Testimony on behalf of Michigan’s tool and die industry

From the August 21, 2009 Michigan Republican House Task Force on Jobs. This meeting was held at Macomb Community College’s Center Campus and the testimony given by Dr. James Jacobs (President, MCC), Joseph Petrosky (Dean, Engineering, MCC), Dr. Mohan Tanniru (Dean, SBA, Oakland University) and myself. The Task Force’s findings will be included in a November report on barriers and ideas for growth to Michigan’s economy.

Written Testimony before the

Republican House Strategic Task Force on Jobs

Delivered by

Mr. Joseph Brown, Founder, Lintrio Marketing LLC

On behalf of the machine, tool, die and mold industry

August 21, 2009

I would first like to thank Chairman Proos, Representative Meltzer and the other Michigan state representatives for inviting me to appear before you on the current state and potential future of Michigan’s tooling industry.

With the lack of clear understanding of the U.S.—let alone Michigan—tooling industry I’d like to briefly share some background as well as the current state of affairs this sector operates in.

Michigan tooling companies have been operating in an economy rife with disappearing credit lines, protectionist foreign competitors, image stereotypes and shocking misperceptions—not to mention one of the worst recessions in history.

The majority of people in this country truly don’t understand what the MTDM is. In the small chance they do, they haven’t grasped just how important our industry is to the economy. We are a behind-the-scenes industry that “makes things”. A die or mold is used to produce nearly every existing tangible part from cars, planes, tanks, soda bottles, lawnmowers, all appliances, computers, children’s toys, furniture, medical devices and even currency—among millions of others.

For those companies fortunate enough to still be in business, many feel they are simply biding their time since the reasons their fellow machine, tool, die & mold MTDM builders were forced to close still haunt those barely hanging on. For whatever reason, this trade has consistently been neglected and abused despite being the backbone of our economy and national security. For example, severely delinquent payments never reached many MTDM companies for 6-18 months—after they shipped tooling.  Essentially, the “little guy” was being forced to finance entire auto programs.

It wasn’t so much the OEMs who should be scrutinized for allowing this to happen. Instead, it was often the Tier One suppliers hired by the automakers to manage the rest the supply chain, who delayed payments to improve their balance sheets (see my article about Off-balance-sheet financing)—albeit with artificial data.  I’m referring to the Tier Two and Tier Three stamping die builders, tooling, mold and precision machining companies whom I’m testifying on their behalf, who were forced to be a pawn in the greed-filled game of grasping companies.

Panic and knee-jerk decisions

From Automation Alley and other small businesses in the tri-county area of Oakland, Macomb and Wayne Counties to Grand Rapids up to Traverse City, MTDM shops were beginning to feel the ramifications of protectionist competition from several Low Cost Countries subsidized tooling sector.  American tooling companies were scrambling to set up shop in China and South Korea and other Low-cost countries since that’s what it seemed was the en vogue thing to do—creating a major void in our industrial base.

One could easily form the opinion that many domestic MTDMs only exacerbated the problem by packing up, shutting down and heading to lands of cheap labor—and communist protectionism. Now, many of the jobs lost to LCCs are coming back here for production and OEMs are being forced to pay additional costs to American shops—lucky enough to still be here—to fix the shoddy craftsmanship and, or, mysterious raw materials LCC used. (Example:  a “die” would be sourced to China to pour in a foundry, machine, minor assembly and sent back to the U.S. for final assembly, “die tryout”, where the stamping dies are fine-tuned until they run the desired part such as a car roof or fender and then ultimately for mass production)

Instead of overreacting and hitting the panic button, many North American companies buckled down and readied themselves for a battle to which I salute. However, the trade policies of government-protected overseas tooling companies proved to be too powerful and tipped the scales of competition merely in costs—not quality—in their favor. Attractive to execs and purchasing agents to focus solely on short-term—often immediate—cost savings since they were compensated or given bonuses based 100% on cost reduction, nothing else.

