North American processors on the long road back to economic stability

INDIANAPOLIS (Nov. 3, 5:10 p.m. ET) -- North American plastics processors have won some big battles as they work to survive the recession, but the economic war isn’t over just yet.

That was the message sent by several speakers at the 2009 Plastics Benchmarking and Best Practices Conference. The event was hosted by the Manufacturers Association for Plastics Processors, Oct. 29-30 in Indianapolis.

“The reality of the recession is that we’ve hit the lowest level, but we’re on a long road to stabilization,” said Laurie Harbour, president of the Harbour Results Inc. consulting firm in Berkely, Mich. “There won’t be any many more deep drops, but there’s still a long way to go.”

Processors “have hunkered down to the break-even point, and now they’re asking how to get out of this,” she added. “They say they want volume, but they may not have the working capital to make that happen.”

Harbour also advised processors to “weed out unprofitable customers and increase throughput, but don’t cut marketing.”

Industry veteran Jeff Mengel agreed with Harbour, saying that many processors “have held their breath for three or four months, but at some point you have to exhale and become a force again without economic currents determining where you end up.”

“You can’t let opportunity slip through your fingers,” added Mengel, a partner with Plante & Moran PLLC in Southfield, Mich. “This may be the best opportunity of your careers to grow your business.”

Mengel also unveiled the results of his firm’s most recent North American Plastics Industry Study. The 2009 version of the study tracked data from 179 plastics processors in the U.S., Mexico and Canada. Injection molders made up the largest group of companies in the study, which also included extrusion firms, blow molders, thermoformers and compression molders.

Companies in the study had total 2008 sales of $5.2 billion and total income of $296 million for a 5.7 percent profit margin. The study covered 265 facilities operating 6,612 injection presses in more than 13 million square feet of manufacturing space.

Twelve companies in the study met P&M’s definition of “highly successful.” These firms averaged annual sales of $9.5 million in sales, 12.5 percent year-on-year growth and 25 percent return on assets. Overall, the median of the survey would be a firm with $14.4 million in sales and year-on-year growth of 1.7 percent.

Average employee wages — both at average and successful companies — were just under $36,000 per year in 2008, according to the study.

Mengel said the study’s results reflected the volatility the market has seen in recent years.

“We had one client tell us he saw the best two and worst two months of his career in 2009,” he said. “Some companies have done well, but some turned out the lights and shut the door because the auction value of their companies isn’t what it once was.”

In spite of these challenging scenarios — especially for processors serving the automotive market — Harbour and Mengel both said that the number of processors driven out of business by the recessionary slowdown has been less than expected.

Processors in 2009 also are working with a new set of demands from their customers, according to Alan Rothenbuecher, a partner at the Schottenstein Zox & Dunn Co. LPA law firm in Cleveland.

“There’s been a change in customers, and there’s a lot of disloyalty now,” said Rothenbuecher, who’s worked with plastics firms for 15 years. “There’s more reliance on formality and formal documents. They’re making you stick to your word.”

Customers “are formalizing items they’ve never looked at before,” he added. “They’re more aggressive and want broader warranties – four years vs. 90 days. They’re also resisting limits in liability.”

Other new customer requests include longer payment terms, requests for financial statements and raw material and resin pricing, and demands for green certification.

“You have to have a clear understanding of things beforehand,” Rothenbuecher said. “The days of loyalty are gone.”

 On the other end of the processor supply chain, consultant Peter Mooney is concerned about the efforts of resin and material suppliers.

“Innovation is important, because plastics is a mature industry,” said Mooney, president of Plastic Custom Research Services in Advance, N.C. “Other economies have caught up with [the U.S.] To maintain a competitive advantage, we need to innovate.”

“It took GE 15 years and $50 million to make Ultem [polyetherimide] profitable. Who’s going to do that now? Who will come up with another commodity thermoplastic or thermoset resin? Resin companies give less effort to basic research than they did before.”

Mooney singled out several promising innovations, including bioplastics, nanotechnology, inherently conductive plastics, in mold labeling and micro molding. Potential growth markets for plastics include alternative energy, electric vehicles, mass transit and medical devices,” he added.

“The key question is how far in the future will these projects make money,” Mooney said.

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