Manufacturing outlook

Double whammy of domestic, foreign forces hitting Wisconsin manufacturers
While manufacturing industry giants such as Rockwell Automation make big headlines with layoffs, what would appear to be a cyclical slowdown is taking as severe a toll on tool-and-die and machine shops, which also rely on contracts with manufacturers.
Toolmakers are being hit with an economic slowdown at home and, at the same time, a strong dollar and international dynamics driving domestic work overseas.
It’s a double whammy that hits southeastern Wisconsin hard. Manufacturing, in particular industrial equipment that is extremely sensitive to a downturn in manufacturing, is a major component of the region’s economy, according to Wisconsin Department of Labor and Human Relations (DILHR) data.
In Ozaukee, Washington, and Waukesha counties, manufacturing is the largest single segment of the employment base, with two jobs in durable goods manufacturing for every one job in non-durable goods manufacturing, according to the DILHR. However, the service industry is growing faster than manufacturing, and will eclipse the manufacturing sector within 10 years if the trend continues.
While the employment base of Milwaukee County is not as heavy in manufacturing as is that of the outlying counties to the north and west, the manufacturing sector that does exist is heavy in industrial machinery, according to DILHR.
In Racine, Kenosha and Walworth counties, manufacturing is by far the largest employer. Manufacturing accounts for 29% of total employment and 42% of total wages, according to DILHR.
According to Mike Retser, president of the National Tooling Association’s Milwaukee Chapter as well as controller for Richfield toolmaker W.G. Strohwig, the current recession in Asia was the start of the current trouble.
“It started three years ago with the East Asia crisis,” Retser said. “The East Asian Federation opened their sales shops in the US. They are selling directly in the US. Because they have a sales office, people might not realize they are getting tools made in China or Hong Kong.”
Retser claims that a strong dollar, weak Asian currencies and the weak Euro all conspire against United States toolmakers.
“Three years ago I noticed a lot of our customers were going overseas,” Retser said. “A lot of them were very dissatisfied and they are back. But there are some customers who will never come back totally. If it is repair or something that has to be done quickly, they will stay here. But the foreign element has eroded a certain piece of the market.”
The experiences of Ken Mahuta, president of both Mahuta Machine Tool and the Wisconsin Tool and Die Makers Association, mirror those of Retser.
“I think that what’s happening is we’ve given China ‘Most Favored Nation’ status,” Mahuta said. “They don’t have to do the same environmental things as we do, or follow a lot of the same types of other regulations. They steal our product. We have one customer that said a Chinese company actually duplicated its patented product and is selling it. It’s hard to control and catch them.”
Mahuta and Retser agree that domestic production has an edge with regard to quality, and that some clients who have gone overseas with projects have come back stateside. But they acknowledge that their industry may be changed forever.
Apart from low-cost competition from across the Pacific, both Mahuta and Retser say their companies are languishing in the doldrums of a stalled manufacturing economy. Both companies have seen layoffs. Mahuta is down from 21 to 12 employees after eliminating a second shift. Strohwig is down to 150 employees. Retser was not anxious to disclose what Strohwig’s staffing levels were prior to the slowdown, but an earlier documented employment figure was 180.
“We work for all different manufacturing companies — metal stamping companies, OEMs that make a product — we do tooling work and fixtures for them — and contract machining,” Mahuta said. “We work all across the board. There are a lot of people laid off in our industry — we were up to 21 people late last year and the beginning of this year — including part-time. It’s the bigger tooling projects that aren’t materializing. We do quoting on the bigger projects, but they never materialize. Maybe they’re shopping but not getting the go-ahead to buy. There is a cutback across all industries — nobody’s spending.”
As things tighten up at home, Strowhig is looking overseas, despite currency challenges.
“The more manufacturing declines, the less the tool-and-die sector can do in this country,” Retser said. “They have to chase the business overseas. We are doing some of that. But the US dollar is so strong that when they are looking for someone to do the work, the Euro is a weaker currency, and they can go to Germany. They can buy the tooling cheaper from them than they can from us. That goes for the Asians, too.”
