Jan 29, 2006

Jeep Managers Fired For "Creative Accounting" Practices

Left: Aerial view of Toledo North complex courtesy of Safety Bubba.com

(Toledo, OH) Local news reports noted the firing of four management personnel and disciplinary action taken against nine others at the Toledo Jeep complex.

Ed Saenz, a spokesman for the DaimlerChrysler in refused to divulge the nature of the charges, except to say that it "involved violations of the firm’s policies and procedures."

Sources at Toledo Jeep provided me with more detail on the reasons why the 13 management personnel came under investigation.

"Everyone in the plant knows what's going on, because this is the way things work around here," said one source. "DaimlerChrysler is notrious for making their suppliers wait 3-4 months for payment, and these managers were facing a lot of pressure from suppliers to get paid."

The suppliers and managers worked out a plan: suppliers would get overpaid on invoices, creating a sort of financial cushion against the DCX strategy of holding onto invoices. Managers would then be able to get supplies they needed, since suppliers no longer threatened to withhold delivery.

"This was a way that these employees could keep the plant running," he said. "If a part cost $500, and I as a manager agreed to submit an invoice for $1000, then the supplier had a float of $500 to protect him against DaimlerChrysler's 'slow-pay' philosophy."

The source said that smaller suppliers are the firms most likely to be put on the 'slow-pay' system.

"Face it - DCX is a huge company, and if they can get away with sticking it to small suppliers, they will," he said. "Imagine what $50,000 is worth over 4 months at 10% interest."

It is unlikely that the disciplined managers personally profitted from the scheme, said a source.

"This is how average people deal with a situation created at the top of the company. If you need a part for a robot that will stop the line, and the supplier refuses to deliver it because DCX is 4 months behind in payment, you work a deal with the supplier," he said. "Anyone who has ever had to sign a supplier's invoice knows that this company stalls as long as possible to pay their bills, and essentially holds hostage the small suppliers."

One source added that he knew some of the disciplined and fired men.

"These are good people, and some of them have been here for many years," he said. "It's a shame that they are being disciplined for trying to keep the plant running."

Developing story...


Anonymous said...

You nailed it, Mike. We could have told you this story two years ago. Everyone working here knows how this company operates - they try to squeeze every diem they can from the suppliers. Good work.

Marie said...

Thanks for more insight into this...if not for your article we would have believed the "TALK" on the floor (which describes the Manager's as THIEVES) and...with the Blade's article being vague!

I hope the Manager's that were disciplined and fired will be re-instated...from your article states...it's my understanding said Managers were doing all they could in the BEST INTERESTS of Daimler...KEEPING THE LINES RUNNING...


historymike said...

As a former business owner I know all too well the power of delaying accounts payable, Marie. In my little business, I had about $50K in weekly sales. When times got tough, pushing back invoices 7-14 days could be a lifesaver, because that might represent $20K - $40K freed up in cash flow.

You learned quickly which vendors you could push for more time. If a company would allow you 60 days, you essentially got a perpetual 30-day loan from them for a couple of thousand dollars. Not bad if they don't hit you with late fees.

Anonymous said...

historymike wrote "As a former business owner I know all too well the power of delaying accounts payable, Marie. In my little business, I had about $50K in weekly sales. When times got tough, pushing back invoices 7-14 days could be a lifesaver, because that might represent $20K - $40K freed up in cash flow."

There's a difference between a small business doing it as a survival mechanism vs. a large cash-flush corporation doing it just to squeeze every last drop of interest out. One of the insanities of our economy is that we treat large corporations and small businesses alike. It is not possible for a small business to compete on equal terms with a large corporation; it is like asking a mouse to cohabit with an elephant.

historymike said...

Very true, anonymous. There are plenty of anecdotal accouts of small suppliers at the mercy of their multinational clients.

One of the worst scenarios involves small companies who get lured into doing business with a huge conglomerate, committing much of their resources into producing a component. They fin themselves struggling to stay float waiting for the conglomerate to pay, or find themselves getting screwed after the fact by a huge client that wants to renegotiate previous terms.

Calico Jack said...

Good job, Mike. I've seen this kind of thing before from both sides. DC isn't the only auto company that is slow to pay. GM is also notorious, and there was a time when Toledo Edison was so slow to pay invoices that vendors for the Davis-Bessee site refused business unless it was COD.

Lisa Renee said...

Excellent job at getting more of the story Mike. Looking forward to reading about how this develops.


historymike said...

And now you know...the REST of the story.

Paul Harvey. Goodday!