Special Report — Fighting Back: Stuck in Low

Automotive production was down by about 15% in Canada at the time this report was compiled, according to statistics collected by wardsauto.com. Ford had just cut 5,000 jobs, many of those white collar. General Motors recently announced that the long-rumored closing of its Ste.-Thrse assembly plant will become a reality in September 2002, putting 1400 people directly out of work and causing a loss of business in the supplier base. As well, Johnson Controls Inc. has stated it will shut down its Stratford, ON trim plant by the end of the year, saying the plant is not competitive.

Yet, in what both customers and suppliers say is the peculiarity of the current downslide, not all is doom and gloom. Business for those in the automotive sector of the plastics industry is indeed slower than it was last year. The near future’s not bright, but the present is not as bleak as one may think. It’s just a matter of perspective.

“If you take the three or four-year running average, it’s not down at all,” says Gerry Fedchun, president of the Automotive Parts Manufacturers’ Association, about Canada’s auto industry. “1999 and 2000 were banner years, but 2001 is about the same as it was in ’98. So it’s not a bad year, it’s just down from record years.”

In fact, the automotive industry shot way up in the past two years, which has maybe caused some unfounded expectations for those dealing in that sector. “Our usual production in Canada is about 2.5 million units a year and we shot way up to 3 million in 1999 and 2000 because we happened to have some hot units and things were going really well,” explains Fedchun. “Now we’re back to 2.5 million units, so the parts companies obviously reflect that to an extent.”

Others involved in making plastic parts for automobiles agree that things aren’t as bad as they appear at the moment.

“The automotive sector is down, but it’s probably still the third-best year in automotive builds,” Tim Phillips, business manager of plastics for Bayer Canada, concurs. “Relative to last year, which was just an outstanding year, it’s not a bad year for automotive.”

Post-attack tremors

Prior to the terrorist attacks in the U.S. there was a general cautious optimism among industry players that the stage was set for the industry to lift itself out of its mild doldrums some time in 2002. Such optimism is now hedged.

Bucking the general decline in automotive production, Decoma International Inc. has seen sales growth of 28 percent in the second quarter of 2001, compared to the same period in 2000. The growth was due to the acquisition of significant new business this year, according to Al Power, Decoma president and Ceo. Power says he expects some critical deterioration in the third and fourth quarters due to the attacks and shaken consumer confidence, but that he is still hopeful for a rebound in the first and second quarters of next year.

Jim Hay, business director of engineering polymers Canada at DuPont, says his company has seen a slowdown in the first and second quarter of this year. Both Fedchun and Hay are positive about the future, but they say it may be a slow climb out of this economic downturn.

“We’re not anticipating a tremendous bounceback through 2002. We’re anticipating some flattening [out of the economy] and maybe some moderate improvement, but the environment we’re experiencing now is one we could continue to experience for the next six to 18 months,” Hay predicts.

DuPont is looking at ways to strengthen its operations. One of those ways has been a change in attitude toward the way it currently does business. “It’s common for people to say [in difficult times], let’s ride this economic downturn, let’s batten down the hatches, let’s do the cost cutting, etc. We’re trying to take the attitude of let’s strengthen ourselves and compete even more effectively in this situation,” he says.

Companies often ask of their customers product-specific questions, adds Hay, but what they’re missing are the business questions. “Which is: what’s the biggest issue facing you right now?” Hay says. “It may not necessarily have anything to do with engineering polymers, but if it’s something that DuPont can help with, such as supply chain or materials management, then it would be our responsibility to bring that to bear, to help our customer.”

Hay suggests companies look at cutting some of their “bad costs” and leaving “good costs,” or people and growth development programs, intact. Cutting bad costs would mean, for example, slashing travel costs for meetings that can be conducted by teleconferencing or over the Internet.

Murray Ariss, president and owner of Mitchell Plastics Ltd., says though his company has had “sluggish” sales in the past two years, he’s confident there will be a turnaround.

“Like most people, we don’t have sales at the levels we’d like them to be. They’re down from two years ago — not dramatically, a bit sluggish. The next two years, ’02 and ’03, look pretty good for us,” Ariss says.

Mitchell Plastics, whose automotive customers account for 75% of its business, deals mostly with Toyota and not “the big three” automotive companies (GM, Chrysler and Ford). It’s the “Big Three” companies that have been hit the hardest by slower production this year, he says. Since Mitchell Plastics does specified work for just a few customers, it has weathered the economic downturn well and expects business to pick up quickly. “It’s a limited number of car models that we make parts for and there a new ones starting up in January. We have a higher percentage of business on these particular models than we have in the past. So that will be the reason we move ahead in sales,” he explains.

Some companies are diversifying and moving into other markets to make up for lost automotive work, but Mitchell Plastics, which had a major expansion — it consolidated three plants into one — in the past year, won’t be looking to cutback on its automotive customers.

“We’ve always been a little diversified. We’ve got about a quarter of our business that’s not automotive. I don’t want to say they we’d like to diversify anymore,” he says. “That’s really what we’re focusing on more and more, is the automotive industry.”

Not everyone in the business can be so lucky, however, and as times get tough, it’s only natural to fear layoffs. Layoffs, though there have been a few in Canada, should be a last-ditch option for companies experiencing major slowdowns in their operations, says Fedchun. “You look at cutting down on your own inventory. Cutting back on maintenance, on external purchases, anything to conserve cash,” Fedchun advises. But skilled trades people, he adds, are hard to come by these days. If a company were to lay off skilled workers, it may never get them back again.

“I would carefully and selectively lay off my production people only if I absolutely had to and try and find other ways of saving money. Even things like job sharing, four-day weeks to spread things around. I can tell you there are some companies that have done that and people have cooperated to do that, including unions, because they’d rather have everyone working a little bit than some people working five days and other people laid off,” Fedchun says. “Skilled trades have been working a tremendous amount of overtime, so what they [companies] are doing is cutting back on the overtime now.”

Decoma’s Power expects vehicle production volumes to be down in the near term but sees light at the end of the tunnel

“Looking forward into 2002 we expect a lot more activity in new program engineering and tooling releases as our customers prepare to bring new vehicles into production,” says Power.

And new tools means new business; a boost that just may be needed to reverse the industry’s doldrums.

and Michael LeGault