This is the year of being careful.
That was the phrase used by John Hilbert, president of toolmaker Reddog Industries Inc. of Erie, Pa.
While the economic slide might not be as doom and gloom as the media have reported it, it has made mold makers shiver, Hilbert said. The slump is particularly hard for mom-and-pop toolmakers that helped build the industry in its earlier, salad days, he said.
"We've already seen a lot of them go out of business," Hilbert said. "I wouldn't want to start over today, and you don't see a lot of new shops. The money you have to spend in this day and age is mind-boggling."
As the decade progresses, the industry may be in for a shakeout. Larger toolmakers expect the number of companies to contract. All the while, the bigger mold makers expect to gather in more work, like a filled-out accordion.
"The key for a customer is doing more with less," said Horst Schmidt, research and development coordinator for Windsor, Ontario-based AP Plasman Group and former general manager of Plasman's automotive-based tool shop, Build-A-Mold Ltd. "They don't want to shepherd tools through four or five shops anymore. They want one, full-service tooling location."
A recent survey of large, noncaptive toolmakers by Plastics News shows that the big are getting bigger. Close to two dozen of those mold builders have annual sales of $20 million or higher from plastic production tools built in North America. While that may seem puny for many plastics processors, it is eons above what many toolmakers were recording only a decade ago.
Yet, much of that wealth is skewed toward one industry, automotive; and dominated by two regions, the upper Midwest and Ontario.
According to figures from the Washington-based Society of the Plastics Industry Inc., about 58 percent of mold imports come to the United States from Canada.
Michigan, where high-volume automotive tool shops are king, is far and away the single largest state for mold shipments with twice that of second-place Ohio.
A decade ago, many of the largest toolmakers either did not exist or were much smaller. Today, according to many of the large companies interviewed, a shift in work is taking place to move multiple-tooling packages to a narrow list of companies.
"Mold-making work is becoming a game of capacity," said Michael Adams, executive vice president of Midwest Tooling Group, a Chagrin Falls, Ohio-based company that owns four tool shops. "The bigger you are, the more you can harness technology. The average tool shop has a profile of $2 million in sales, and those guys are finding it hard to compete."
Toolmaking remains a fragmented industry, ripe for consolidation, Adams said. Indeed, that might be happening already.
According to the 2000 SPI Economic Report, the number of U.S. plastic mold establishments rose from 1,274 in 1992 to 1,531 in 1999. Yet, the number of employees dropped more than 5 percent in that span, to 28,200 in 1999.
Automation can be credited with some of that drop, said Lori Anderson, SPI director of economic and international trade affairs. But a more alarming figure is the value of mold shipments. While they grew to $3.16 billion in 1999, that only reflects a 1.4 percent annual growth rate since 1989.
That's minuscule compared to the annual growth rate that processors enjoyed during the same period: 14 percent.
"And plastic mold makers made a tremendous investment in technology compared to shipments," Anderson said. "If that doesn't start changing, some of them could be in big trouble."
One larger toolmaker, Caco Pacific Corp. of Covina, Calif., conducted its own survey of toolmakers last year. Looking back 20 years to 1980, it found that the number of employees per mold shop actually rose by eight people in that time, said John Thirlwell, Caco Pacific vice president for sales and marketing.
Why? Because customers are demanding more, Thirlwell said.
Caco has embraced the big-is-beautiful trend by starting to manufacture hot-runner systems, mold rotating plates and controllers during the past three years.
"That's why I think you'll continue to see fewer mold-making companies but larger ones," Thirlwell said.
That trend is amplified when customers decide to pass off large tool packages, consisting of 20-30 molds at a time, to one shop, said Bruce Wright, president of Cuyahoga Falls, Ohio-based Prospect-Akromold Inc.
In 1996, Wright's company was forged from a merger of two tool shops. Now, Wright said he would not be surprised if his company, with $17.9 million in 2000 sales, was swallowed by a larger competitor.
"There are so many more shops globally than there used to be," he said. "And a lot of customers are letting go of their senior engineers to save money. They expect more from us. It's survival of the fittest."
The situation could cause the industry to adopt a two-tiered system, said Matt Coffey, president of the Fort Washington, Md.-based National Tooling and Machining Association. The automotive industry uses a similar system for its parts suppliers.
A smaller toolmaker would work for a larger tool shop or tooling alliance. The large shops would outsource molds to avoid capacity overload or when more specialized work is needed, he said. Some shops do that already.
But there are several problems with that scenario for small toolmakers, Coffey said.
First, they lose control over the work and must count on larger shops to pass on jobs. That might not always yield business, Coffey said.
Also, an important shift takes place within those tool shops.
"More often than not, the Tier 2 company has no contact with the [original equipment manufacturer]," Coffey said. "And they have no ability to bid on larger-volume orders or to build their business. They stay small."
Some smaller shops have countered that danger by forming alliances. More than 20 injection mold builders in Minnesota and Wisconsin have just created the Midwest Tooling Association to funnel jobs through one central repository.
The Stillwater, Minn.-based association's president, Scott Wahl, will search for outside business and split large packages among its members. That way capacity is never a concern, said Wahl, a former co-owner of St. Paul, Minn.-based Global Tool & Engineering Inc.
"Our toolmakers can't afford an outside sales staff," Wahl said. "With this, there's no real involvement on their part, and they get more molds faster from more customers."
Others do not think small toolmakers will fade away so quickly. One midsize mold maker, Richard O. Schulz Co. of Elmwood Park, Ill., is content working with smaller, Tier 2 auto customers. They pay bills faster than large suppliers, do not ask for cash rebates on molds and maintain longer-term relationships, said President Greg Slyman.
"A company my size has to go to second-tier customers," Slyman said. "You can't be everything to everybody. Companies want more upfront engineering, so you have to make choices."
Yet, even Schulz is not a small toolmaker, at least by the standards of several years ago. His company recorded about $10 million in sales last year.
The mom-and-pop shops might never go away, said David Brown, president and chief executive officer of Rexdale, Ontario-based tool group StackTeck Systems Inc.
He said the biggest threat to the industry is customers who do not recognize the value that toolmakers bring to the table. When tooling becomes a commodity, the whole industry suffers, he said.
"We're a pretty resilient bunch," Brown said. "There's plenty of local work and plenty of good toolmakers."