Businesses in Valley try to manage

By Don Shilling

The national credit crisis is squeezing Mahoning Valley manufacturers.

Profits could be lost, expansions delayed and workers laid off if Congress doesn’t inject cash into the nation’s credit markets, business executives say.

And that’s putting it mildly.

Herbert Schuler Sr., chairman of General Extrusions in Boardman, was blunt about his fears if the nation’s businesses can’t get more credit.

“If everything freezes up, you’re talking about depression,” he said.

Many businesses need credit to run daily operations, including paying suppliers and employees, he said.

“If there’s no payroll, that means there’s no employees,” he said.

In this scenario, closed operations at manufacturers would hurt other sectors, as people without a job cut back on spending at grocery stores, restaurants and retail shops.

For many business, it all starts with a line of credit used to fund daily operations. Cash receipts from customers often don’t arrive as quickly as bills from suppliers, so businesses borrow money to pay suppliers as well as employees.

A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.

The London interbank offered rate for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.

Many on Wall Street had expected the government’s plan would help sweep away some of the fear and pessimism that has hobbled credit markets, which are where businesses turn to finance their day-to-day operations. The worry is now basic operations like making payroll will be difficult or perhaps impossible for some companies.

Schuler is worried about General Extrusions’ line of credit because its bank — which he said has operations locally — is in financial trouble. Schuler thinks it could be shut down at any time, so he’s been speaking with other banks in town. None are interested in taking on a new customer right now, even one that has been in business for 58 years and has been profitable for three straight years.

“Unless you have more cash than you need to borrow, they won’t do business with you,” Schuler said.

If the company loses its line of credit and can’t get another, it will have to cut back operations to a level that can be funded with cash, he said. That means layoffs.

The Lake Park Road company already has 70 of its 350 workers laid off because of low orders from auto suppliers and other customers. Sales are off 20 percent this year, but the company has remained profitable.

At City Machine Technologies in Youngstown, sales are at record levels this year, and the company doesn’t have a borrowing problem. But Mike Kovach, company president, still is worried about fallout from the financial crisis.

“I’m concerned about our customer base not being able to pay us,” he said.

He has plans to invest in a major piece of equipment that would allow him to expand his operations, which include building and repairing heavy machinery for manufacturers. He has financing set but still is hesitating on going forward.

“Will the customers be there?” he asked.

The West Rayen Avenue company doesn’t have credit issues because it funds its own line of credit using money that has been set aside over the years from company profits.

“If we had been fast and loose with our money, maybe we could have 800 employees instead of 80,” Kovach said with a laugh.

To better protect its money, the company has split up its investments among three banks instead of one within the last two months, Kovach said.

At Exal, an aluminum can and bottle maker in Youngstown, the credit crisis is adding to the cost of doing business.

“Credit is available, but it’s at a much higher cost,” said Brenda Oman, vice president of administration and finance.

Exal is paying about two percentage points more for its line of credit than it had been, but the interest rate on its longer-term loans has increased from 3 percent to 8 percent in recent weeks. The money was used to buy equipment as the company has expanded to produce sleek aluminum bottles for companies such as Coca-Cola and Budweiser.

If interest rates come down soon, Exal won’t feel much of an impact, Oman said. But if the high rates last, the added payments will be taken from company profits, she said.

Also, Exal is in the midst of planning construction of a new plant in the Salt Springs Road Industrial Park. Part of the planning is arranging financing.

Oman said executives know this isn’t the best time to be taking on debt, so they are proceeding cautiously. The proposed opening in late 2009 or early 2010 hasn’t been pushed back, however. The company employs 385 in Performance Place Industrial Park.

Oman said she has mixed feelings about intervention in the credit markets by Congress. She thinks it would help reduce the company’s costs, but she also thinks the financial companies with bad securities should be allowed to fail according to free-market principles.

shilling@vindy.com

XAssociated Press contributed to this story.