CLEVELAND - The average-size toolmaker appears to be at a crossroads as it decides whether it can continue to operate, according to a preliminary report from accounting firm Plante & Moran LLP.
For some small companies, the decision is much easier, said Jeffrey Mengel, partner and plastics industry team leader.
``It might be cheaper for them to liquidate than continue to operate,'' said Mengel, speaking June 21 at Plastics Encounter Cleveland. ``They have to ask how they are going to make money, and if they can't, what are they going to do about it.''
The firm, conducting the survey every two years, found that those mold-making companies in the lowest quartile had reason to question continuing operations. Those companies, with average sales of $1.4 million a year, recorded profit of $135,000 annually before subtracting interest, taxes and owners' compensation.
But after deducting bank debt, those same companies only had a slim market value of about $80,000.
Meanwhile, large companies - with average sales of $8 million a year or more - recorded profit of $1.2 million. Those companies had a much higher market value of $7.35 million.
Preliminary survey results for 2000 came from 51 North American mold makers that were asked a series of financial questions. Plante & Moran would like to interview at least 25 more companies before releasing final results later this year.
For many companies, 2000 was a good year, said Mengel, based in Auburn Hills, Mich. Sales per employee increased sharply from 1998 results, with a median of $122,308 per employee. In a five-year period, company sales grew, on average, by 11 percent.
And the number of employees at each mold shop dropped, suggesting that many toolmakers added equipment to replace labor. About two weeks were cut from mold delivery times in the process, with the median shop building a mold in 56 days.
Yet profit remained an issue for small and midsize shops. And bank debt could be a problem for larger mold makers in 2001, with many indications pointing to a decline in tooling business.
``After a good year in 2000, they could be suffering a whiplash effect,'' Mengel said. ``In good times, new sales volumes pay for debt. But in bad times, tool shops might find they still have an animal to feed [in bank debt from equipment purchases]. All in all, it probably will be a tough 2001.''
The average-size tooling company recorded sales of $2.56 million and had about 24 employees in 2000, according to the results.