THEN AND NOW: Manufacturing in America alive and kicking

In 2007, Rubber & Plastics News published a six-month series about rubber manufacturing in America. RPN will post one story a day from the 2007 collection March 31-April 6, with an update on where the companies featured are today. Check out the April 7 print issue of RPN for a report on where the sector stands now and what its prospects are for the future.

Today's story “Manufacturing in America alive and kicking” from the Feb. 5, 2007, issue, covered the American rubber product manufacturing industry.

UPDATE: Cleveland-based Parker-Hannifin Corp. ended up buying not one, but two of the companies featured in the first installment of “The Future of Rubber Manufacturing in America.”

In 2008 Parker first purchased the Hi-Tech Group of companies and two months later followed up by buying Titan Industries.

With Hi-Tech Group, Parker added significant technical and manufacturing resources to supply elastomeric and plastic components to the medical industry. Titan was an industrial hose maker that provided new product lines and entry into several new markets for the Cleveland-based conglomerate.

To steal a line from Mark Twain, the reports of the death of the American rubber product manufacturing industry have been greatly exaggerated.

Sure, there are plenty of hurdles to maneuver in today's business climate to be a successful rubber goods maker, but there also are numerous advantages to producing in the U.S.

And there's no denying success stories abound in the domestic rubber industry.

Just look at Hi-Tech Group, a combination of three rubber and plastics companies in California. When Bill Sherman, the group's president and chief operating officer, joined Hi-Tech Rubber founder Ken Lester a couple dec-ades ago, the firm employed 10 and had less than $1 million in sales.

Now Sherman oversees a group that employs more than 700, averages revenue growth of 12-13 percent a year and has improved its profit margin during the last five years. All new business goes into its newest plant, opened in Riverside, Calif., in late 2005, but capacity at that factory may be spoken for by sometime in 2008.

Hi-Tech is successful, Sherman said, because it focuses on high-technology products, has diversified to be able to offer rubber as well as plastics, and attracts good people to its company.

"That's one of the most important things,'' he said. "You can buy a press anywhere, but you can't sustain it without qualified people.''

While it's true that the majority of Hi-Tech's business is supplying components to medical device makers, there are success stories in sectors that aren't as inflation-resistant as medical.

Yusa Corp. started as a joint venture in 1987 in a rural part of Ohio to supply automotive parts to Honda of America Manufacturing Inc.

During that time, the now wholly owned subsidiary of Japan's Yamashita Rubber Co. Ltd. has expanded several times, and employment totals more than 500 in its main plant, along with another 27 at its new research and development center. Sales exceed $200 million a year, with annual growth of more than 10 percent, said Vincent Allgeier, vice president and general manager of the R&D unit.

"As Honda continued to grow and as Honda expanded into research and development, Yusa for the most part has pretty much mirrored their growth,'' he said. "As they continually needed more, we just tried to expand and meet their needs as well.''

Even in tires, where domestic production has been cut along with several plants, Michelin North America Inc. in the past two years has committed to invest nearly $500 million at its North American factories. It also is committed-through its contract with the United Steelworkers-to spending at least $100 million during the next three years at its three BFGoodrich tire plants to make larger, higher-margin branded tires.

"Although many companies, including some of our competitors, have given up on North American manufacturing, Michelin is investing in our operations to remain competitive and to continue to deliver new innovations that the markets value,'' Chairman and President Jim Micali said late last year.

Homefield advantage

Parker-Hannifin Corp. views the U.S. as the best place in the world to manufacture high-tech goods, a company spokesman said. Much of the reason for that is because this country has better intellectual property protection through patents, laws and other means than is readily available in most other parts of the world.

"The higher the value of materials, the more likely it is to be produced in the U.S.,'' he said.

The conglomerate, while operating worldwide, has an extensive domestic manufacturing network. For example, its Seal Group has 41 manufacturing facilities worldwide, and 23 of those are in the U.S. "Apparently we find there are more pros than cons (to manufacturing in America),'' the spokesman said.

Titan Industries President Buddy Pepp said it's a huge advantage to be close to what is still the largest market in the world. In the industrial hose business, it's also important to be near customers to provide proper service.

"When there's a failure-and there will be failures-we have people right here who can jump on it that afternoon or the next day to assess the failure and see what needs to be done,'' he said.

Titan's laboratory also tests products from all over the world, and Pepp said those produced in the U.S.-including from his American competitors-still rank on top. "We're the top rung of the ladder and everybody else is trying to climb up.''

Keith MacGuidwin, owner of H.A. King Co. in Royal Oak, Mich., said his small firm benefits from being able to get orders to customers quickly. "If you bring it in from overseas, you get what you get,'' he said.

