad press has haunted the locals. “If you look at JD Powers, GM, Ford and Chrysler are right up there with Toyota and Nissan. The quality disparity is not as great as one may think,” he says. “However, GM will have a recall on a particular part and it is in The Wall Street Journal; Toyota has a recall and nobody even talks about it.”
For Vaden-Williams, minority consumers should be more supportive of minority dealers. “Those of us who are in the position today to be able to purchase vehicles need to understand the big picture. We have to inform the public so that ethnic minority consumers understand the importance of supporting ethnic minority entrepreneurs.”
Richardson agrees, touting the Big Three’s track record of support in minority communities. “In our communities, the Big Three provide scholarships, they do fund-raising and they do educational programs. Certainly I think the transplants do something, but they do not have the same sense of social responsibility. At the same time, African-Americans are buying Nissans. We cannot have it both ways. We can’t complain that [the Big Three] are not doing business with us when we are not doing business with them,” he says.
No Easy Answers
To be sure, there are no easy solutions as minority suppliers and dealerships struggle to survive. Still, Vaden-Williams and Richardson are optimistic about the future. Programs that, theoretically, are designed to allow minorities to gain parity in the industry are in place, they say. As for the Big Three, “I do not believe GM, Ford and Chrysler are going to just roll over and die and let the transplants, as we call them, take over. They are very aggressively competing,” Richardson says.