Sometimes being good just isn't good enough. That was part of the message delivered by panelists who related tales about the demise of their injection molding companies during a sometimes-emotional session Nov. 17 at the first SPI Plastics Processors Conference in Dallas.
Those presenters the father and son team of Joe and Todd Bennett, formerly of United Southern Industries Inc., and P.C. Hoop Roche, formerly of Erie Plastics Corp. dissected what happened to their family-owned firms. They related the bitter lessons learned in an effort to help others avoid a similar fate.
A fourth panel member, GW Plastics Inc. vice president and chief operations officer Art Bennert, also related the path taken by his successful firm, which won last year's Plastics News' Processor of the Year Award.
The Bennetts have rarely discussed the plight of Forest City, N.C.-based USI, which Joe Bennett founded in 1970 and for which son Todd had worked for 25 years. Thermoformer Wilbert Plastics Services Inc. bought the injection molder in March, just before USI was to declare bankruptcy, and Wilbert still operates one of two USI plants it acquired.
Todd referred to himself and his father as local boys with a passion for excellence. He said they met every goal for quality, service, new technology, training and lean manufacturing, and they treated their employees and customers as real people, with good, old-fashioned values of respect and ethics. At its peak, USI operated five facilities and had annual sales of some $30 million.
But it wasn't enough. In Nascar terms, Todd said, it was like we were at Talladega, on the last lap, in the lead, and we ran out of gas. We could see the finish line.
They got swept away by a fundamental market shift that, combined with business lost to the effects of legislation such as the North American Free Trade Agreement, saw a vast surplus of U.S. molding capacity turn the sector into a brutal buyers' market. USI primarily molded parts for small appliances and power tools, and much of its action went to Mexico after NAFTA.
As a sole proprietorship, Joe leveraged all the equity he had to buy new presses, invest in quality certifications and lean training. They were serving quality auto customers like Mercedes, BMW and Lexus. But the company ran into severe liquidity problems.
Todd said that in 2008, I started feeling the real pain. When he read that Erie Plastics also was in trouble, he said I knew this was serious. He said USI had wanted to emulate what Hoop Roche had achieved at Erie, in building a successful, $100 million molding firm that had a solid reputation.
The realization for me was that we were in a surplus economy a surplus of capacity. The rules of engagement changed, period. It's not about relationships, it's not about values, it's not about honor and integrity, it's about who's going to survive.
USI had been through tough times before, but this was different. Banks would not lend money; in fact, some of those institutions wanted to call in their loans.
Then you had all of a sudden where you had a half-million-dollar credit line with a vendor, and then they dropped it to $100,000 so instead of 60-day terms, you were paying in seven. We were paying for material before it even got delivered! Todd Bennett said.
On top of all this, Joe was in the hospital at the time, after a serious accident in which a horse he was holding reared up and struck him in chest with its hooves, breaking every rib on the right side of his body. He nearly died from the internal bleeding.
I thank the Lord, literally, Todd said, that we were able to sell our assets at the 11th hour and 59 minutes before their 12 o'clock bankruptcy deadline.
Wilbert was USI's fifth and final suitor. They took some calculated risks, they believed in us, they saw the value there, and I appreciate that, Todd Bennett said.
About losing USI, Joe said, It's like waking up with a leg missing, and you feel like it's still there.
He said the company tried to do all the right things. It secured ISO 9000 and QS 9000 quality certifications. It invested in and applied lean manufacturing principles that helped its operations a lot but which were expensive. Did it take us down? No, he said.
Joe did not think there was any one issue that sunk USI. But in retrospect, he said he would do some things differently. I'd certainly pay more attention to how leveraged we were. It seemed we had to be, he said. He described taking assets to the bank to turn them into cash to make payroll and getting a cold shoulder.
And you never, never have been so much as late on a payment, that hurts, he said. That happened to us, over and over.
Joe Bennett said he was never interested in selling USI, though there were companies hungry to make such an acquisition. I should have taken those calls that I kept getting from investment bankers, instead of every week or two, hanging up and saying 'No, thank you,' he said.
The Wilbert deal allowed the Bennetts to wipe clean their slate of guaranteed debt, though they have unsecured debt that they're still working through, Todd said. He noted the $150,000 they spent to prepare for a bankruptcy that never happened. But the sale to a successful, debt-free Wilbert, run by industry veteran Greg Botner, meant that most of USI's employees were able to keep their jobs, in a North Carolina county with the 13th highest unemployment rate in the U.S.
Todd added: If we could have done anything differently we would have brought in some investors, got some partners, or do a joint venture. But you know, that's a whole new paradigm, that's very difficult for a family-owned business to step up to.
Roche, now a consultant who also runs his own, small, niche-focused injection molding firm, lived through the wrenching bankruptcy of his 48-year-old family-owned company early in 2008. Rival Berry Plastics Corp. bought Erie's assets in a fire sale and shut the firm down.
For one, Roche said, Learn how to just say 'no.' You don't have to take every piece of business that comes along.
He noted how he needed to hire a financial work-out consultant, a corporate lawyer, a personal lawyer, a bankruptcy lawyer and various consultants. While he checked references beforehand, he says now it might not have been enough.
If you deal with enough legal professionals, you'll find out that they always have an agenda, he said. When you're paying consultants and lawyers between $275 and $400 an hour, it takes a very shockingly short amount of time to run up $50,000 a week in fees.
Bankruptcy is a very unique animal, Roche noted. I have an MBA in finance and I never got one minute of preparation for bankruptcy.
When Erie first started doing business with P&G, the firm had a terrible reputation with suppliers. But from the mid-1980s till about 2000, Erie had a golden era of working with the consumer products giant. Eventually, its P&G business went south.
Roche feels relationships between suppliers and OEMs began to change a few years ago and became adversarial. Buyers were being coached to not be friendly with suppliers, to stop making small talk about their families or going out to dinner with them. Instead, they were an enemy that needed to be beaten down on price or perform marginectomies, as he calls them.
But Roche and Bennert remain generally optimistic about the nature of business and business relationships. I believe the pendulum will swing back. Roche said.
It has started to swing back, GW's Bennert agreed.