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AUGUST 1, 2013

WILLIAM E. FRUHAN
WEI WANG

Jackson Automotive Systems
It was early June 2013. Heather James, vice president at the Michigan State Bank, was considering a loan request from a longtime client, Jackson Automotive Systems. Jackson had requested the renewal of an existing term loan with the bank in the amount of $5 million that was originally scheduled to be repaid at the end of the month. Jackson was also seeking to borrow an additional $2.4 million to fund the acquisition of a long-needed piece of equipment, which it planned to purchase in late July. Both loans, which totaled $7.4 million, would be repayable on September 30, 2013.
Jackson Automotive Systems, an Original Equipment Manufacturer (OEM) located in Jackson,
Michigan, carried product lines in advanced heating and air conditioning systems, engine cooling systems and parts, and fuel injection and transfer systems, as well as various other engine parts.
Production of these lines required sophisticated and expensive precision equipment. The company's customers were reliable and reputable automotive assemblers located nearby in the Michigan area.

Industry Background
At the time of the loan in 2013, there were over 5,000 automotive parts suppliers located in the
U.S. Less than 200 companies had annual sales of more than $100 million, while the remaining companies were small producers, representing a highly fragmented market. Small private companies, such as Jackson Automotive Systems, had specialized production lines and relied on sales to local customers. Given the location of the “big three” U.S. automotive companies, the state of Michigan hosted the largest presence of OEMs in comparison to the rest of the country.
The U.S. OEMs experienced a severe slump in production after the 2008 financial crisis, with sales

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