Common Barriers

Several factors contributed to this destructive and innovation-zapping trend. First, their customers started tying payments directly to PPAP (Product Part Approval Process), which essentially served as a delay tactic and afforded companies the ability to practice creative accounting where these costs would stay off their balance sheets. PPAP also put an end to the fair and innovation-spurring practice of progress payments. Normal progress payments often included three periodic payments. It should be noted that the OEM transplants such as Honda and Toyota have historically provided their MTDM suppliers with these payments. It should also be noted that according to a recent “Tooling Proposal”, that U.S. OEMs have been giving competitors in China progress payments usually within 60 days of shipments, while failing to pay their fellow domestic suppliers for up to 18 months.

One of the primary reasons many tool and die companies have been forced to close was their inability to make payroll payments and other financial obligations because of PPAP triggered
payments—often 12-18 months after delivery

Image & Misperception Problem

This trade really doesn’t use lobbyists to yield their influence—they can’t afford to. Parents, educators and guidance counselors no longer encourage students into the skilled trades. Trade schools and co-op’s have diminished as a result. Those that remain must be salvaged, supported and used as a benchmark to spur hubs of training throughout the country. Macomb Community College’s Applied Technology Advanced Processes program is an excellent example, as I am sure you will see today from the testimony of my fellow speakers Dr. James Jacobs and its Dean, Mr. Joseph Petrosky.

Disappearing access to funds and lines of credit

Skittish banks are declining loans to many tooling suppliers since they consider anything with the terms “manufacturing” or “automotive” as red flags in the application or renewal document. How can these companies retool themselves without this?  More disheartening is the devastation this has caused many long-time Macomb County MTDM manufacturers and suppliers who were small business owners with impeccable payment histories.  In an instant, many owners’ lives turned upside down.

The following excerpt is from my interview with Michigan’s 1993 Women’s Entrepreneur of the Year and a decades-long small business owner of a MTDM supplier in Fraser, Michigan. Her name is Nina Sylvester and sadly her story is similar to many other past—and current—Michigan manufacturing shop owners:

“Bank of America called and told me that they ‘No longer find that Automotive and Manufacturing are lucrative to their business and therefore will not renew my loan and I have 90 days to find new financing.’ Keep in mind that I was never late on a payment, nor am I to this day, 10 months later.  I am at the office everyday collecting what little money is left in receivables which is a job in itself.  No one is paying their bills, and I hear the same story from everyone.  I had in excess of $100,000.00 in bankruptcies alone since the end of last year. I called and had packages put together and interviewed with 20 different banks.  They all said the same thing.  One bank in particular, Huntington National Bank, I asked them what they were doing with the money that was given to them by the government and she told me that they had it in an account collecting interest and were going to acquire other banks with it.

 I also contacted the SBA and was told that they have programs for new businesses but nothing for existing businesses. Meanwhile the bank is on me to pay off my loans in their entirety. They forced me to stop manufacturing and taking orders, forced me to sell off equipment that was appraised in 2006 for $683,000.00.  A boring mill that I paid $210,000.00 for, sold at auction for $15,000.00, and that is just one.  Tooling that cost in excess of $20,000.00 went for $25.00.  Now, I have a building that I paid $470,000.00 for in 1991, they are telling me I will be lucky to get $375,000.00 for.  I still owe the bank $650,000.00 and don’t have a clue as to how I’m going to pay that back. 

I have been in business 24 years, and have nothing but debt to show for it now.  I have worked in this industry for 35 years, and never in my wildest dreams did I ever think that this would be happening in this country.  Our government is quick to help foreign countries and will not help their own people.  They continue to send work overseas when large corporations here are closing left and right.”

Fear of Unions

The facts and data support the notion that Right-to-Work (RTW) states are more desirable locations for businesses. When companies are weighing their option to establish a presence somewhere, being a “union-state” is dragging our appeal down. I feel it’s another image and stigma manipulation by those who support unions because RTW states are not anti-union to begin with—despite the scare tactics they deploy on employees trying to force them to join. The fact is people can still form unions if they so desire—RTW simply states that employees can’t be fired for failing to pay union dues and fees.

Bipartisan Support is necessary of ridding our state of the stigma that comes with being known as a union-state. Unfortunately, political careers are often guided not by the values and viewpoints of politicians but instead lay with the potential for most votes.  In this state, there is no reason not to entertain the idea of being Right-to-Work state.

