While tool and die shop owners are hunkering down and tightening their belts in anticipation of a decrease in available work, some small- to mid-sized operations in West Michigan have already been forced to close their doors.
The last 20 years have not been kind to many tool and die shops and mold makers. From 1998 to 2012, more than one-third of U.S. establishments in the industry went out of business, closing at twice the rate of manufacturers in general, according to a report from the Congressional Research Service.
Because about half of toolmakers’ work is for the automotive industry, according to the report, the steep downturn in U.S. vehicle production in the Great Recession became a meaningful factor in their decline. The industry also has lost ground because of the shift abroad for major U.S. customers, especially to China. Adding to that trend is the expansion of foreign automotive manufacturers in the United States, some of which reportedly retain ties to tool, die and mold makers in their home countries.
Still, the industry accounts for more than three in every 1,000 jobs in Michigan, according to data from the Bureau of Labor Statistics, and about five in every 1,000 jobs in the Grand Rapids area. Across the region, jobs in the industry grew 15 percent between 2013 and 2018, according to data from The Right Place, Inc., a Grand Rapids-based economic development agency.
The concentration of the tool and die sector in West Michigan makes it easier for the region to compete with overseas producers, said Cal Degood, owner of Wayland-based Eclipse Tool and Die Inc.
“There are a lot of things that I think we can compete with China real well on and we do on a daily basis,” Degood told MiBiz. “They’ve got their place in the world in the tooling market and we’ve got our place, and it changes all the time, so you’ve really got to keep reinventing yourself.”
Still, some local shops are struggling to withstand the latest decline in revenue.
In March, Taylor Tooling Group LLC and Die Tech Services Inc. both filed for Chapter 11 bankruptcy within days of one another. Both shops are based in Walker, the northwest suburb of Grand Rapids.
At the time, Kelly “Casey” Darby, president of Die Tech, told MiBiz the company intends to cease building stamping dies in its own facility and sell off its real estate in an attempt to restructure and right-size the operations.
Darby said his business began slowing down last June and the bankruptcy is mostly a response to the sense that “no dies are being released.” The majority of the company’s business is automotive related.
“I think this is going to happen across the board for people who’ve been way too dedicated to the automotive industry and who’ve not put flexible processes into their business to manage a downturn,” said Laurie Harbour, president and CEO of the Southfield-based firm Harbour Results Inc.
Harbour thinks the risk rests heavily on shops with annual revenues of $10 million or less.
“If people are not positioned well, this could be a very difficult year,” she said. “The bank is just not going to hold out for them when they don’t have any money to pay the bill.”
Many times, shops that are inexperienced in the ebbs and flows of the industry are left unprepared for dramatic shifts in business, according to Degood.
“They can be cruel if they take you by surprise,” he said.
Degood said his annual revenues at Eclipse, which mostly builds dies for the automotive industry, actually rose by about $3 million from 2017 to 2018. That growth came despite the tooling industry experiencing a “soft start” to 2019, according to a recent study from the Original Equipment Suppliers Association (OESA) and Harbour Results.
In the first quarter of 2019, mold shops experienced a slight “utilization increase” of 2 percent compared to the previous quarter, while die shop utilization dropped from 85 percent to 74 percent in the same timeframe. This decrease in the die market is due to the manufacturing industry slowdown, according to the study, and because dies require a longer lead time than molds. It is an indicator that mold shop utilization will likely dip in the near future.
So-called “work on hold” continues to trend upward, according to data from the study. An average of more than 12 percent of all projects remain delayed, suggesting tool shops may struggle to stay busy while they wait for schedule changes driven by the automotive industry.
Based on these factors, sentiment among tool shop owners dropped to the lowest point recorded since measurement started in 2016.
OESA and Harbour Results also looked at tool and die makers’ investment strategies. Despite decreased revenue from 2017 to 2018, mold builders are still planning to contribute about 5 percent of revenue toward new capital expenditures in 2019, and die builders expect to invest 4 percent.
“We’ve always made sure we didn’t grow too far, too fast and we could always pull our neck in a little bit when things got slow,” Degood said.
Tim Launiere, president of Comstock Park-based Preferred Tool & Die Co., told MiBiz he “wouldn’t be surprised” if more shops in the region have to close their doors this year because of over-extending with past investments.
“We’ve been through a lot of cycles here,” he said of Preferred Tool, which was started by his father more than 50 years ago. “We know what can happen when you get busy: You think it’s always going to last, so you go ahead and put that addition on.”
In fact, Launiere priced out an addition to his own building last year that would have cost approximately $1 million.
“The building prices were high because of the demand and I just decided not to do it,” he said. “Now, I’m glad that I didn’t because I’d have an extra million dollars in debt and that might make it tougher to survive.”
Launiere said his company’s revenues “fluctuate wildly” year to year, and even quarter to quarter, but it averages approximately $6.5 million annually.
“We’re actually healthier than we’ve ever been in the history of the company, financially,” Launiere said. “But I’m pretty conservative that way.”