Toolmakers already have felt the sting of a soft year in the automotive industry.
Several mold shops say they have resorted to lowering tooling prices on automotive contracts to get more work into their plants. Others have offered cash rebates after the tool is shipped to attract a dwindling pool of business.
Those desperation measures are needed, according to Ron Beneteau, marketing and business development director of toolmaker Reko International Group Inc. in Oldcastle, Ontario. Business must flow to pay bills for expensive capital equipment and keep skilled workers employed, he said.
'There's little work out there, and prices are way down,' Beneteau said. 'We're just trying to keep enough work to ride out the storm. But it can be famine and then total feast, and we don't want to be caught with not enough actual capacity.'
The sharp downturn in automotive business began about six months ago, said Gerald Hobson, president of Hobson Mould Works Inc. of Shell Rock, Iowa. The drop is the worst he had seen in eight years, since the last close presidential election.
'I don't know if any of that is related,' Hobson said. 'But the (automakers) are not selling as many cars as they used to, and the year-end profits aren't so good. Some of them think they can save money by not paying toolmakers or waiting to order molds until next year.'
For toolmakers, the lack of business comes primarily from a dearth of new or updated vehicles coming onto the market.
The industry has been slow to release new models this year, Beneteau said. The soft economy, rising gasoline prices and the lack of consumer confidence in an election year could be partly to blame.
While Reko has not laid off workers, the company has gotten a bit smaller through attrition. Other toolmakers, including Paragon Die and Engineering Co. in Grand Rapids, Mich., also were reluctant to lay off workers. Demand for skilled toolmakers has grown, with many mold shops experiencing worker shortages, said Paragon President Dan Hess. During this slowdown, the company has made a stronger effort to train employees and market itself aggressively instead of downsizing, he said.
'You do all you can to keep people,' Hess said. 'In today's competitive world, good workers don't just walk (in) off the streets.'
Hess, an automotive veteran who was a top executive at parts supplier Mexican Industries Inc. and other companies, said the industry is nearing the bottom of a cycle.
Historically, vehicle sales hit their peak before heading into a short downturn that can last four or five years, he said. He expected a new cycle of stronger sales to start soon.
However, offshore competition has made life more difficult for toolmakers during this down time, he said. And with slowing sales, customers have delayed payments to toolmakers beyond 120 days, a situation that leaves many shops vulnerable.
'The downturn is a mixed blessing,' he said. 'On the one hand, it causes our customers to think about how to invest in new tooling and how to pay for it. On the other hand, from a historical perspective, it usually is a precursor to a fairly dramatic upturn with new models in showrooms.'
Before that happens, toolmakers are bracing for another industry shakeout, said Hobson, a former president of the American Mold Builders Association.
'Tooling doesn't have a lot of profit margin now,' Hobson said. 'A long dry spell has really eaten into cash.'
But the good news for the industry is that a cash crunch also means that automakers might be looking to plastics for new models.
'When times get tough, people go to plastics,' Hobson said. 'You've got to have new models. And plastic is quicker, faster, cheaper and lighter (than metal).'