By Dana Hedgpeth
Washington Post Staff Writer
Wednesday, November 18, 2009
LOUISVILLE -- Small manufacturers like Tom Hudson keep hearing that the recession is over, and every day they await a sign telling them it's time to gear up and start hiring back some of the workers they have laid off. The news Tuesday was hardly encouraging: Factory production fell in October, the first decline since June.
Hudson was among those feeling the brunt of the decline, as monthly production of appliances and parts slipped in October, even though economists had been expecting some growth. Hudson's company here builds dishwasher doors, refrigerator hinges and oven brackets, and when Americans stopped buying new houses in fall 2007, there was suddenly little demand for the trappings of shiny new kitchens. His factories slowly retreated.
As orders from General Electric and Whirlpool trickled to a halt, Hudson absorbed the pain. First, he laid off 40 of his 400 workers. Now he's down to 251. Eventually, he cut his own pay by 20 percent. He stopped 401(k) contributions. This spring, he ran his two huge factories, each about the size of two football fields, with a skeleton crew, as most of the workers took a week-long furlough. Sales hit a new monthly low -- $2.6 million -- in March, down from an average high of $5.5 million.
Hudson and his wife, Nancy Hudson, who is the company's controller, were up nights worrying about how they were going to make payroll.
"It was devastating," Hudson said. "The orders just stopped."
Tuesday's Federal Reserve report showed sluggish production -- appliances fell 1.9 percent from September to October, and parts production fell 0.2 percent while manufacturing overall was down 0.1 percent. Even as employers like Hudson find ways to squeeze more productivity out of every worker, the nation's economic recovery so far has not been strong enough to bolster the job market. That helps explain why despite a 3.5 percent rate of economic growth, the unemployment rate has risen to 10.2 percent and could well approach 11 percent next year.
"The reality is hitting," said Cliff Waldman, an economist at the Manufacturers Alliance/MAPI. "There's a sluggish nature to the recovery."
If people aren't buying, Hudson and others are wary about hiring and investing. So far, his November and December sales look weaker than expected. Instead of planning how to gear up, he keeps working out ways to achieve small efficiencies, making his operations leaner, not larger.Waiting for orders
For Hudson, who is president and chief executive of the unusually named Nth/works (motto: precision to the nth degree), everything depends on orders for parts, and right now he has no idea how to predict their volume.
When houses are being built at a steady clip, General Electric and Whirlpool buy plenty of dishwasher doors and refrigerator hinges. But housing starts, a key indicator for Hudson, are weak and probably will not improve soon, economists say.
"It all depends on demand," he said recently, as he toured his factory. "If it comes back, we'll be hiring people. If it doesn't, we won't. It's that simple."
In March, eight of the 15 plants that Hudson ships to had temporary shutdowns. By summer, he was making 500 dishwasher doors a week, compared with just under 4,000 a year ago. Once he made 18,000 refrigerator hinges a week. Now, it's 7,500.
"People are cautious," he said. "They're not buying as much and they're being careful of what they spend money on. If my customers aren't selling these high-end dishwashers, I'm not making the part."
The factory's sales charts for the past two years look like EKG readings. "Up week, down week, up week, down week," said Eric Baker, a materials manager.
Trying to predict demand depends not only on the construction and remodeling businesses, but also on the competition eager to undercut Hudson.
"We get beaten like a drum on price," in trying to compete with overseas firms, said Doug Hogan, Hudson's sales director. In the past year, Hudson's company has lost 20 of the various kinds of parts it makes for manufacturers in China and India.
So he's trying to keep his factories running smoothly on fewer and less-predictable orders. To become more efficient, he wants to hire a planner to balance sales with his steel inventory. Ordering steel has become a delicate dance. Too much, and it's money spent. Not enough, and orders cannot be filled.
Hudson is keeping his workforce down by giving more training to hourly workers -- who represent 11 nationalities and countries including Ethiopia, Vietnam, Iraq and ones in Eastern Europe -- to do more than one job. He's teaching Toyota-inspired methods to eliminate waste. He's gone from needing five workers to make a dishwasher door to three.
"We're figuring out how to operate with less volume," Hudson said. "We've made the investments to do it."
One recent afternoon, a team used stopwatches to time three workers and then charted their steps as they made ice machine blades. Eight minutes to load a metal stamping tool, the stopwatch showed.
"It took me that long?" said a surprised Akil Al-Zurofi, who has worked at the plant for 10 years.
"You gotta attack these things like we're a NASCAR pit crew," said Steve Wedding, a sensor technician. "Time is money and you're a wasting."
Hudson spent about $500,000 putting sensors on his huge machines to better track the quality of parts. He is trying to save energy costs by running his plant only four days a week and working employees for 10-hour shifts. Even if his orders go up slightly, his machines aren't at full capacity, so his existing employees could likely do the work instead of bringing on new hires.
In a speech Monday, Federal Reserve Chairman Ben S. Bernanke acknowledged this effect. "To the extent that firms are able to find further cost-cutting measures as output expands," he said, "they may delay hiring."
All Hudson's efficiencies still might not be enough. Perhaps, he said, he'll have to open a factory in Mexico, where he could lower his costs further. But with cash flow uncertain, Hudson is reluctant to take out the $5 million loan he would need.A city that's hurting
For a robust recovery, consumers have to begin buying, thus creating demand, and they won't be buying if they don't have jobs. With nth/works and other companies eliminating jobs, Louisville, a city of 256,000 people and 10.5 percent unemployment, is hurting.
GE has a major appliance plant in Louisville, where the workforce has been cut to 4,100 from 23,000 over the years. A Ford Explorer assembly plant has shrunk its payrolls too. The effect on the city is palpable.
Hudson's biggest plant is on Preston Highway, a strip of fast-food joints, check-cashing stands, car lots and a strip club called Godfather II. Dozens of unemployed people -- some with children in tow -- stood one recent morning waiting for the Preston Highway Salvation Army warehouse to open its doors. They wanted to sign up for a free bag of toys, clothes and a grocery gift certificate for the holidays. In two days, more than 1,200 families asked for help -- far more than volunteers expected.
"You ask people if they've ever come in before, and so many of them say, 'No, this is my first time,' " said Madelyn Anetrella, a director at the Salvation Army warehouse.
Terry Feldkamp, an electrician at Hudson's company for 15 years, said he stopped driving his Chevy Silverado pickup, which cost $70 to fill up, and is using his Dodge Neon. Price to fill up: $40.
"When they call you in and say you have to take a week furlough that gets your attention," Feldkamp said. "You start getting concerned.
"Are we going to make it out of this?"