Moldmaking Report: Wait and see

For many moldmakers, the recession began early last year, when the automotive OEMs began to cancel projects in response to thinning profits. In Canada, manufacturing capacity utilization fell to 77.4 percent in the third quarter of 2001, down from a peak of 87 percent 18 months earlier. The U.S. experienced a similar trend. What began as a trickle became a torrent as other key markets were infected by the doldrums. The computer and electronics industry, in particular, saw the bottom drop out of business, as operating capacity in 3-01 tanked at 60 percent from a high of 99.5 percent a year earlier. The events of September 11 were, in this narrow sense, the final blows to an economy already staggering toward recession.

“We had a number of projects canceled or put on hold after Sept. 11,” reports John Novosel, Jr., general manager of Nova Tool & Mold in Windsor, ON. “There are some programs that have been indefinitely postponed.”

Pinnacle Mold Inc., based in Oldcastle, ON, experienced a similar situation after the terrorist attacks in the U.S. “It’s been pretty bad,” says Ken Hedgewick, president. “We had two really slow months in November and December.”

Hedgewick says Pinnacle laid off 11 employees in November, although it has already brought six back to work in response to several new tooling programs the company has recently won. Another positive economic sign is the increase in quoting activity. Hedgewick says that while those quotes may not turn into business until the second or third quarter of this year, the company has enough work to tide it over until then. He also notes that despite the few disastrous months, sales have actually increased by approximately 10 percent over last year (See story, p. 9).

“Overall we have weathered the storm pretty well,” he says. “We’re keeping our fingers crossed that the worst is over.”

Nova Tool & Mold’s Novosel says his company has also recently picked up several new tooling orders for projects that had been postponed. Additionally, a customer has asked them to re-quote on a non-automotive project that was canceled after September 11.

Novosel says the company builds medium- to large-size molds, primarily in the range of 700 to 2000 tons, for a variety of automotive and non-automotive customers. Being diversified, he notes, has helped the company survive the downturn.

Diversification has also been part of the business strategy at Pinnacle Mold, where 30 to 40 percent of the business is non-automotive molds for overhead lighting, sporting goods and other markets. Additionally, during the downturn the company has benefited from its specialized capabilities in multi-shot tooling and the design and build of complex molds used to make refractor-type light lenses.

“We have some certain niches that are not common to industry as a whole,” Hedgewick says.

For Toronto-based Accurate Mould Co. Ltd., the slump began in November 2000, and continued through 2001, reports chief executive Peter Gossman. While sales increased by about five percent in 2001, this was a considerable drop from the company’s growth of 30 to 35 percent in recent years.

Accurate, a subsidiary of Wentworth Technologies, serves a variety of markets, including medical, consumer, packaging and automotive, and the company already seems to have turned the corner.

“We’ve had one of our best Januarys on record for orders,” Gossman reports. He says the surge in orders has mainly been lead by the thin-wall food packaging, medical and personal care markets. Automotive remains sluggish, and recovery of that market depends on an anticipated major tooling release sometime in March.

Canadians facing U.S trade complaint, increased competition

While Canadian moldmakers have certainly felt the pain of the current downturn, they have fared better than their American cousins. Scores of shops have closed in moldmaking centres around the U.S.; Chicago-area shops have been especially hard hit. American Mold Builders Association president Olav Bradley has gone on record as saying 2001 was the worst year in his 39 years as a moldmaker. According to one industry official, U.S. tooling sales in 2001 fell by about 60 percent, compared with the previous year.

The severe decline of the U.S. moldmaking industry has caught the attention of the U.S. government; in January the U.S. International Trade Commission announced it was launching an investigation into the “conditions of competition facing U.S. producers in the tool, die and industrial molds industries.” Part of the investigation will include an assessment of the pricing, policies and business practices of “foreign industries”. Canada, along with China, Taiwan, Mexico and others, are explicitly mentioned as countries whose moldmaking industries will be examined as part of the investigation.

Many of the U.S. moldmakers hit the hardest were shops which had concentrated business in automotive, heavy trucks or business machine/telecommunications markets. It is this lack of diversification, not unfair trade on the part of Canadian moldmarkers, that has hurt some U.S. moldmaking shops, says Louis Papp, industry consultant at the Canadian Association of Moldmakers.

“Some U.S. shops are losing business not to foreign competition but to other U.S moldmakers because they haven’t diversified,” says Papp. “They haven’t learned what we’re always preaching to our guys — you can’t put all your eggs in one basket.”

Papp says that some people in the U.S. incorrectly assume that Canadian moldmakers are being directly subsidized by the government, in a manner similar to European industry. Many American moldmakers also think the low value of the loonie, which Canada has no direct control over, gives Canadian moldmakers an unfair advantage. However, Papp argues that while the low dollar makes it cheaper to export, it also means Canadian moldmakers pay a higher cost to purchase raw materials, equipment, energy and transportation. Overall, he says the low loonie’s advantages are canceled by its disadvantages. Papp estimates that Canadian moldmakers have a six to seven percent cost advantage over their U.S. counterparts, primarily because of Canada’s national health care coverage. Yet it is difficult to see, he says, how this could be construed as an unfair trade practice.

Papp admits global competition is changing the business dynamics of moldmaking, an industry at one time built upon local markets and customers. This, however, is affecting both Americans and Canadians alike.

Pinnacle’s Hedgewick says he is seeing a lot of cost pressure being brought to bear on the North American market arising from overseas competition.

“I lost a couple of quotes to Chinese companies in which the winning quote did not even cover the cost of materials,” Hedgewick says. He says many North American moldmakers are becoming increasingly concerned about the competitive threat posed by Asian moldmakers. There is also increasing speculation among North American moldmakers about the trade practices in some of these countries, as the substantially lower cost molds made there cannot be accounted for by low labor costs alone.

Moldmaking profit levels have also been affected by the spread of so-called target pricing. This is a practice in which a customer will approach a moldmaker, often after he has already quoted on a tool, and request a further cost reduction to a specific price. Hedgewick says the policy at Pinnacle is to generally walk away from such business, although he notes that the customer can usually find at least one moldmaker willing to meet the demand.

“Twenty years ago you could make up to 35 percent margins in good years, but today you’re lucky if you get 10 to 12 percent,” he states.

Global and price pressures notwithstanding, most Canadian moldmaking shops have generally struggled through the recession in one piece. While some signs seem to point to a recovery in the near-term, there was still uncertainty in the business outlook of moldmakers polled at the time of this report (early February).

“There’s been a lot of quoting, but there’s still a big question mark about 2
002,” says Nova Tool’s Novosel. “We’ve picked up some work, but after March, as it stands right now, we’ve got a big hole.”

Only time, and orders, will tell if this fledgling recovery is for real.