While most economists still believe in the strength of the overall economy, some West Michigan manufacturers say their business has begun to soften, indicating a slowdown could be starting to emerge.
For Grandville-based Digital Tool & Die Inc., those concerns ratcheted up in recent months after a major customer moved a significant portion of its business to China “and cut out all the die shops and stampers, for now,” said Plant Manager Paul Carver.
The company manufactures progressive tooling solutions for the automotive, appliance, office furniture and agriculture industries, among others.
“They’re going to bring the dies back and then just put them in stampers’ facilities, which kind of stinks,” Carver said. “(They) took all the work from some of us that need it and just gave it to the Chinese.”
While the move freed up capacity at Digital Tool, the company proves to be an outlier as the broader tooling industry remains busy, with die and mold shops reporting capacity utilization at 90 percent and 81 percent, respectively. That’s according to the results of the latest tooling industry report from the Original Equipment Suppliers Association and Southfield-based Harbour Results Inc.
Of the 102 survey respondents, 80 percent said they were optimistic or very optimistic about the tooling industry, up 1 percent from the prior quarter but still 5 percent off the peak a year ago.
“In the industry, people are still feeling very positive,” Laurie Harbour, president and CEO of Harbour Results, told MiBiz.
That optimism is buoyed by the forecast for 2018 to be a peak year for tooling expenditures, according to the report. Harbour Results expects expenditures on automotive tooling to rise 11 percent this year to $11 billion. According to the survey, automotive tooling expenditures are expected to taper off after 2018, with forecasts of $8.5 billion next year and $6.7 billion in 2020.
The projected slowdown in the automotive industry will start to affect the tooling sector in the years ahead, leading some executives to express concerns, Harbour said. But any blip for the tooling industry could be seen as a blessing in disguise.
“To be frank, the industry has been running at such a high level that’s it’s really what I am calling a return-to-normal busy levels as opposed to the off-the-chart swamped levels,” she said.
While Walker Tool & Die Inc. experienced some slowing in business at the end of last year and into the first half of 2018, President Todd Finley expects any lull to be short-lived.
The Walker-based manufacturer employs about 100 people and makes dies for the automotive, appliance, aerospace and office furniture industries.
Despite flat year-over-year quote activity, Finley said he plans to hire at least five experienced die designers, CNC machinists and entry-level apprentices this year.
“We are seeing an uptick in demand for late 2018 versus early 2018, but that’s for the overall die build business,” Finley said. “Right now, business looks strong for the rest of 2018.”
According to the Harbour Results survey, mold makers reported about $2.3 million in work on hold in the first quarter, suggesting some automakers are delaying certain projects.
However, the long-term industry trend still has the average work on hold continuing to decrease, with Harbour Results projecting holds on 7 percent to 11 percent of contracts for the year, “barring any unforeseen shocks to the system.”
It’s a trend Grand Rapids-based Paragon Die and Engineering Co. has experienced in recent months, according to Greg Eidenberger, the company’s vice president of sales. Paragon, which specializes in designing and building tooling for multiple industries, has dealt with delays on a number of projects, particularly in the automotive industry, he said.
“We continue to work very closely with our customers to provide them with any information that they may need to help them move their projects along and get them ready to launch,” Eidenberger said in an email. “In our effort to help our customers, we are optimistic that our current workload will flow over into a busy second half of the year and into 2019. We are bringing on new technology and have been doing extensive training over the last several months to allow us to meet the upcoming demand for our customers’ tooling needs.”
As automotive suppliers change production plans to accommodate OEM schedules, manufacturers like Digital Tool are diversifying production strategies and “getting creative” to achieve better returns, Carver said.
“I think the automakers are dragging their feet in releasing (programs),” he said. “It makes sense. The longer they can hang on to it, that’s less money they’re going to pay out. You’ve got to diversify. There’s appliances, there’s other types of work you could do. There’s other industries that we can do stuff for. … There’s things you can do to fill the void and to be creative.”
Tooling companies also continue to maintain sufficient backlogs in work, according to the Harbour Results survey. The target for mold and die building firms is to have a backlog of between three months and nine months of revenue in order to both remain busy and reduce the need for outsourcing and overtime.
Currently, the backlog stands at 5.3 months for mold builders and 4.1 months for die builders, with the largest shops maintaining the longest backlog, per the survey. At the same time, capacity utilization is expected to remain stable for all tooling shops.
SUPPLY AND DEMAND
Despite the survey showing tooling supply currently outweighing demand, Harbour expects a busy third and fourth quarter in 2018 for the industry.
“It’s going to be a busy back half of the year,” she said. “Most of the companies we are talking to are still expecting very high capacity utilization.”
In part, the delays are the result of automakers being forced to adjust to consumers’ buying patterns and “move with the flow,” Harbour said.
“It’s what they are used to, so they are adapting and they are still busy right now,” Harbour said of the tooling supply chain. “They are just not over-the-charts (busy) with overtime. It’s one of the perks of the game that they have to play.”
One way Digital Tool is branching out from other suppliers is through purchases of newer equipment.
The 80-employee company purchased two 1,000-pound stamping presses over the last four years to “put us in a different demand than most other shops, because we can build bigger dies than most others, and we’re set up to run dies just like the manufacturers can,” Carver said.
Among the segments covered in the Harbour Results survey, stamping companies are the outlier in projecting higher capital expenditures this year, at 6.4 percent of sales, up from 4.2 percent in 2017. Stampers’ average investment per shop is estimated at $6.2 million, according to the report.
However, mold builders and die makers are expected to decrease their capital expenditures this year. The forecast suggests mold builders will reduce their capex from 7.7 percent of sales in 2017 to just 4.8 percent this year.
Die makers will spend about 4.6 percent of sales on capital expenditures in 2018, down from 5.9 percent a year ago.
The average investment per shop stands at $2.2 million for mold builders and $1.6 million for die makers, according to the report.
“Nearly all tooling suppliers are planning a decline from significant investment in 2017,” according to the findings of Harbour Results, which expects investments to “continue to slow” in the years ahead as most companies have already made their large expenditures in equipment and automation.
SIGHTS ON TURNAROUND
The current industry dynamics again prove that tool and die manufacturers need to be flexible and react as the business changes, said Paragon’s Eidenberger. As such, Paragon has prioritized working with customers and monitoring the business closely for any changes, he said.
“The relationships that you build and foster will be key to how easily you can adapt to the changing needs in our industry,” he said. “The quote activity is a bit lighter than what we had a year ago, but I believe that the opportunities that we are quoting are more substantial and are for projects that are getting very close to being able to launch.”
The ability for tooling companies to adapt drives Harbour’s optimism for the future of the sector.
“I am very bullish on the industry,” Harbour said. “I think things are going to go well, but I think we are going to see periods of softening. Depending on what kind of shop you are, and who your relationships are, what your niche is, you’ll be busier than others.”