While China obviously is the 900-pound gorilla in terms of growth and competition, not all customers have enjoyed the experience, said Mike Meyer, executive vice president at BRC Rubber & Plastics Inc. Some brought business back for logistical reasons, others because they found their technology wasn't safe.

"China's not as rosy as once thought,'' Meyer said. "There's still a market here because a lot of companies still manufacture here that want a supply base close to them.''

Hurdles to cross

Though there are many positive reasons for producing goods in the U.S., there are a number of built-in detriments as well. High labor costs often are pinpointed as the main barrier to competitive domestic manufacturing, but that's not necessarily the case.

Instead, endless governmental red tape and regulations are the villains, according to Kevin Gray, president and CEO of Lauren International Inc., based in New Philadelphia, Ohio.

"We are not at all fearful of the labor side of it,'' he said. "But what is killing American companies is the bureaucracy that we've been put into-the potential litigation, the insurance side of it, the list goes on.

"If we were on a level playing field (with offshore manufacturers)-even with the difference in wages-we could compete every day. I believe that, because there's enough creativity and innovation taking place in this country. It's all the other things that you have to go through that's just mind-boggling.''

He said manufacturers need to quit pointing to what other countries are doing and look at what U.S. lawmakers are doing to the country's businesses.

"There's not anybody I can think of in the U.S. that cares more about the environment than the people at Lauren International,'' Gray said. "But for us to have to go through all the hoops just to verify that we're doing the right thing is like penalizing you for already being correct in what you're doing.''

John Orr, president and CEO of Myers Industries Inc., believes the cost structure in the U.S. is too expensive for most manufacturers because taxes, workers compensation and all the other costs tied to making a product-not just manufacturing-are too high. All these costs have grown exponentially the last few years, he said.

"We have competitors who can make the same kind of rubber product in China, ship it over here and still land it cheaper than we can make it,'' he said.

He doesn't think government needs to bail manufacturers out but believes lawmakers need to understand they have to do more than talk about jobs being lost in the U.S. and deal with the fact that businesses can't be competitive. "We're not asking for handouts, but I think our lawmakers need to come to the party and realize that there are issues affecting employment and affecting employers that need to be addressed,'' he said.

Not all companies, however, are down on government.

Wendell West, owner of Colonial Diversified Polymer Products L.L.C. in Dyersburg, Tenn., said his county has twice as much manufacturing as the U.S. average-mostly because of efforts from the local and state governments and a strong chamber of commerce. "They're very interested in keeping existing industry healthy in the state of Tennessee,'' he said.

Even in California, Gov. Arnold Schwarzenegger has been a big help on some issues, Hi-Tech's Sherman said. The company as a group in 2006 paid the same amount for workers compensation that Hi-Tech Rubber did alone four years ago-and the firm now is 2½ times larger than in 2002.

There also are two sides to the tough environmental regulations his state has, he said. "I lived here when you had to rub your eyes from the smog. Now the smog's mostly gone and you can actually see Los Angeles.''

Other pressures

Then there are the everyday obstacles in business, such as customers that keep pushing prices down.

"Our customers expect engineered products at commodity prices,'' West said. "They expect us to have an engineering staff and they don't want to pay for it.''

MacGuidwin's biggest concern is that the firms that buy H.A. King's vibration control products will move their manufacturing overseas. "If that goes away, then we're in trouble,'' he said. "In some cases, that's starting to happen.''

Tire manufacturers continue to see an influx of tire imports from lower-cost countries. Micali said tires imported in the U.S. have grown by 60 percent during the past five years and are projected to increase by another 37 million tires by 2011.

And auto suppliers-especially those supplying the traditional Big 3-still will have difficulties ahead, said Dan North, chief economist for Euler Hermes ACI, a global trade credit insurer. He noted Ford Motor Co. just posted its biggest loss ever and a number of large auto suppliers already are in dire financial straits.

"I don't see pressure letting up anywhere on the supply chain,'' North said.

Of course, no discussion about the cons of doing business in the U.S. can be complete without mention of health care costs. All the executives placed the continued escalation of these costs as one of the top problems they face.

"I don't know of a business out there that doesn't have issues trying to control medical benefit expenses,'' Yusa's Allgeier said. "It consumes a lot of time and effort to make sure you're controlling your costs.''

BRC's Meyer said one problem is the amount of waste in the health care system. Just as manufacturing had to become leaner, the health care system has to go through the same transformation.

"It's a big part of our sales dollar,'' Meyer said. "You just have to try to offset it in other areas. For the U.S., it's the No. 1 concern in trying to remain competitive against the rest of the world.''

A number of companies, such as Parker-Hannifin, are taking a proactive stance by offering wellness programs. Parker has weekly programs available to employees on health and fitness issues, covering such topics as making healthy choices, the company spokesman said. It also has an on-site gym with organized classes, and the facility gets plenty of use by employees.

