Written Testimony Submitted by Nels R. Leutwiler,
Chairman And CEO of Parkview Metal Products, Chicago, IL,
Trade Subcommittee of the U.S. House Ways And Means Committee
For Inclusion in the Record of the March 26, 2003 Hearing
Parkview Metal Products is a second generation, family owned business that was founded in Chicago in 1950. Originally located in the shadow of Wrigley Field, hence the name Parkview, the Company produces precision metal stampings and assemblies for the automotive and consumer electronics industries. Parkview's customer base includes companies such as: Motorola, Bose, Visteon, Delphi, and Sony.
Parkview operates five manufacturing plants in North America, located in Illinois, Texas, New Mexico, and Tijuana, Mexico, with sales in 2002 of $58 million.
Doing business in the intensely competitive automotive and consumer electronics industries, Parkview has seen its profit margins shrink in recent years, as our customers have demanded yearly price decreases, while our costs for labor, insurance, taxes and technology have steadily increased. Our customers are mandating expensive investments in quality certifications such as ISO/QS, just in time manufacturing, electronic data transfer, etc., while stretching out their payment terms.
Steel comprises roughly fifty percent of the cost of what we produce and sell. The competitive steel pricing and stable steel supplies we have experienced in the past several years were the only factor keeping many metal stampers such as Parkview afloat and profitable.
However, when the tariffs were imposed last year, the days of a stable and reliable steel supply abruptly ended. Although Parkview purchases almost all of its steel domestically-and all of it under twelve month pricing agreements-the imposition of the tariffs resulted in almost immediate, and dramatic, increases in price and reductions in supply. While the LTV shutdown around this time contributed to the problem, the lack of steel had more to do with the fact that the supply of foreign steel had dried up due to the looming threat, and subsequent imposition, of the tariffs.
Our steel prices, despite our "agreements," shot up 30 percent or more. When we couldn't obtain steel from our suppliers-who had committed to have an adequate supply on hand throughout the year as a component of our agreement, we were forced onto the open market, where we paid as much as 60 percent more per pound for steel.
In addition, as supplies got tight and deliveries became highly unreliable, Parkview was forced to constantly reschedule production to conform to the sporadic arrival of our steel. Parkview operated every weekend last summer, not because our production volumes warranted it, but because we were living hand to mouth on steel, and our customers were living hand to mouth on our parts. Parkview also incurred significant costs in premium freight, both to get raw material in, and to get finished parts to our customers in time to keep their production lines operating. Our steel suppliers assumed none of the liability for these costs.
For the most part, Parkview had to absorb these increased costs, as most of our customers were adamant that they would not agree to pay more for their parts. The net result was virtually a break even year for Parkview in 2002, on $58 million in sales! In one instance, we forced a customer to accept a price increase, to cover our 40 percent increase in steel costs on a very high steel content part. The customer has since retooled that project elsewhere, with the resulting loss of $2 million in revenue for Parkview.
The loss of that program, plus other work for our Chicago plant, has resulted in a 50 percent reduction in business volume for our Chicago plant in 2003. Parkview has begun the painful restructuring required in response to that reduction in work, laying off roughly one fourth of the Chicago workforce on March 20.
Serving the consumer electronics and personal computer industries, Parkview Metal Products is acutely aware of the threat China and other low cost countries pose to manufacturing in the United States. Parkview tooled up and built the metal components for Michael Dell's first personal computer. At one time Parkview listed Dell, Compaq, and Tandy Computers as our top three accounts. Virtually all personal computer manufacturing has left the U.S.: it is now leaving Mexico and settling into China and India.
Parkview for fifty three years was a major supplier to RCA (now Thomson Consumer Electronics). In fact, we built a 107,000 square foot plant in Las Cruces, New Mexico, primarily to serve Thomson. The manufacture of DVD players and many of the other products we produced components for has now moved to China. Parkview is scrambling desperately to find customers to backfill in Las Cruces for that lost work.
Automotive components are now Parkview's leading market segment, but we see our major first tier customers, and the big three auto makers pushing to source more and more work in China.
We obviously have an enormous disadvantage to China and much of the rest of the world in terms of labor costs. Regulatory costs and customary employee benefit costs further add to our higher costs. The tariff-driven 30 to 40 percent increase in the price of steel, our primary raw material, has greatly increased our competitive disadvantage, and has greatly increased the motivation on the part of major OEMs in this country to resource products-not just metal parts, the entire end products-overseas.
This results in the loss of jobs, not just in the metal consuming industries, but in all the ancillary support industries: equipment dealers, painters and platers, plastic injection molders, die casters, packaging suppliers, logistics providers, etc. These steel prices, plus customer price pressures, the recession, and other cost pressures, are driving countless metalformers, tool and die shops, and other related companies, out of business at an alarming rate. A week no longer goes by that I don't receive a handful of auction notices for companies in the Chicago area, and throughout the country, that are being foreclosed upon, or closing voluntarily.
The tool and die industry, once a foolproof source of high paying jobs in the metals trades, has absolutely crashed. Where the Chicago Tribune used to have two columns of tool and diemakers wanted ads every Sunday for decades, a typical Sunday Chicago paper over the past twelve months has had one or two ads total!
The Precision Metalforming Association's membership used to consistently identify the lack of skilled employees as the number one threat to the industry. This has now been replaced by high steel prices and the threat posed by China as the major challenges to the industry.
There is much talk of how the higher steel prices are not an issue, as they have just returned to historic levels from 10 or 20 years ago. The problem is that Parkview's prices it receives from our customers are significantly lower than 20 years ago. We cannot offer globally competitive product, while paying non-competitive steel prices.
Furthermore, the steel makers claim prices are now moderating. While our steel prices, effective April 1, are down roughly ten percent, this is not even close to the pre-tariff prices. We can't even get pricing beyond the third quarter of this year, as there is still too much tariff-driven uncertainty in steel supplies and the resultant prices.
Please urge the President to eliminate the tariffs at the mid-term review this September. Parkview Metal Products' 350 U.S. jobs depend upon it.