Reply #191: Manufacturing perspective

[left15]

Here is a perspective from a small manufacturing company (owned by a German parent company).

We have 10 million in sales, and 50 employees, mostly Hispanic, and about 35% through a temp agency.

Why mostly Hispanic? Because we only start new temps at $8.00 and that’s who shows up from the temp agency. We can only start them at $8.00 because we only pay new permanent employees $10.00 to start. Most of that $2.00 increase is eaten up by Medical Insurance. After about 10 years employees top off at about $16.00

We require the temp agency to run their SS number before we bring them on, and run it again if we hire them.

Sometimes the SS number goes through the first time, and fails the second, because by then someone else in a different state is using it.

Why do we pay such low wages? Because that is what our market will bear.

Our competition is much larger, and has plants in Mexico and China. The only reason we can compete at all is because our product is very heavy, and shipping is expensive.

For the last 5 years, we have averaged $500,000 to 700,000 in profits, which is only 5%-7% return.

At 5-7% return, we aren’t really worth the risk of staying in business. If our expensive 30 year old equipment breaks down, a major rebuild is $3 million, or equivalent to 6 years of profit. When that happens our business is only worth about 3 million in land and remaining equipment, In the time it would take to rebuild, our customers would go somewhere else. Our parent company could sell us off for probably 12 million right now , and invest it in Starbucks and do much better.

About 3 years ago, a smaller company in our industry went union, and they are now out of business.

What’s the solution? I have no idea, most likely we should be out of business, and in reality, we will be in a year or two.

I see two problems at work, labor rates and productivity.

The US makes 3 to 15 times as much money as the rest of the world for doing the same work, unless we put up trade barriers, labor rates will continue to equalize.

The other is productivity, on average, through automation, a job that took 4 employees 30 years ago now only takes one.

I used to think the key was education that we should educate our people better (which we should do anyhow), and to let other countries do the production, and keep higher paying jobs here, but I recently told that our competition is now hiring engineers with full 4 year degrees for $15k per year (but I don’t know if this is really true)

So I guess I don’t really have a point, other that to provide a little different perspective, but thanks for reading.