Senior Editor
- FMA
- The Fabricator
- FABTECH
- Canadian Metalworking
Categories
- Additive Manufacturing
- Aluminum Welding
- Arc Welding
- Assembly and Joining
- Automation and Robotics
- Bending and Forming
- Consumables
- Cutting and Weld Prep
- Electric Vehicles
- En Español
- Finishing
- Hydroforming
- Laser Cutting
- Laser Welding
- Machining
- Manufacturing Software
- Materials Handling
- Metals/Materials
- Oxyfuel Cutting
- Plasma Cutting
- Power Tools
- Punching and Other Holemaking
- Roll Forming
- Safety
- Sawing
- Shearing
- Shop Management
- Testing and Measuring
- Tube and Pipe Fabrication
- Tube and Pipe Production
- Waterjet Cutting
Industry Directory
Webcasts
Podcasts
FAB 40
Advertise
Subscribe
Account Login
Search
The Catch 22 of collateral
- By Tim Heston
- December 15, 2009
Earlier this year, I landed at the Detroit airport en route to a conference. I got into my rental car, headed to the I-94 on-ramp, and then I saw it. There, next to the highway, was a big billboard advertising, of all things, a metal fabricator: "W Industries: Aerospace, Defense, Energy, Industrial."
Notice anything missing?
At the time, W Industries was making headlines. Local organizations were recognizing the company as one who successfully diversified outside automotive. And that was definitely something to flaunt in this economy.
But today, as the economy and credit markets get back on their feet, a wrinkle has been thrown into the diversity equation: the depreciation of assets. As Chris Kuehl, economist for the Fabricators & Manufacturers Association, Intl., wryly said during a keynote panel at this year's FABTECH Intl. & AWS Welding Show, "Now [the banks] are saying, 'Gosh, we expect you to pay the money back, and we're interested in collateral.'"
Collateral isn't easy to come by in the face of severe asset depreciation. Consider Wolverine Inc., a metal stamper in St. Joseph, Mich. Like so many metal manufacturers rooted in Michigan, the manufacturer needed to diversify outside automotive. To diversify, the company had to buy equipment. As reported by BusinessWeek, the company lined up a $2.5 million loan from GE Capital in September 2008. You can guess what happened next. The day after Lehman Brothers collapsed, GE Capital backed out of the deal.
Over the following year Wolverine tried to get financing. But during this time, in an automotive manufacturing climate of unforeseen overcapacity, the value of its machinery depreciated 20 percent. Sure, the company had more than $10 million in new business from Whirlpool and others. But no matter; it wasn't enough to overcome that massive drop in the value of equipment on the floor.
Enter the Michigan Supplier Diversification Fund, sponsored by the Michigan Economic Development Corp. Wolverine is finally getting its $2.5 million loan, with the fund's help. The fund is supplying $1 million in collateral support. In return, Wolverine pledges to create jobs. As the article reported, "Wolverine has brought back almost half of the 30 workers laid off this year and plans to rehire the rest by the summer."
This overcomes a persistent problem for the metal forming and fabrication industry. As BusinessWeek reporter John Tozzi wrote in his blog, "One reason the credit crisis persists for small businesses is that even as banks have tightened their lending standards, fewer small businesses are considered creditworthy."
In other words, banks are happy to lend money to those who don't need it. Michigan's fund overcomes this paradox and spreads money to companies that could put a small dent in the unemployment rate.
That's all well and good, but talking with business owners in this industry, many still don't have any desire to start hiring again. Too much uncertainty lies on the horizon, particularly with the government continuing to stick its hand into the free market. What will happen to health care? How will cap and trade affect business, particularly for fabricators serving the energy sectors?
What's real, from a business-owner's perspective, is a healthy balance sheet. And as I wrote in this blog, a healthy balance sheet is one with a short cash-flow cycle. Ideally, hiring people and investing in equipment ultimately should shorten the cash-flow cycle and give a boost to the balance sheet's health. If funds like the one in Michigan help a business do this, then I'm all for them.
As Dick Kallage, a principal at KDC & Associates Ltd., Barrington, Ill, said at FABTECH, "You don't make payroll with receivables and inventory. You make them with cash."
And I think we'd all agree that a job isn't worth much without a paycheck.
subscribe now
The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
start your free subscriptionAbout the Author
Tim Heston
2135 Point Blvd
Elgin, IL 60123
815-381-1314
Tim Heston, The Fabricator's senior editor, has covered the metal fabrication industry since 1998, starting his career at the American Welding Society's Welding Journal. Since then he has covered the full range of metal fabrication processes, from stamping, bending, and cutting to grinding and polishing. He joined The Fabricator's staff in October 2007.
- Stay connected from anywhere
Easily access valuable industry resources now with full access to the digital edition of The Fabricator.
Easily access valuable industry resources now with full access to the digital edition of The Welder.
Easily access valuable industry resources now with full access to the digital edition of The Tube and Pipe Journal.
Easily access valuable industry resources now with full access to the digital edition of The Fabricator en Español.
- Podcasting
- Podcast:
- The Fabricator Podcast
- Published:
- 04/16/2024
- Running Time:
- 63:29
In this episode of The Fabricator Podcast, Caleb Chamberlain, co-founder and CEO of OSH Cut, discusses his company’s...
- Trending Articles
Capturing, recording equipment inspection data for FMEA
Tips for creating sheet metal tubes with perforations
Are two heads better than one in fiber laser cutting?
Supporting the metal fabricating industry through FMA
Hypertherm Associates implements Rapyuta Robotics AMRs in warehouse
- Industry Events
16th Annual Safety Conference
- April 30 - May 1, 2024
- Elgin,
Pipe and Tube Conference
- May 21 - 22, 2024
- Omaha, NE
World-Class Roll Forming Workshop
- June 5 - 6, 2024
- Louisville, KY
Advanced Laser Application Workshop
- June 25 - 27, 2024
- Novi, MI