Troubling terms

The practice among automotive suppliers of stretching payment terms for molds has some moldmakers at the breaking point. It is becoming rare for a moldmaker to get the once commonly accepted payment terms of net 30 days upon receiving the mold. Instead, these days a moldmaker is more likely to be given no choice but to accept net 45 days, or more, after PPAP (Production Part Approval Process). The situation is compelling the Canadian Association of Moldmakers (CAMM) along with its U.S. counterpart, the American Mold Builders Association (AMBA) to take action, according to Ed Bernard, president of Bernard Mould in Oldcastle, Ont.

“Terms have become a negotiating tool now, just like pricing, where all things being equal, you get the job if you’re willing to accept terms of, say, net one year payment, which I’ve done,” says Bernard. “It’s sort of become like a street fight where the only rule is no rule. In this new environment, all the old rules and standards have been thrown out the window.”

Bernard says the newer terms being forced on the moldmakers have created a situation in which a Tier 1 molder can receive the mold, run it in production and be receiving payments for the parts from the OEM for many weeks or months without the moldmaker seeing any payment. PPAP approval, which requires, among other things, dimensional certification of all parts produced from a 48 hour production run on the tool, may be delayed for reasons other than tooling-related criteria. Clouding things further, says Bernard, is that many customers delay payment even after PPAP approval has been obtained, in effect breaking a legal contract.

“To extend a six-month payment after receiving the tool, that’s very attractive to some companies that are having cash flow problems,” says Bernard. “In effect, we’re financing them.”

Bernard will be attending the AMBA meeting this spring on behalf of CAMM and will be speaking to the association on the issue of automotive financing. Discussion of the issue at the meeting will focus on possible ways of addressing concerns of various sized shops, with various amounts of automotive business. One possible scenario, according to Bernard, is for members of both associations to recommend some kind of standard for payment terms.

Payment delays are forcing many smaller- and medium-sized shops to reduce the amount of automotive business they take on. Bernard says his own company has gone from 90 percent automotive business to less than 50 percent over the past four years.

“We’ve moved to replace the work we’ve always dedicated to automotive with other work,” Bernard reports. “What’s going to happen is that the big automotive guys are going to lose capacity before they know it.”

He thinks the assumption that the industry can replace that capacity with off-shore sourcing in places like China is probably false.

“The automotive industry has honed Canadian and American moldmakers to the point where we’re the best in the world at meeting their demands for high quality, high production tooling in short delivery times. We can build in 12 weeks what it takes moldmakers in other countries 20 or more weeks to build.”