It's not a pretty picture

By Mick Burke

Wednesday, July 16, 2003 11:54 PM CDT

STURTEVANT - Area manufacturers face obstacles as complex as the health care cost crisis, as daunting as the U.S. recession and as vast as China.

Those are, in fact, three immense issues that lead area manufacturers to sometimes sound gloomy or even bitter as they contemplate how to keep their companies from oblivion.

To put a sour cherry on top of that heap of problems, "manufacturing has an image problem," said one participant in Wednesday's economic manufacturing summit at the Center for Advanced Technology and Innovation. "People know it's on the decline, and young people are not drawn to it."

Manufacturing recovery is not just a matter of waiting out the nation's recession - although that would be a start.

Speedtech International is a small Racine firm that makes Velcro-type cable ties inside the Racine Business Center, 1405 16th St. The small firm employs five people full-time and up to 30 with temporary labor.

Chris Karnowski said he's searching for ways to beef up the customer base so he can turn some of those "temp" jobs into lasting ones.

At Wednesday's summit, he said: "I'm seeing guys who are little more mature in their businesses ... and facing the same stuff we are."

One thing nearly all manufacturers face is pricing pressures. To keep last year's customers, many producers are forced to sell their parts for less - even as their own costs, such as health insurance, rise. "And we're not the largest in the industry, so that's difficult sometimes," said Mike Bestul of American Roller Co. in Union Grove, an employer of about 225 people.

If a firm balks at that price-pounding approach, there's another supplier waiting to take its place, manufacturers say.

One of the greatest threats to American manufacturing comes from overseas, especially China, with its nearly infinite supply of dirt-cheap labor.

"China is our problem," Ron Fleuger of Multi-Products Co. of Racine said. His small company makes low-technology electric motors that make vending machines, appliances and other hardware operable. Its work force is now about 45, which is little more than half of its high-water mark of 80.

There is no getting around the fact that production is heavy on labor and assembly, said Fleuger, marketing/sales director for Multi-Products.

All he wants, he said, is a "playing field that is fair."

But how can an American company compete when a Chinese competitor might pay a couple dollars for an entire day's work?

"It's almost to the point where we want to throw up our hands and say we can't do it," Fleuger said.

Some manufacturers advocate heavy use of tariffs to equalize the fight against foreign production. Jeff Miner of Belle Tool Specialty in Racine said if that drastically raises the price of products for consumers, so be it.

"We're losing our work because the whole production line is going to China," he said. "We could give (our product) away and we could not compete."

Cory Mason, director of the county Small Business Development Center, said protectionism can have its place for short-term situations. When Honda "dumped" cheap motorcycles in the United States, tariffs allowed Harley-Davidson time to streamline its production, he said.

Mason didn't think protectionism is sustainable, however, in a global economy.

"In the long term, the whole supply chain has to be competitive," he said. "Because the king and queen of the supply chain is the consumer."

If American companies were fat and lazy, today's frightening prospects would be one thing. But manufacturers say those days are long gone; they have embraced "lean" manufacturing and made virtually all the improvements they can make.

One scary side to Chinese competition is what it can do to domestic producers. "Some have given up on going against China and look at a small manufacturer like Multi-Products and go after its business," Fleuger said. They drop their price and try to tear off a hunk of the new market.

Occasionally, a U.S. company wins a few rounds against China.

"We lost seven (parts) jobs to China, and five came back," said Don Mainland, owner of Pioneer Products and Petersen Machine Co. The Chinese could meet neither the quality standards nor the required timetable.

But American manufacturers are hanging on by their fingernails, he said. "The (manufacturing) equipment that's available is available to anyone in the world," he said. "If China can produce it just as fast, then the whole thing is overhead." The Chinese will win that war and barely break a sweat, he said.

Employment is still stable at Petersen, Pioneer and Mainland's other companies, he said. Reasons for that stability include customer loyalty, diversification and aggressive sales efforts.

But, he said, health-care costs are the top threat to his companies and its 175 workers. As an input, those costs have risen from 3 cents on the sales dollar several years back to 18 cents on the dollar now. Future increases are inevitable.

Mainland thinks a health insurance-buying pool would help manufacturers reduce that burden somewhat.

Mark Sommer, president of Gormac Products, has seen demand slacken for the parts that it makes for hydraulics, fuel systems and medical usages. Employment has fallen from 75 at the peak to about 50.

But he said he's bullish if manufacturers work with original-equipment manufacturers in the early stages of product design. However, he said, "if we elect to do nothing, we won't be here in three to five years."

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