In The Driver’s Seat

Big Three automakers vow to boost minority subcontracting. But at what cost?

The Clinton administration and the Big Three automakers, Chrysler, Ford and General Motors, have launched an unprecedented effort to boost minority contracting in the automotive manufacturing industry by nearly $3 billion over the next three years.

The Big Three do approximately $130 billion in purchases with contractors annually, according to Small Business Administration officials, but only $5.9 billion goes to approximately 750 minority contractors. SBA Administrator Aida Alvarez says the program’s goal is to substantially increase the number of minority subsidiaries doing business with “first-tier” automotive contractors.

“As we move into the 21st century, our challenge is to make sure that every individual and every business has a chance to thrive,” said Vice President Al Gore during a recent White House ceremony held with the Big Three and officials from the SBA.

Judith Roussel, SBA associate administrator for government contracting, says in addition to boosting contracting opportunities, the initiative can provide management assistance, technical training and loans to qualified minority firms interested in contracting with the automotive industry. The agreement, outlined in a Memorandum of Understanding between the SBA and the automakers, builds on current contracting efforts with minority suppliers. It also provides new private-sector contracting opportunities for firms participating in the 8(a) business development program.

Specifically, GM will increase first- and second-level subcontract awards to minority and small disadvantaged firms by $1 billion; Ford will increase its contracts by $900 million; and Chrysler will have an increase of $1 billion. When added to the automakers’ existing minority contracting efforts, the total amount of first and second subcontract awards among the Big Three will total $8.8 billion.

But is the news all good? As part of the agreement, a firm will be considered minority-owned as long as a minority holds 10% of the public stock and controls the company’s operations. “This is a big difference from the standard utilized in the past by the government and the auto companies, which required 51% ownership by minorities,” says Roussel. She says the change was made because there are few minority-owned firms directly supplying the auto industry as first-tier contracting, which includes purchasing raw materials in massive quantities. “You just don’t have many minority firms participating at that level,” she says.

Jethro Joseph, manager of Special Supplier Relations for Chrysler, agrees. He says relaxing the minority ownership requirement will allow minorities to go to the stock market to raise capital and still maintain their minority status with less than 51% ownership. “And there are some important guidelines that go with the program,” says Joseph. “A minority must still be the majority shareholder. The company must still be operated by a minority and have at least 25% minority employment.”

Alvarez says the initiative is an important step forward. “The agreement will create expanded opportunities for an increasingly small business community,” she says. “The payoff will be more business for minority suppliers. It will also mean more jobs and more dollars in the communities where those suppliers are located.”

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