I respect what unions such as the UAW did for many families many years ago. But how we can we obtain the resources necessary to disseminate the facts out there that it’s time for Michigan to be a Right-to-Work state?

Regardless, this industry needs the next wave of major OEMs to establish here. We have the infrastructure, the best tooling & engineering talent in the world, prime strategic location with major airports and our waterways for heavy-freight is appealing.

As recently as 2007, Michigan was ranked by some as one of the Top 10 most “business-friendly” states. Sadly, that was the same year Michigan raised business taxes by 22% and sent Michigan into the most rapid down spiral in rankings that is attractive to new businesses and entrepreneurs. Also, the Reason Foundation, a public policy think tank, recently ranked Michigan the sixth most burdensome state in the imposition of occupational licenses on entrepreneurs.

Michigan will only become a destination location for manufacturing jobs and entrepreneurial activity and investment when they offer; sustainable prospects for growth and lower operating costs

What can we do to incentivize businesses to establish locations here that will help the tool & die industry?

It will require an honest review into the current options available to MTDM as well as additional policies can we create to stimulate the creation of jobs. Before offering specific ideas I will quickly talk about a mechanism adopted and initiated by Governor Jennifer Granholm.

Tool & Die Recovery Renaissance Zones

While the program has done an ok job of improving the margins of included companies through tax abatements it’s not achieving the intended, long-term goal of job creation. Membership or applications are encouraged stating the wonderful benefits and synergies each company (usually around 12 companies) can achieve in a designated Recovery zone. These include pooling resources, sharing information, splitting costs, giving each other loads of jobs and referrals and more. Believe me when I tell you, these are engaging ideas in theory but not from a practical sense because it’s simply not working to create MTDM jobs.  The elephant in the room is the forgiving of taxes and without it nobody would pay the local law firms and consultants the thousands of dollars they charge to help them fill out and file the application to the Michigan Economic Development Corporation.

However, it’s failing to reach its goal and what about the other MTDM shops not in a recovery zone. Are they at a competitive disadvantage?

·         One solution could be a reduced, flat tax structure for this sector that is simple to understand and offered to alternative energy OEMs making our region more enticing.

For the sake of market diversification, I’m going to mostly focus on non-automotive ideas since the tooling industry’s relationship, and reliance, on the local auto sector has been well-documented.

Alternative Markets

Military and Defense work is attractive because it requires superior quality and more precision which automatically eliminate some LCC’s on quality alone. Another factor is the confidentiality of military tooling specifications in the interest of national security. The government pays its bills on time, too. However, many small family-owned machine shops don’t have the resources or wherewithal to know where to begin as an approved supplier in this industry. So I would like to see legislative support to assist these companies filling the requirements to supply this market. I’m aware of the periodic, for-profit, gatherings that invite small businesses desperate to learn how to “break in” to governmental contract. Despite the cost, I’ve been told the credibility of these so-called “sessions” has been questioned.

Alternative & Renewable Energy

“China’s commitment to developing clean energy technologies and markets is breathtaking,” according to a Washington Post editorial by General Electric CEO, Jeffrey Immelt and notable venture capitalists John Doerr.

Without question, this is absolutely the one industry that could prove to be the saving grace of our nation’s critical manufacturing base. No other market has the potential to witness a mass transition of CNC machining, metal stamping, tool and die, injection mold companies into a viable, sustainable sector than that of wind energy. A single wind-turbine can include up to 8,000 parts and is the best chance we have to save and create jobs. Of course, that is considering the influencing methods of the major utilities are held in check.

To miss out on this opportunity could be prove to be the final death knell of U.S. tooling. With National energy policies already in place (20% by 2030 in U.S.) and proposed in Michigan to increase the amount of “off-grid” energy, this market has the most and longest-sustaining potential. It’s an industry that prefers to vertically integrate in terms of building and assembling turbines as close to possible to end-user or location.

