TD Leaders See Black Cloud Ahead

August 8, 2003
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GRAND RAPIDS — There's a bit of a paradox in operation locally.

The recent recession caused some tool and die shops to fail, though nobody with whom the Business Journal has talked seems willing to say just how many.

Yet according to Michelle Cleveland, vice president of The Right Place Inc., who works with tool and dies makers on The Manufacturers Council, the industry locally seems to have turned a corner . . . at least for a while.

She said that late last year, she was beginning to worry whether tool and die business even had a future here. But now, she said, a number of West Michigan shops are extremely busy.

Cleveland told the Business Journal the pick-up in business results in part from an improving economy, now manifested in rising industrial orders.

She also said the improvement stems from the superlative national reputation of Grand Rapids area tool and die makers, coupled with a great deal of hustle on the part of shop owners and presidents who last year beat the bushes for business, especially in the defense industry.

One of her compatriots on the Manufacturers Council, Jim Zawacki, agrees with Cleveland that a number of area tool and die makers having been hiring and are very busy with orders.

Nonetheless — like Cleveland — the spare, intense manufacturer cautioned that a host of factors argue against celebrating.

He said the Bush Administration tariff on steel certainly is a problem for the tool and die business. The tariff not only led to large cost increases in the die-makers' primary material, but it also went against the competitiveness of some major manufacturers, reducing their demand for tools and dies.

He said most tool and die shops would be happy if the Bush Administration chose next month to end protective tariffs on steel.

But Zawacki didn't seem to think his colleagues in the industry would be jumping up and down for joy.

The problem, he said, is that so many other issues have begun compounding against American manufacturing in general and the tool and die industry in particular. Among them:

  • The Chinese government stiff arms American-manufactured products with a 30 percent tariff while Washington rolls out a red carpet — a 3 percent tariff — for Chinese-manufactured imports.

  • Chinese labor rates constitute another advantage, working out at between 80 and 90 cents an hour.

  • Automotive News reports that as a result of the tariff imbalance — and rock-bottom labor rates — Ford, GM and DaimlerChrysler in June begun pressuring all their suppliers to sell at "world price" (read: "Chinese") rates, or immediately begin building joint-venture manufacturing operations in China, or forget about being auto industry suppliers.

  • Meanwhile, Crain's Detroit reports that the UAW is offering the Big Three health insurance concessions if, in return, the Big Three agree in their domestic purchases to buy only from union suppliers.

"I don't want to give the impression that I'm anti-union," Zawacki said. "My mom was a union steward, and my dad worked in an industrial plant. So did I, for that matter, when I was earning for college."

But cumulatively, Zawacki said, the above list has scary implications for West Michigan and the country.

And he said it gets worse.

The Big Three, for instance, often won't pay for tools and dies until they begin model production — 18 months after delivery. Meanwhile, big consolidated banks refuse six and 7-figure loans to small tool and die firms.

For the benefit of American tool and die makers who decide to undertake a joint venture in China, Automotive News also reports that the Chinese government has issued a draft of a new policy.

Basically, it would force joint venture firms to turn over proprietary technology, intellectual property and patents to their Chinese partners by 2010. The implication is that by 2011 they'd be confronted with direct competition from their partners, and that U.S. technology, meanwhile, would disappear.

Zawacki said he recently testified before the Federal Trade Commission in Washington about the implications of these issues for American manufacturing.

Describing their reactions, he held up one palm to either side of his eyes.

"They were wearing blinders," he said. "It didn't mean a thing to them."

That's the kind of response, he said, that led the Manufacturers Council in March to launch its successful campaign advocating creation of a cabinet-level position oriented toward manufacturing.

He said that thanks to federal legislators on both sides of the state and elsewhere in the country, the U.S. Department of Commerce now has an undersecretary of manufacturing with a $48 million budget.

He's in hopes it will help the federal government understand how critical small and medium-sized manufacturers are to the nation's economy and strength.

"It's kind of a victory," he said. "What we wanted was a cabinet-level position."

He said the victory pales when one considers that the agriculture industry has a full-scale department post with a budget in the billions.

Zawacki noted that American agriculture employs less than 2 percent of the population and it contributes 1.4 percent of gross domestic product.

By contrast, he said, the manufacturing sector contributes just over 14 percent of GDP and — what Washington apparently fails to realize — underpins 60 percent to 70 percent of the rest of the economy.           

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