Just as U.S. moldmakers were toasting the return of mold builds from China in the New Year because of the 25% tariff the U.S. placed on Chinese-made molds, the U.S. Trade Representative announced at the end of December that these tariffs would be lifted. These guys just can’t seem to get a break.
I spoke with a few mold companies in December to get a feel for any trends, and most were hopeful that the tariffs would drive mold building back to their shops. But just when you thought it was safe to go back in the water . . . .
I’ve long said that Chinese competition has been good for U.S. moldmakers. Over the past two decades, it has created a sense of urgency to be better, faster and even more cost efficient through the implementation of automation, high-speed machining and other technologies. It woke them up to the global nature of manufacturing and gave them incentives to promote the many advantages of buying molds made in the USA.
Another business-to-business media outlet serving the plastics industry reports that there was probably too much push-back from the big OEMs—the automotive guys in particular—who found Chinese molds to be cheaper that forced the hand of the Trump administration. Buying molds in China alleviated the problem of having to haggle with U.S. moldmakers over price and especially payment terms.
Automotive OEMs were also concerned about U.S. mold suppliers’ ability to keep up with demand. It was an issue that came up regularly in the quarterly surveys from the Original Equipment Suppliers Association (OESA) throughout 2017 and 2018. As I reported from the OESA’s Q1 2017 Supplier Barometer, “the skilled labor shortage” was revealed to be the greatest threat to the 2017 outlook. “Nearly 70% of suppliers state this shortage is a major obstacle to meeting their production requirements for the upcoming year,” stated the summary. Specifically, respondents noted that there is a shortage of skilled labor in tooling, as well as engineering expertise, that might slow down production.
As for planning and production, the breakeven point for 2018 is 15 million units. Suppliers report that they are okay if a mild downturn occurs over the near term, and the breakeven is well below forecasts, noted the Q1 2018 OESA Supplier Barometer. As I wrote in my overview of that quarter’s responses, “capacity utilization was at a median of 85% with the upper quartile at 87% and the lower quartile at 76%. OESA noted in that report that internal capacity utilization at suppliers has stood at 85% in both 2016 and 2017. Should capacity utilization hit 90%, respondents said they can go to flexible operations, overtime and even relocate production to other suppliers, if needed. Suppliers can also expand or invest in new facilities, new equipment or subcontract work, as necessary.” However, OEMs may not be convinced that demand for tooling can be achieved through these methods.
With the uncertainties surrounding vehicle production and the elimination of various slow-selling models at both GM and Ford, many tooling suppliers are more reluctant to invest in a lot of new machinery that would add capacity without any certainty of vehicle production numbers. In a July 19, 2018, press release, the Center for Automotive Research (CAR) noted that “the U.S. auto and automotive parts industry, mindful of the problem of overcapacity caused in the early 2000s, will be cautious about expanding their production footprint in the United States to make up for the 8.3 million imported vehicles and $143 billion in parts imports to the United States in 2017.”
A “concerning trend” for automotive OEMs of late has been the increasing number of suppliers they have added to their “financial watch list.” Obviously, that isn’t a concern when dealing with Chinese mold suppliers. OEMs are generally concerned about supply chain risks to production, but U.S. mold manufacturers would appear to be less of a risk than obtaining molds half-way around the world.
Anecdotally, moldmakers reported recently that customers are planning to buy more molds from U.S. moldmakers in anticipation of the impact of tariffs. The tariff suspension for molds just might throw a wrench into those plans, resulting in disappointed moldmakers.
This latest turn of events just might provide another valuable lesson to U.S. mold manufacturers: Don’t rely on the U.S. government to save you from Chinese competitors. If you have been promised more work in 2019 that was previously slated to go to China, you now have to convince your customers that there are many benefits to building molds in the USA.
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