Molded rubber goods companies have been hit from all sides with challenges to their survival, from growing demands from their customers to low-cost competition overseas, to continuing general economic woes.
In weighing options to keep their businesses successful, they may need to investigate new materials and markets with the potential to grow in the future, according to William Klingensmith, a consultant with Akron Consulting Co.
Many firms in the molded and extruded goods market-especially those with ties to the automotive industry-may be feeling the squeeze of the continuing economic downturn and a slowdown in vehicle sales, Klingensmith said in a speech at the International Rubber Molding Conference April 1-2 in Cleveland.
Early forecasts for the automotive industry in 2003 put passenger and light truck sales at 16.5 million units, but the results for the first two months of the year reduced the outlook by about 10 percent to less than 15 million units, he said. At the same time, major Tier 1 and Tier 2 suppliers are mandated by their auto maker customers to expand services, improve quality and reduce costs, thus hurting their bottom lines.
The phenomenon of keeping busy while not earning much money has been dubbed ``profitless prosperity'' by the automotive industry. Klingensmith's business perspective for the molded rubber goods industry was outlined in his presentation, ``Profitless Prosperity-Or Worse?''
The demands from the auto makers are continuing. General Motors Corp. recently told its Tier 1 customers to start looking to offshore sources-especially China and other Asian countries-for cheaper parts, Klingensmith said.
The economic situation companies are facing now was set up in a large part by the overwhelming prosperity of the 1990s, he said. Greed, selfishness and shortsightedness reigned, and overcapacity in the rubber and many others industries was the result.
According to statistics Klingensmith outlined, capacity utilization in the rubber and plastic products segment fell to 78.9 percent in April 2001 and 79.9 percent in April 2002 from 91.4 percent in the mid-1990s. In comparison, total U.S. industry utilization declined to 76.1 percent in April 2002 from 84.5 percent in the mid-1990s.
Faced with poor sales and cash flow, many companies faltered as demand declined, Klingensmith said.
Auto and other original equipment manufacturers more frequently have sought lower cost suppliers offshore, driving directly in the face of two priorities U.S. citizens and businesses typically hold dear: buying American and attaining job security.
But the product quality abroad in Asia and Europe is generally excellent, Klingensmith said. And the pay rate for workers in China is as low as 36 cents per hour and in India is $1.36 per hour, compared with more than $20 per hour for unionized rubber product workers and about $33 per hour for unionized tire workers in the U.S.
Because of economic and competitive pressures, several of the U.S. rubber markets have declined in terms of domestic production, including footwear; commodity tires; truck straps; standard O-rings, seals and gaskets; low-end molded rubber goods; and some rubber chemicals, Klingensmith said.
The commodity hose and belts market is starting to decline as well, he said.
What is a molded rubber goods firm going to do to survive? Find where there is opportunity, Klingensmith said.
Several elastomers are or will be in demand because of their outstanding resistance, permeability, longevity and other desired properties, he said. These include thermoplastic elastomers and vulcanizates, fluoroelastomers, silicones, hydroxylated nitrile and polyacrylate.
He noted some markets are solid or have great potential, such as medical and pharmaceutical, electrical/ electronic, EMI/conductive, defense, high-tech and engineering, and plasma treatment.
No matter what the markets are or who the customer is, however, Klingensmith said the road to business success, much like real estate success, goes through three words. But instead of ``location, location, location,'' the words are ``service, service, service.''