Three years ago, the National Tooling & Machining Association had about 3,000 member companies, with about a quarter of the industry's business devoted to making tools and dies for the auto industry. Today there are 1,800 members, survivors of the double hit of a recession and a structural change that is pushing more work off shore.
NTMA President Matt Coffey attended the auto industry's Management Briefing Seminar in Traverse City Aug. 2-6 from the group's base in Fort Washington, Md., to better advise the small business on strategies. The vast majority of these companies are small firms, with fewer than 100 employees. He was interviewed Aug. 2.
Q: Global sourcing is not new, so why is it getting more attention now?
Coffey: The structural change in the marketplace has been going on for 10 years, but all of a sudden in the last three years it's accelerated. It's caused by the globalization where, increasingly, we see a tendency on the part of customer companies to move work offshore for reimportation.
I don't think anyone has had problems with the global companies moving work to other markets for the purpose of developing that market, but what we're increasingly seeing is the moving of that work from the United States to other countries for the purpose of work that comes back to the United States. That's where we really have seen a huge shift. The result of that shift is that a lot of people aren't even seeing that work anymore.
It's not a question of missing the quote, it's not a question of not having the right price, you aren't even asked to quote anymore. Either the corporate attitude is that X percent of our tooling is going to be made in China, or it's going to be in Mexico, or in Europe, and therefore, the people handing out contracts are only quoting in those markets.
One observation I've had, is that I had a 2002 Suburban, and I just got a 2004 Suburban. It's still assembled in Janesville, Wis., which I'm thankful for, but the foreign content in my car in those two years went from, I believe, it was 18 percent in 2002 to 35 percent in 2004. Bang, there it is, in two years.
Q: What kind of a pressure does that place the U.S. toolmaker in with those contracts he can still bid on?
Coffey: You place the domestic competitor in a head-to-head competition with a competitor whose cost structure is radically different, and whose government is intervening in the currency market to give him a cost advantage. I'm in the hole 60 percent before I ever open up the books to quote the steel to put in the job, and then I've got a steel market [where] where raw materials prices have increased 100 percent.
Q: So what kind of companies are surviving in this atmosphere?
Coffey: There are two avenues left to compete. One is to be absolutely the most innovative tool and die company in the world - in other words, say to your customers that you've got the better solution and the better part. If you go with that, you've got to have [proprietary] intellectual property and protect it for all you're worth. Otherwise, you have what I think of as moving up the complexity curve. The complexity curve says to give me the work that no one else is willing to do, and I'll figure out a way to get it done. If I'm innovative, and I'm able to do the work no one else is able to do, then I've still got some pricing ability. I've still got the ability to make money, and I think, in many ways, that's the strategy a lot of guys have used effectively.
Q: Are automakers any different than any other industry?
Coffey: Not really. It's being driven by the financial markets placing these quarterly profit pressures on all public companies. The management of the public companies is put in the position where they've got to return this quarterly profit. They feel they've got to squeeze cost out at any direction they can. They do that by offshoring. They do that by trying to push the prices down domestically and to that extent they use either auctioning or foreign pricing. They feel they've got to do that, and don't really care what it costs the domestic industry at the end of the day.
Q: What is that trade-off for lower prices in the short term?
Coffey: It's a short-sightedness that is going to come and bite [automakers]. They're going to be looking around for domestic sources some day and they're not going to be able to find them. I think that's a very dangerous competitive position to be in for them.
Wake up and pay attention to your manufacturing base in the United States. It's been seriously eroded in the last three years, and if you don't start thinking about that in terms of your strategies and your plans and your companies, then you're going to end up being totally dependent on sources of supply that you can't drive to, that you can't control.
I'm not talking about protection, I'm talking about the survival of a source of supply that most of these major companies don't understand even exist. They're all sitting around congratulating themselves on the fact that they're cutting cost, they're cutting capacity and capacity is now getting down to the absolute critical stage.