Mahuta and Retser say, from the standpoint their association memberships, that things are tough all over. But it is not a completely bleak picture.
“There are some companies that are still busy with standing contracts,” Mahuta said. “They have things they sold last year — longer lead items. These are big machines that people are building — and they are backed up.”
Energy a minor factor
Both companies rely heavily on electricity to run their machinery, and demand not only affordable but high-quality power. Mahuta is feeling the pinch more than Strohwig.
“We’re getting impacted — our energy costs are up,” Mahuta said. “Our fuel that we use on our truck is up. So that’s costly. We just use natural gas to heat our building. We use a lot of electricity for industrial processes. We don’t have any big welders that have a huge draw — just motors, hydraulic pumps — things like that. Everything is voltage-sensitive. We have computers on all our machines. It is all sensitive to drops and dips in voltage.”
Operating on off-peak hours to save money on electricity is not an option for either company, according to Mahuta and Retser.
“Our utilities are such a small part of our cost compared to the high skilled labor and expensive computers and machines,” Retser said. “Clean electricity is the most important thing to us. Electricity costs can double — but you won’t see our members part of voluntary shutdowns because the labor ramifications would be worse than the savings we would get from participation. We are eligible for Dollars for Power — but most of our association members would not be,” Retser said. “We are not big consumers relatively. We are not melting metal or plastic or doing a myriad of other electrical consuming activities.”
“We pay the high rates because we operate during the peak hours — and during the summer our plant is air-conditioned so we pay a premium for that,” Mahuta said. “Right now I have three rooftop HVAC units on my plant. I’ve been running the shop on one rooftop unit. We shut off all the machines that we’re not using and things like that. I also think everybody could save money by avoiding peak hours. Up until the first of the year, we had two shifts here. Then I consolidated because things got slow. We went down to one shift. It wouldn’t work for us to run just on second shift. There are customer demands — and it is hard to get everyone to work on different shifts. We’ve got setback thermostats — when we’re not working the air conditioning is shut off or heating is cut back — within reason. Power is not a main consideration, but what happens is you only have X amount of dollars to spend — and if you have to spend a big chunk of it on energy, you have less to spend somewhere else.”
Quoting activity strong
Despite a lack of work, both shops have been busy generating quotes on projects that just have not materialized.
“We’ve been quoting things all along — but companies aren’t releasing things,” Mahuta said. “They say they’re not going to release this new product yet. I’m hoping we get busier. It seems like the quoting goes down. In the last couple of weeks the quoting has gone down. No big projects — no bigger things. So that’s a little disturbing. I have confidence that it’s going to pick up. But it’s kind of hard to take right now because we’re slow.”
“One of the things that we see and most of the members see — everybody is doing lots of quoting, but the projects are just not being released,” Retser said. “No one seems to be pulling the trigger. Are people afraid these projects won’t be successful because of the lousy economy? Everyone is tightening up capital expenditures. They have a wealth of projects ready to go.”
Weathering the storm
Both tooling executives are taking steps to position themselves to the tightening market.
“We have continually taken over the responsibility that our customers used to have as they pare back their engineering departments,” Retser said. “We do more of what the customer used to do. We have also maintained a technolgy edge with high-speed machining and high-tech machines and software. Engineering, design functions, engineering know-how, sampling tools before sending to them — we are working hard to add value. It used to be that the customer would do the sampling. We have continued to expand our capabilities. In the last addition we put on, we included the capacity to handle 60-ton blocks, with regard to lifting and machining capacity. We still maintain our tolerances of one thousandth of an inch on a 60-ton block of steel. We are using the latest machine and software technology — both of those increase productivity.”
“We have some specialty things that we know how to do and things like that,” Mahuta said. “And we just do it for certain customers — like brazing. When we get products that have some welding, we are able to do our own heat-treating in-house. For instance, we have one customer that needs quick turnaround on a tool steel part. We can do the heat-treating in-house all in one day rather than take two days for heat-treating. We are also trying more marketing and advertising — trying to get in touch with OEMs.”
July 20, 2001 Small Business Times, Milwaukee