Testimony of David Pritchard, President And CEO
A.J. Rose Manufacturing Co.
Before The Trade Subcommittee of The House Ways & Means Committee
March 26, 2003
Good morning. Thank you very much for asking me to testify about the consequences the Steel 201 tariffs have had on my company. My name is Dave Pritchard, and I am President and CEO at A.J. Rose Manufacturing Company.
A.J. Rose, headquartered in Avon, OH, is a family-owned company, with three generations in the business since 1922. We have approximately 370 employees, 250 of which are members of the United States Steel Workers' Local #735. We specialize in manufacturing tight tolerance metal stampings, air bag components, and spun-formed products for the automotive market.
We buy hot-rolled steel flat products that are subject to the tariffs. We buy from both domestic and foreign sources. The tariffs have increased our steel prices dramatically. We estimate that the tariffs have added 1.1 million to our cost of material in the last 12 months. We have been able to obtain price increases on only one-third of our products to cover that additional cost. The increased costs have had a devastating effect on our bottom line. The increased steel pricing has put us at a distinct competitive disadvantage with respect to our foreign competitors. As a result, we have lost a significant amount of business to our foreign competitors and it looks like it is only going to get worse.
We have lost over a half a million dollars in existing business since the start of 2003 because one of our big customers did not want to pay the increased amounts we now need to charge. This business was placed with a company in Korea instead - a country where steel prices are considerably less than the U.S.
Also, in the last year alone, we have lost approximately 7.5 million in new orders (15 contracts) to competitors outside of the United States. These contracts were awarded simply because we could no longer meet our foreign competitors' prices due to the steel tariffs. This loss of 7.5 million in new contracts this year translates into a loss of 45 to 60 million over the next few years. This is because in our business, when you are awarded a contract, it generally runs for the life of the part in application (approximately 4 years). This means that the loss of a job now really costs you many times the annual revenue in lost future sales.
The situation shows no sign of improving. In January, our largest customer (MACI) stated that they would no longer accept the cost increase the tariffs forced us to apply to their pricing. They stated that if we insisted, they would continue to pay the increase but that it would signal the "beginning of the end of our 12 year relationship." They advised us of this in the same meeting they informed us that they had just awarded one of our competitors a contract for a part we were told we would get. Prior to this, we were the only company supplying MACI with this type of product in North America. The competitor that was awarded this business is a Canadian company.
In addition, a Canadian customer that has accepted one-half of the increased cost from the tariffs has been demanding that we use Canadian steel and Canadian tool shops to produce products for them. Over the past 30 days, they have been actively soliciting bids for the parts we make for them from Canadian and Chinese firms.
This loss of business has had a significant impact on our day to day operations. Due to the loss of orders, we have had to lay off 33 people in the past 12 months - 10 of those since the start of 2003. In addition, our cash flow and operating loan situation has become tenuous. We have scheduled a meeting with our bank to discuss our deteriorating financial condition. This is the first time in the 35 years I have been involved with A.J. Rose that I have ever had to have a conversation like this.
We, and our supplier, used the product exclusion process to try to soften the negative effects of the tariffs. While we had some degree of success in obtaining product exclusions, these product exclusions have only provided us with very limited relief. The basic problem remains - the tariffs have made it virtually impossible for us to compete with our foreign competitors.
This constant threat to our business is very real and will get worse if we are forced to continue to pay such a premium for the steel we need to run our business. We sincerely hope that these tariffs can be lifted as soon as possible.
Thank you. I will take any questions you might have.