The challenges confronting Michigan’s tool, die and mold makers are deeply rooted.
The state hosts more than twice as many tool and die workers compared to any other state, according to data from the Bureau of Labor Statistics. As the undisputed leader of the industry, Michigan also suffers the greatest consequences of its uncertainty.
That’s according to Jay Baron, former president and CEO of the Center for Automotive Research (CAR) and a consultant on the sector.
“I refer to the tooling industry as the second greatest asset to the state of Michigan after the Great Lakes,” Baron told MiBiz. “It’s a very significant asset that we have that we don’t want to lose.”
Tools, dies and molds are the foundation of durable-goods manufacturing. Tools are used to cut and form materials. Dies are metal forms used to shape metal in stamping and forging operations. Molds, also made of metal, are used to shape plastics, ceramics and other composite materials.
From automotive parts to household appliances to aerospace, tool and die companies and their skilled trade workers make it possible for manufacturers in the state — and beyond — to produce products in high volumes.
As politicians and policymakers stress the importance of American-made products to constituents, the industry’s prospects are closely tied to the outlook for manufacturing in general.
“Tooling, unfortunately, tends to be a month-by-month, quarter-by-quarter basis,” Laurie Harbour, president and CEO of Southfield-based Harbour Results Inc., told MiBiz. “Because I think that 2019 is going to be a softer year in the automotive space — where I think it’s going to pick up again next year — if people are not positioned well, this could be a very difficult year.”
The revival of auto manufacturing and expansion of other U.S. manufacturers may offer new opportunities for shops that have endured in the industry.
However, even with the amplified availability of workforce training programs at the local, state and federal levels, the skilled workers who make the molds and tools are on the road to extinction.
According to a study by the Congressional Research Service, the average age of a toolmaker is 52, and many experienced workers in the industry are expected to retire in the next few years.
“We are losing the critical mass of talent and the pipeline of this talent in manufacturing, in general, which largely comes from the tooling industry,” Baron said. “That’s the plight.”
Just 2 percent of toolmakers are under the age of 35, according to federal labor statistics.
“The last Baby Boomers are gone (from the workforce) in less than 10 years,” Harbour said. “The pace of change is going to be very significant and it’s going to happen whether toolmakers like it or not.”
Another unique complexity to tooling is that its talent is spread thinly over a fractured industry, according to Baron. The average size of a tool shop is around 25 employees.
“They tend to be small companies and they all have mixed capabilities,” he said. “It’s really difficult to think about how to align them and coalesce them so that you can offer support.”
The global competitiveness of Michigan’s tooling industry doesn’t come solely from the production of tools, dies and molds, said Baron — most shops do much more.
“They don’t just make a tool and walk away from it,” he said. “They’re engaged with engineering, construction, and then the launching of the factory.”
Threats from offshoring
As the industry contracts, experts are particularly concerned about the loss of knowledge and experience in engineering and launches, which respectively are the beginning and the end of a three-part process. International competitors, especially from China, may be able to offer automakers and manufacturers cheaper prices on the building of the tool, die or mold, but often fall short in the other two areas.
“The Chinese tool industry is good at constructing the die, but they’re not as good as we are at the engineering and they’re too far away to help us with the launching side,” Baron said.
Enticed by initial cost quotes that reportedly are 35-percent to 40-percent lower than U.S. prices, according to a recent report from CAR, automakers that produce vehicles in the U.S. have increasingly sourced their tooling from low-cost foreign countries.
Since about 80 percent of the total cost of a tool, die or mold stems from building it, outsourcing it overseas shortchanges local shops with great engineering and launch capabilities, Baron said. Essentially, this has automakers worried about the loss of critical components of their products.
“In the automakers’ defense, because you can’t keep throwing the challenges at them, they need to get the tooling costs down and they see the Chinese-sourcing model as one that is in the short term cost-effective for them,” Baron said. “Maybe in the long term it’s going to be a problem, but they’re focused on the short term.”
In addition, companies in China and India have been launching brand-new, state-of-the-art tool and die manufacturers that are much larger than domestic operations. The companies often are subsidized by their governments in return for providing employment to thousands of people.
Last December, in response to pressure from the automotive industry, the U.S. government lifted the tariff that was in place on molds coming out of China. That action once again made the Chinese companies more competitive with domestic tool and die shops, even for customers that stuck with U.S. producers, according to Harbour.
“You lift the tariff, now it makes China viable again at 30- to 40-percent savings on tooling, especially in a slow-down period,” she said.
Overall, competition from lower-cost countries has dropped prices globally.
“Clearly, tooling costs have been driven down,” Baron said. “The tool shops that were not able to bring down their tooling cost fast enough have gone bankrupt. The tool shops that have learned to reduce their cost to get more efficient still can survive.”
In turn, these survivors are sustaining a tough industry that is producing tremendous volumes, even with fewer people, according to Harbour. She projects the domestic tooling industry will reach revenues of $8 billion this year, $2 billion less than in 2017.
“I expect 2019 is not going to be this banner or off-the-charts year,” she told MiBiz. “But $8 billion is still a lot of tooling.”
Tools to evolve
The Michigan Manufacturers Association (MMA) is working on the reinstatement of certain economic development incentives that have recently expired and would benefit the industry, according to Mike Johnston, vice president of government affairs at the Lansing-based trade group.
The Advanced Manufacturing Partnership program, which was launched in 2011, used federal funds to leverage the creation of partnerships among businesses, universities and federal, regional and state government agencies for the purpose of developing advanced technologies.
Those incentives encouraged network-building, engagement, problem-solving and increased partnerships among siloed manufacturers, according to Johnston.
“They would get tax breaks if they joined a collaborative and worked together on issues,” Johnston said. “That program is tailing off or, for most, has ended. We need to continue to talk to the tool and die industry to see what they need to evolve.”
Johnston credits collaborations with protecting toolmakers during downturns and keeping the industry robust.
“Companies would learn from each other in the collaboration,” he said. “They utilized their skill sets as a coordinated effort. That helped bolster the tool and die industry’s ability to deliver products to the customers, and many of those collaboratives continue, even beyond the existence of the tax breaks.”
As analysts, leaders and industry insiders debate the future of a sector as unpredictable as tool and die, “the hustle” continues for manufacturers who are willing to face the risk — and reap the rewards, according to Baron.
“Whenever there’s a lot of chaos in the industry, there’s opportunity,” Baron said. “As the industry contracts or moves around, if you are a good business person, then you know how to find those opportunities.”