The upheaval in Mexico's economy is either an opportunity or a calamity for North American plastics processors - depending on your point of view. ``Any time you have instability in an economy where you're doing business, you have to worry. This is a big deal for us and we're very concerned,'' said President Tom Plein of AMS Plastics Inc.
``There might be short-term gains on the exchange, but the uncertainty of the Mexican economy is a long-term detriment to doing business there.''
AMS, based in El Cajon, Calif., has a 17-press custom injection molding operation in Tijuana, Mexico. One short-term effect on Plein's business will be that employees there will receive salary increases to make up for the declining value of the peso.
``We're going to have to raise wages, but the question is how much. Some people in Mexico are talking 10 percent, but that's still a decrease for the employees,'' he said.
The peso lost nearly 40 percent of itsvalue between Dec. 20 and Jan. 4. Last week the Mexican government responded to the crisis with a plan designed to stabilize the peso, control inflation and ease the burden on workers and investors. U.S. processors interested in the Mexican market kept a close eye on developments as they tried to sort out what effect the devaluation and government response may have on the plastics industry.
``It's awfully soon to know what the impact will be. A lot of people have money invested down there that aren't going to get a return on it, including me,'' said George Freeborn, a former injection
molder and now a consultant to the plastics industry with his company, Freeborn Inc. in San Antonio.
``People involved in manufacturing won't feel the pinch as badly, particularly if they're exporting to this country. Long term, it should have a beneficial effect on [the North American Free Trade Agreement].''
Companies contemplating a move there ``will probably get a bargain,'' he said.
Flambeau Corp. is proceeding with a plan to invest as much as $4 million to add blow molding production to a jointly owned injection molding plant it operates in Monterrey, Mexico.
``We're committed to making our investment because we're sure in the long run that it's all going to straighten itself out,'' said Bill Flint, vice president of sales and marketing.
The Baraboo, Wis., company should see little impact of the peso devaluation on its expansion because machines are purchased in the United States or Germany and moved to Mexico, Flint said.
The weak peso, in fact, may benefit American firms that buy material and labor in Mexico with dollars. That is the expectation of Aeroquip Corp., which opened a new injection molding plant in the city of Chihuahua last year.
However, Dave Garibay, controller for Aeroquip Automotriz de Mexico SA de CV, said he is concerned that Mexican companies will raise the prices of locally purchased goods and services to compensate for the peso's decline.
``Inflation is really the unknown factor,'' he said.
Roger Kurinsky, vice president of sales and marketing for Ivex Corp., a Lincolnshire, Ill., thermoformer, said: ``Recent events put our investment there in a different light. There will have to be restructuring within the country, as well as in the markets.''
Ivex has a joint venture in Monterrey with Consocio Industrial Maldonado, called MaxPack, that makes thermoformed plastic packages for food and other markets.
The venture also supplies Eastman Kodak Co.'s camera factory in Monterrey.
Brian Mullins, chief financial officer of Tuscarora Inc. of New Brighton, Pa., said he does not expect the economic turmoil in Mexico to have great effect on his company's plant in Ju rez, Mexico.
``Our plant is involved in the maquiladora program, and everything is done in dollars, with the exception of labor. The devaluation could make our labor even a smaller part of the entire cost picture than it is now,'' Mullins said.
In the long term, he said, the foam packaging and industrial products manufacturing firm will assess the Mexican economic situation with a focus on its plans to invest elsewhere in the country eventually.
``We need to determine if the economic problems are fundamental or transient, and how that affects further investment,'' he said.
``We were not on a fast track toward investment in the interior anyway.''
Richard Hurwitz, a spokesman for Atlantis Plastics Inc. in Miami, said the situation in Mexico is not of concern in the near term, because the company is marketing only agricultural film there now, and just recently opened a sales office in Mexico City.
``However,'' he said, ``we do have long-term plans to manufacture in Mexico. ... The situation now would have an impact on our decisions in the future.''
Atlantis, a publicly owned firm, owns film and profile extrusion and injection and blow molding businesses.
Lyle Vaughn, plant manager for Southern Tech Plastics Inc., an injection molder in El Paso, Texas, does not expect wages to rise at his firm's joint venture in Ju rez with Proctor-Silex Inc.
Randall Barko, corporate vice president for custom injection molder Nypro Inc. in Clinton, Mass., watched events in Mexico to see how they will impact the firm's molding plant in Ju rez and its assembly operation in Tijuana.
The company molds parts at its Nymitech injection molding operation in Chula Vista, Calif., ships the components to Tijuana for assembly, then back to the United States.
Nypro sells those products in dollars, rather than pesos, Barko said.
Typically, it is Nypro's philosophy to sell the products in the currency of the country in which the company manufactures, to protect itself against changes in currency valuations.
``We don't want to take the risk on currency fluctuations,'' Barko said.
Nypro doesn't see the situation in Mexico as a major issue, and it certainly isn't an issue new to the global injection molder. ``We have to deal with currency issues all over the world, wherever we have a manufacturing facility,'' Barko said.
``We're just starting to feel our way through this right now. Probably three months from now, we'll have a better feel for what the impact will be.''
Staff reporters Bill Bregar, Tom Ford and John Couretas and correspondent Clare Goldsberry contributed to this story.