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Reluctant optimists
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Many manufacturers are hopeful about the economy, but worried about government’s role
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By Michael Bina, December, 2009
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The recent Nicolet National Bank Business Pulse survey on the “Future of Manufacturing” raised a few eyebrows. Even the guy who conducted the survey was surprised. “Given the current economic context,” David Wegge, PhD., says, “the results were more positive than I expected.”
Wegge conducts quarterly Business Pulse CEO surveys for Nicolet National Bank. In September, his analysis showed that New North manufacturers were way more optimistic about the future of manufacturing than their counterparts in the service and retail sectors. (See Insight magazine, November 2009, www.nxtbook.com/nxtbooks/insight/iob_200911/#/50.)
“Perhaps more significant,” Wegge says, “is how optimistic they are about their own business.”
Kurt Voss, CEO of Amerilux International, is one of them. “We had prepared for this downturn and our team made some good decisions and put good plans in place,” Voss says. “We wanted to be on the front end coming out and I think the economy is past the recession curve.”
Economist Bill Testa, vice president and director of regional research with the Federal Reserve Bank in Chicago, says the Fed has seen “positive manufacturing numbers for three months and it’s looking fairly respectable in the fourth quarter and through 2010.”
Purchasing manager indexes in the U.S., Europe and China all reported notable growth in October, well above the contraction score of 50. Europe’s PMI rose to 53.7 – its first month of growth since January 2008. China’s PMI grew for the eighth straight month.
Wisconsin manufacturers have reason to be optimistic, says Voss. “It’s part of our culture. This area is overlooked for its business acumen. We’re down to earth, we don’t overreact in good times or bad and our self reliance serves us well.”
Peter Mancuso, CEO of Lindquist Machine Corp., says he’s not sure why there’s so much optimism. “How is one optimistic when reading some of the stuff that’s out there?”
Some of the concern reported in the Nicolet Bank survey is the kind of “stuff” that’s got Mancuso’s attention: taxes, regulation and competition overseas. While Mancuso believes he has Lindquist Machine positioned for success, he’s not enamored with the government’s role in U.S. manufacturing.
“Politicians don’t get it,” he says. “Manufacturing is in serious trouble. Oh sure, we make nuclear powered submarines and stealth bombers, but we don’t make boots? Not one big screen TV? Not one printed circuit board? Two billion cell phones on this planet and we don’t make one?”
Voss also is concerned with government’s role. “It’s swinging in a direction that means more government, even higher deficits, more regulation and more taxes to pay for it all. Yes, I’m concerned, but hopeful that people recognize what is being proposed, temper the changes and the pendulum swings back the right way. The thought of a continued expansion of government under the guise of solving all of our problems is very troubling. Some politicians may mean well, but I struggle to find one government program that works very well.”
The new “manufacturing czar” is off to a rocky start, based on recent comments by some manufacturers. “He’s going to help us craft policies that will create the next generation of great manufacturing jobs,” President Obama said in appointing Ron Bloom in September.
“Ron Bloom is just a political appointment who’ll do nothing for manufacturing,” Mancuso says. “Government is in the way – putting up more road blocks and making it harder for us to make things. In 30 years, not one administration has implemented programs to support U.S. manufacturing. Ron Bloom isn’t the answer.”
“Manufacturers’ concern about tax policy, regulation and lower cost overseas is justified,” Wegge says. “Structural cost differential in the U.S. is 17 percent higher compared to overseas. It’s down from 32 percent in 2006, but still considerable, so U.S. manufacturers must make up the difference through quality and innovation.”
Mancuso says manufacturers must do the right things. “We’re adaptive, creative risk takers,” he says. “I don’t want to be on the bleeding edge, but I want to be able to see it. I’m not a pessimist; there are opportunities, but we haven’t any illusions, either. If we don’t perform and exceed expectations every quarter, we’ll be like the NFL – not for long.”
John West, CEO of Fox Valley Metal-Tech, is optimistic, but he too is a realist. “We’re down about 20 percent – with no layoffs – and we’re still providing dividends to shareholders,” he says. “I’m looking at, maybe, a 5 percent recovery next year, so I’m firmly in the ‘somewhat optimistic’ category. Customers are finally starting to move, but projections are a guessing game. Over the next few years I’m optimistic, but it’s going to take a long time to put people back to work.”
West’s company has a strong reputation and he wants to leverage that reputation. It’s easier to service one new large customer and one or two large projects than a lot of small customers with sporadic work. Fox Valley Metal-Tech is doing some defense work, making electrical cabinets for the next U.S. aircraft carrier.
West’s sales approach also includes: You want fries with that? “We used to just fabricate the part and send it to the customer,” he says, “Now, we fabricate it, we store it, we ship it, we’ll put it on their shelf. ‘What else can we do for you?’”
As far as cheaper, overseas competition, West says he’s not affected much by overseas competition. “First of all, some customers don’t know what they’ll need until they need it, and then they’ll need it tomorrow,” he says. “Sending drawings to China, and then waiting for ocean shipment or adding the cost to air freight it back? Low cost overseas competition does have an impact on manufacturing, but not as much on us as it does on others.”
Taxation is a totally different story for John. “When we look at how hard we work and how much is taken away, it’s totally disproportionate. It’s just so hard to see all the profits go away – and for what?”
Michael Bina is a principal at IntellectualMarketing, which conducts the quarterly Business Pulse surveys for Nicolet National Bank. He can be reached at mbina@new.rr.com.
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