Fortunately, for Michigan we may finally have something out of our control that’s positive in a long while. According to the American Wind Energy Association (AWEA) report of the Top 20 States for Wind Energy Resource Potential, Michigan ranks #14 meaning that we have an important advantage of being near the demand.

Michigan Works & Skilled Trades Training

While the program is a fundamentally progressive idea to equip workers to improve the capability and employability of our workers—it is understaffed and has reached bottleneck status. From a professor of a local college in advanced manufacturing:

“The state of CNC training availability at many of the community colleges is troubling.  The Michigan Works system is difficult and slow to navigate through.  Too few unemployed people know of what we can do and that’s sad.  There should be waiting lists of students trying to get in.  But the bottleneck is Michigan Works.  They can’t handle the volume.  Because of this we continue to train a few at a time.  I have many candidates, for example that can’t get through the process until the end of October.” Gary Walters, Professor at Macomb Community College’s ATAP

The laid off Tool & Die makers need CNC training.  It’s the only way they can regain employment.  The comment below is from a MTDM supplier in the Grand Rapids area:

“I suggest we put a team together that has members from the State Board of Education, leaders from high-schools and tech-schools, and leaders from all levels of manufacturing. This team could develop a state-sponsored information initiative aimed at educating parents, students, school administrators and teachers, as well as the public at-large, about the value of Michigan.”

Funding for retooling through grants or business energy credits

·         R&D energy fund for Michigan MTDM to build prototypes, reverse engineer or study the manufacturing process of wind turbines, etc

·         A one-stop call center where current, or potential, MTDM suppliers can call and have any questions answered without having to make several calls if any at all out of a lack of not knowing where to go

·         By attracting Wind Energy OEMs we can use them as a vehicle to foster growth by offering tax credits for components they buy from Michigan suppliers.

·         Offer incentives for OEMs that reduce their “life-cycle costs” which includes energy consumption or waste during procurement and logistics.

I interviewed one of the world’s leading experts on Green Manufacturing, Dr. David A. Dornfeld (Professor of Mechanical Engineering, UC-Berkeley) According to Dornfeld:

“I am a big believer in the opportunities to be had in alternative energy and related areas. I heard an interesting presentation on the frailty of wind turbines—largely made up of machined and forged metal parts—and the lack of infrastructure to repair, remake these components, usually requiring large precise machine tools. Ditto for solar panels, fuel cells other sources. It may not seem obvious but if you take the cover off most of these devices there are lots of machined and forged parts—all requiring machining & tooling companies of all sizes, many companies are seeing a real competitive opportunity here. And this will be hard to source offshore since these parts are often large (high transport costs/time), complex (think skilled machinists – not minimum wage workers, and involve advanced technology – much of which is (or will be) developed here.”

Assist MTDM companies access to funding and credit

Use any means necessary to stimulate funding to MTDM companies and discourage the banks from systematically restricting credit to small business owners who have impeccable borrowing records but were connected to the auto industry and Tier One companies who both received bailouts.

·         Insure these loans or receivables (similar to what the Export Development Canada has done for their supplier base)

Thank you for giving me the opportunity to share with you some of the barriers the Michigan tooling industry faces. More importantly, I appreciate the opportunity to use this platform to share ideas and suggestions which will ultimately allow this great industry to move forward.

(Joe Brown is a lifelong Michigan resident and has provided a voice for the American manufacturing base—primarily in tooling. After graduating from Michigan State University he wanted to stay and work in the place he considered home—despite the exodus or “brain-drain” that many in his generation have contributed to leaving for places like Chicago. He spent six years at a Sterling Heights, Michigan tool, die and mold component supplier and went through the MBA program at Wayne State University before venturing out on his own to start a sales, marketing and public relations company, Lintrio Marketing LLC, for the domestic tooling industry. He started a website in January, 2008 to gain attention for and commit to the preservation of an industry he feels has been abused, misunderstood and suffered through a lack of representation. For the past 10 months he has been an editorial contributor for the “Tool & Die Authority”a publication from one of the largest tooling associations in the U.S)

Joe Brown can be contacted at jbrown@lintrio.com

Tags: future of manufacturing, GOP Lansing Task Force, support tool & die, tooling industry, Top Mechanical Engineers