Hoop Roche, chairman and chief executive officer of Erie Plastics Corp. in Corry, Pa., wrote this letter to President George W. Bush. An edited version is reprinted with Roche's permission.
As one of your loyal (and financial) supporters, I need to report to you that a significant component of the economy, small to midsize manufacturing, is in distress and apparently not on the Washington radar screen yet!
I am the chairman and owner of Erie Plastics, an $85 million producer of injection molded plastic packaging and employer of about 50. My main reason for writing is to alert you to the fact that as the recession supposedly diminishes, most of us in small manufacturing are actually going in the other direction. The aggressive entry into our markets by foreign competitors, especially China, has diminished orders and output across many processing industries resulting in a severe overcapacity and dramatic reduction in pricing levels. I could tell you many disheartening stories, but believe me, today our customers routinely expect, demand and achieve 20-30 percent price reductions — effectively wiping out our entire profit margins on many critical product lines. Because of the overcapacity in our industries, we have no option but to surrender price reductions to these customers, or we just lose business that cannot readily be replaced. The widespread usage of electronic “reverse auctions” has made the situation more difficult.
Mr. Bush, it is a widely held fear and my opinion that many of our small manufacturing and processing companies are now in crisis mode and soon will close. It is clear to many of us that the tool and die industry, injection molding and other plastic processing industries, label making, packaging in general, and many other similar industries are very close to extinction (just as steel, textiles, footwear, electronics, telecommunications, personal computers, and automobile components have largely already gone “offshore”). I met recently with U.S. congressmen Phil English and John Peterson, in my office, and they both agreed that this is a significant crisis situation and have encouraged me to try to arrange a meeting with the Secretary of Commerce.
Hopefully that meeting will take place in the near future. Meanwhile, though, we need the administration to recognize that this is a very serious problem that will ultimately result in a massive loss of high-paying professional and technical jobs that cannot be replaced. You also need to know that I am not one of those tariff zealots who wants total protectionism. What I do want is a level playing field. My manufacturing colleagues and I have started taking trips to China to find out for ourselves what the real situation is. It is clear, therefore, that raw material is significantly cheaper, and processing equipment is also dramatically cheaper. For example, an injection molding machine that I might pay $300,000-$400,000 for in the United States (including a substantial product liability insurance cost for the press maker) can be purchased, I am told, in China for $50,000-$75,000 with comparable performance. The business-friendly strategy of the Chinese government and the aggressive competitiveness of their manufacturers has convinced many of my colleagues that they only have four alternatives:
* Sell now while they still can.
* Move production to China and become a net importer.
* Declare bankruptcy.
* Shut down.
Finally, Mr. President, thanks for the tax cut – but it won't do anything to help us. Frankly, if it puts more money in the hands of consumers to buy more Chinese products at Wal-Mart, it actually may do more harm than good. It seems to me that the administration must make a fundamental decision whether to let go of our small to midsize manufacturing base and just let the emerging countries absorb all of that business with a net job loss to North America and the United States. Or, are there ways that we can level the playing field and spur more investment in new technology, new products and high-tech training?
As I said before, I am not just a wild-eyed protectionist. And, I'm not planning on going out of business — in fact, Erie Plastics made a nominal profit last year. Somehow we're going to be around for a very long time. But I think half of my industry or more will disappear over the next few years. I do, of course, wish I could be a little more certain that Erie Plastics and I won't be one of those that disappear, nonetheless.
Thanks for listening and, assuming that this letter gets to your desk, please feel free to let me know if there is anything more that I can do to highlight this crisis or to work proactively toward solutions.
Erie Plastics Corp.