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Tepid Economy Demands Businesses be More Efficient

By Matt Glynn

October 21, 2010
 
With the economy showing only tepid improvement, businesses have to aggressively pursue customers and make themselves more efficient to cope with the conditions.

That was the view of two manufacturing executives, Gerald Leary of Koike Aronson and James Tetreault of Ford Motor Co., in a discussion ahead of Wednesday's World Trade Celebration, which spotlighted area exporters.

"It's improving just a little," said Leary, president and chief executive officer of the Arcade company and chairman of World Trade Center Buffalo Niagara. "The problem we have in the markets we serve is availability of credit right now."

"The economy is improving a little bit, but only a little bit," said Tetreault, Ford's vice president of North American manufacturing. Ford has a 745-employee stamping plant in Hamburg.

Koike Aronson makes welding positioners, and plasma and laser cutting equipment. Its big customers, such as Caterpillar and John Deere, have held up well amid the downturn. But many smaller companies like steel fabricators that service the big companies -- and helped fuel Koike Aronson's growth -- have struggled, Leary said.

"They spent a lot of money on new buildings, a lot of money on new equipment," he said. "Some of it was ours. When those contracts dried up, a lot of those companies went away. Companies that have survived still have heavy debt loads, and it's very difficult for them to get financing, even for a $50,000 project."

The business landscape for Koike Aronson has changed. "The money's freeing up, but the customer base has decreased, so we have to go in different directions and open up new distribution," Leary said.

Koike Aronson's employment has fallen to 100 people from 185 due to the economic downturn, Leary said.

In 2008, international sales accounted for 42 percent of Koike Aronson's sales. That percentage dropped into the teens last year, due to a sharp drop in orders from Europe, but has grown to about 23 percent this year, Leary said.

His company learned a hard lesson during the depths of the recession, when much smaller competitors somehow grabbed a couple of big projects in Mexico and South America.

Leary learned the competitors' Web presence was key to those wins. Koike Aronson has since beefed up its Web page, to make it accessible in foreign languages and more responsive to customer inquiries.

"I want somebody on the phone with them in 45 minutes, and then someone following up," Leary said.

Ford's Tetreault noted U.S. vehicle sales this year are expected to reach 11.6 million units. In the five years before 2008, the industry averaged more than 16 million sold each year, a dramatic difference.

"The industry right now, I think there's a little bit of an upturn," he said. "I think we've come off bottom. But it's certainly not accelerating at the rate that we've come out of recessions in the past, is the way I'd characterize that."

Ford wants to make its production operations more flexible. "We have to have the ability to build multiple products in a plant, and we have to have multiple plants capable of building the same product," like F-series trucks, which are selling briskly, Tetreault said.

Years ago, Ford's Oakville assembly plant in Ontario made only the Windstar minivan. But as sales in the segment waned, the plant went from running at 110 percent capacity to 60 percent.

The Oakville site, which is supplied by the Hamburg plant, has become versatile, making the Ford Edge, MKX and Flex, and the Lincoln MKT.

Automakers have learned market conditions -- and preferences -- can change swiftly. In 2008, when gas prices were hitting $4 per gallon, Ford was considering increasing production of its fuel-efficient Focus by 50 percent as truck sales fell, Tetreault said.

Within months, gas prices dropped to about $2.50 per gallon. "Focus' sales dried up to the point that we were looking at taking 30 percent out of Focus production, rather than increasing by 50 percent," he said.

Automakers like Ford, Tetreault said, have to be prepared to match their production capacity to demand for cars and trucks, as sales rise.

"Capacity coming back up is going to be a challenge, to get the call right and to get it right at the right time," he said.

mglynn@buffnews.com