With health care, he said all businesses can do is negotiate the best rates possible, control what they can directly and then give employees the tools needed to maintain a healthy lifestyle.

The need to evolve

Richard Balka knows the one thing his company-Home Rubber Co. in Trenton, N.J.-can't afford to do is stand still.

"The rubber industry in general is shrinking, as is the manufacturing base in the U.S.,'' said the owner and president of the 125-year-old company. "So if you're standing still, your business is shrinking. Even if you're able to maintain the customers you have, your business will shrink because some of their business is going away.''

Home Rubber last year bought custom mixer Ivanhoe Rubber Co. as one way to have something else to offer customers. Balka said companies that don't find other ways to sell to existing customers, find new customers-including through acquisitions or mergers-or create other efficiencies, ultimately will close their doors.

"It's an option for anybody,'' he said. "Morally it's not a very good option (for Home Rubber) because I feed or help to feed 45-50 families and would hate to see that happen. I didn't get into the business to do anything other than make it successful.''

West said Colonial Diversified, which has about 125 full-time employees, also is starting a small mixing operation and has begun buying and reselling components it doesn't manufacture in-house. In addition, the firm leases part of its building to a trucking company and a tooling business.

"We don't have to be a manufacturer,'' West said. "Whatever you were in the past, you may have to evolve or re-invent yourself.''

For the long term, that means Colonial might look for a joint venture partner or sell out to another company. "If we want to grow, I don't know that we have the expertise,'' he said.

Roadmap to success

Succeeding as a manufacturer in the U.S. may be difficult in reality, but the issues aren't really that complex, Meyer said. "First look at what it takes to be successful period-not just manufacturing in the U.S.,'' the BRC official said.

The keys are to control costs, stick to what you do best, do it better than your competitors and don't get caught up in the latest fad. BRC didn't rush to Mexico in the 1980s or China in the 1990s or now, he said, though the firm did study and analyze both options.

"It didn't make sense for us at the time, so we focused on what we do here,'' Meyer said. "Time will tell if that was a good or bad decision, but it's served us well to this point.''

Being successful doesn't just happen on the shop floor, the Parker spokesman said. It means eliminating waste, not keeping excess inventory, investing in technology and anticipating customer needs. "It must permeate the entire operation,'' he said. "It doesn't mean you're going to reduce the number of people or facilities.''

Micali said Michelin will continue to focus on cost reductions, productivity improvements and making high-value products that will allow the firm to compete against the best low-cost Asian plants, even when logistics and transportation fees are factored in. He projects the company will reach this parity by 2010.

"Profitable, competitive manufacturing is possible in the U.S. and across North America,'' he said.

Even a company like Hi-Tech Group, with its double-digit growth year after year, knows it gets tougher all the time.

"There's less business out there,'' Sherman said. "You've just got to be more competitive with a little more technology than the competitor. We've worked very hard at it. Not many companies can say they've grown that much for 20 years.''

Mike McNulty, Rubber & Plastics News staff, contributed to this report.

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Everyone interviewed for this report agrees on one thing: it is imperative that the U.S. maintains a strong manufacturing base. Here's a sampling of their thoughts on the topic.

Buddy Pepp, Titan Industries president

"Everybody can't be a computer programmer or a telemarketer. We have to have a strong manufacturing base or we'll be a second-rate nation.''

Bill Sherman, Hi-Tech Group president and chief operating officer

"Yes, absolutely, or we will depend on other countries just like we do in oil. That bothers me. If the U.S. becomes a total service economy, that's not a good thing.''

Vincent Allgeier, vice president and general manager of Yusa Corp.'s research and development operation

"We cannot be a service economy. At some point you've got to have a national product.''

Mike Meyer, BRC Rubber & Plastics Inc. executive vice president

"If we want to retain strong national defense, we need to keep manufacturing. As a percentage, manufacturing is a small part of employment, but they are good paying jobs that demand technology and education.''

Keith MacGuidwin, H.A. King owner

"Those are jobs that generate decent income for employees. Service is wonderful, but if you're not producing anything, then what are you servicing?''

Richard Balka, Home Rubber Co. owner and president

"From a global economic standpoint, you could argue that no, we don't need to continue to manufacture. However, there's a certain stability that comes from manufacturing that we've obviously lost. A lot of major Northeast cities have successfully replaced their manufacturing base with a service base (including stock and financial markets). But there tends in my mind to be more of a fluctuation in the viability of those markets than there is in the viability of a strong manufacturer. Even when in decline, manufacturing has a more measured and trackable movement when it goes up and when it comes down, while the banking, dot-coms and stock markets can whip out of control either up or down at any point in time.''