One Tiny Manufacturer's Struggle Shows Just How Difficult Reopening the Economy Will Be
Five minutes into a video conference with his management team about who to lay off at his auto-parts company, Jeff Aznavorian got good news.
His banker was calling: Aznavorian still had a shot at a loan under the Paycheck Protection Program for businesses hurt by the coronavirus pandemic. Employees of his third-generation company, Clips & Clamps Industries, might be spared.
But getting cash is just one of the many hurdles Aznavorian has to overcome as Detroit’s automakers prepare to restart production after weeks of shutdowns. He needs hundreds of masks. Cleaning supplies are scarce. Customers are bombarding him with emails about how he’ll prevent the virus’s spread among his 52 workers.
“It’s got me nervous about going back to work, but we’ve got to do it somehow,” said Aznavorian, 46. “If we don’t, there won’t be a company to support those people anymore.”
The global auto industry is going through the biggest disruption since at least World War II, and in order to recover from the billions in lost sales and profit triggered by the economic shutdown, it needs every link in the supply chain to survive, right down to a small metal-forming company about 30 miles west of Detroit.
Manufacturers have a lot more to worry about than just making parts. To avoid spread of the disease, factories have got to be spotless, and workers under constant medical surveillance. There’s a patchwork of state and local quarantine orders to abide by, and an intricate supply chain to navigate in order to ship the roughly 30,000 components that go into a vehicle.
That’s a daunting challenge for an already stressed global auto industry, but it’s even tougher for a tiny business like Clips & Clamps.
“Smaller companies don’t have big balance sheets and a lot of working capital, and they’re pretty lean in terms of their ability to absorb these kinds of shocks,” said Razat Gaurav, chief executive officer of Llamasoft, a supply-chain analytics company.
Clips & Clamps was still recovering from price shocks triggered by U.S. steel tariffs. Now, a financial hit is just one of many ways Aznavorian’s business in Plymouth, Michigan, has been upended.
In non-pandemic times, he’s usually out of the house by 7 a.m., driving his black Ram 1500 pickup truck the three miles to Clips & Clamps. But the factory shut on March 23, the day Michigan Governor Gretchen Whitmer had ordered all non-essential businesses in the state to close. On Friday, she extended the order to May 15 and left carmakers and their suppliers in limbo as to whether the longer shutdown applies to them.
These days, Aznavorian is conducting business from home in sweatpants, wearing a baseball cap to hide his overgrown hair, and noise-canceling headphones in case his son wants to practice the French horn or his daughter the flute.
He spends his time churning through a mountain of emails, tuning into webinars to try and estimate just how low North American auto production will go this year -- 12.7 million units is the best-case scenario, a 20% drop -- and comparing notes with peers from his industry trade group on how to keep a plant hygienic enough to operate during a pandemic. Snaring precious supplies and the personal protective equipment everyone is clamoring for isn’t easy.
Aznavorian sent his maintenance team to Home Depot to buy cleaning agents as soon as the shutdown was announced, but all that was left was bleach. Purell refills are on indefinite back order.
He ordered between 600 to 800 surgical masks from three different companies, including a vendor who usually sells him cardboard boxes, in the hopes at least some will arrive by next week -- but that’s in question. He found two non-contact infrared temperature guns online at Walmart, for $81.99 a pop.
Those safety measures are becoming more crucial. Fiat Chrysler Automobiles NV, Clips & Clamps’s biggest customer, plans to progressively restart beginning May 4, pending approval from governments and unions. Whitmer, under pressure from protesters to reopen the state’s economy, said Wednesday she’s closely monitoring talks between carmakers and the United Auto Workers union on new safety protocols to let them “slowly re-engage in a safe manner.”
Aznavorian’s design and tooling teams are making brass rings -- he calls them knuckle extenders -- so workers can open doors or press buttons without having to touch them. Still, he frets over whether his staff will adhere to social distancing. During a recent factory visit to check on a small production run, he snapped after encountering two employees chatting about 5 and a half feet apart.
“My first word to him was, ‘Jeff back up!’” he said of the employee. “They’re so used to doing that -- it’s hard to change.”
Beyond keeping workers safe, Aznavorian needs to make sure he can pay them. As March was ending, the company was closing out a record fiscal year of sales -- $15 million – and “decent” profitability, Aznavorian said. But after a month of nearly zero revenue, securing the PPP loan was critical.
The call from his banker last week provided much-needed relief, since he initially missed the cutoff due to an IT glitch at his bank. After a mad rush -- including 45 minutes spent on a meeting app helping his tech-challenged parents and aunt, who are co-owners in the company, to e-sign the application -- Aznavorian got what he calls “the golden ticket:” an e-transaction number from the Small Business Administration.
More than $500,000 landed in his bank account this week. But with auto production a long ways from returning to normal levels, he’s not out of the woods.
“There are tons of hard choices we’re going to have to make over the next weeks and months,” he said. “But it gives us breathing room to make those decisions.”
©2020 Bloomberg L.P.