Car Makers Vow to Hike Minority Spending
The Big Three auto makers announced an agreement with the Clinton administration Thursday to increase their purchases from minority-owned auto suppliers by 50% over the next three years.
The pilot program is aimed at boosting by $3 billion by 2000 the buying of everything from nuts and bolts to advanced computer systems by General Motors Corp., Ford Motor Co. and Chrysler Corp. from minority-owned companies.
The agreement was jointly announced by Vice President Al Gore and Aida Alvarez, head of the U.S. Small Business Administration. The voluntary program is being advanced as part of the administration’s ongoing Initiative on Race.
“By opening the doors of opportunity wider than ever before, we can prove that our growing diversity and our growing prosperity go hand in hand,” Gore said in Washington.
The SBA said the Big Three agreement, which comes after two years of discussions, could become a model for other industries.
The deal comes as the Big Three and foreign auto makers are facing growing pressure to increase the number of minority dealers, suppliers, employees and executives. Civil rights leader the Rev. Jesse Jackson recently opened local offices of his Rainbow/PUSH Coalition in Detroit and New York to monitor the progress of the auto makers and Wall Street in opening business opportunities to minority groups.
Diana Mercer-Pryor, head of minority supplier relations for Chrysler, said the auto makers want to expand their ties to minorities as they become a growing portion of their customer base.
“There is an important business imperative to do this,” she said.
The agreement, however, also coincides with growing challenges to affirmative action programs. By aligning itself with three of the nation’s largest industrial corporations, the Clinton administration is making a strong statement in support of affirmative action contracting programs.
“This is precedent setting,” said SBA spokesman D.J. Caulfield. “It’s the first agreement of its type with such a prominent industrial sector.”
The Big Three currently buy about $5.9 billion in auto parts from minority suppliers--or about 4.9% of their total procurement of $120 billion from suppliers annually.
The auto industry has set a target of increasing its parts purchases from minorities to $8.8 billion in three years, or about 7.3% of the total.
“The payoff will be more business for minority suppliers and more jobs and dollars in the communities where those suppliers are located,” Alvarez said.
Enlarging the base of minority suppliers is considered a major challenge to auto makers since the parts industry has been undergoing a major consolidation in the last five years.
Increasingly, the auto makers are relying on major first-level suppliers to provide complete component systems, such as completed dashboards, rather than just individual segments. This has made it difficult for small minority firms to compete for major contracts.
In 1993, the Big Three began a program to increase minority supplier participation by launching a program to encourage first-tier suppliers to hire more minority-owned subcontractors.
The SBA program is an extension of that existing one, said auto industry officials. Specifically, the agreement aims to substantially increase contracts awarded to minorities, provide new opportunities for SBA-certified minority firms, provide more technical and development assistance to small socially and economically disadvantaged companies and encourage strategic alliances between minority and nonminority suppliers.
The auto makers’ progress would be monitored annually and after three years they will decide whether to continue or expand the effort. But the firms do not face any penalties if they do not meet the program’s goals.
Under the three-year agreement, GM has committed to increase minority supply contracts from $2 billion to $3 billion, Ford from $2.4 billion to $3.3 billion and Chrysler from $1.5 billion to $2.5 billion. GM is much larger than its rivals, but purchases from minority suppliers are lower because it makes a much larger percentage of parts internally than its competitors.
The auto makers also have committed to sponsoring 30 minority individuals for executive education training over the next three years.
An important goal, auto officials said, is to help more minority firms become public companies, thus tapping into capital markets and allowing them to grow.
Under current federal rules, a firm is considered minority owned when a minority individual owns 51% of it. The new agreement would consider a public firm minority owned if a minority individual owns 10% of the stock, controls the operations and a third of the employees are minorities.
