California Manufacturing

When I wrote a story in 2003 about the hammering of California manufacturing. the outlook was as soggy as a rain-drenched sofa. Unfortunately, three years later things have not improved. Which is not to say there aren’t some bright spots.

Niche manufacturing, which focuses on specialized products or unusual materials, is one segment of the industry holding its own. An example is Cardinal CG, a Stockton firm that produces coated and tempered glass for residential window applications. They are one of only a few plants in the world that can produce triple-coated glass, according to human resources manager, Scott Spencer. With growing demand for such energy-saving products, Cardinal CG’s future is clearly promising.

They have openings for entry-level production workers, and do some hiring from "a steady flow of walk-in traffic." A high school diploma is preferred, but no experience is needed. Spencer has no trouble attracting applicants, offering "$9 per hour with benefits, plus a chance for profit sharing," which for inexperienced entry-level workers is "a pretty darn good deal."

Unfortunately, the deal is not so good for more traditional types of manufacturing. According to the state Employment Development Department, California has lost 375,400 manufacturing jobs since December 2000.

Import’s Impact

"Our market is definitely shrinking," reports Kelly Ramirez, executive director of the California Furniture Manufacturers Association. "Chinese imports have drastically affected the California market as well as the rest of the country."

When the association loses a member these days, it is not because they are too busy to send in their dues. Most likely they have gone out of business. Even the most market-wise manufacturers are finding it a tough sell to consumers protecting their pocketbooks – foreign goods are much more affordable than domestic goods.

"The companies that find their niche are doing well, but there are not any big windows of opportunity anymore," Ramirez claims. "The companies that are trying to be everything to every customer are not going to be successful. Conversely, if they play to their strengths they can find success."

Association members produce a variety of goods – household furniture, upholstered goods, office furniture, patio furniture and more. Unfortunately, the segment of the industry in the steepest downturn is the wooden dining and bedroom furniture market, where forty percent of the stock is now imported. It’s no wonder that domestic goods can’t compete when you consider that a Chinese furniture worker makes only $600 a year.

"I think the California economy is suffering because it is in a slow cycle," says Ramirez. "So, during this slow time, nervous manufacturers are going into intense training mode to make sure that when the market turns around they are ready to go."

Ramirez also points out that the housing market has weakened, which has caused a domino effect with home furnishings.

"The market has definitely changed and I think furniture manufacturing will be a limited industry for awhile," he concludes. "Basically, it’s the survival of the fittest. That means the companies that are lean and mean will be around."

Faltering Fortunes

Small manufacturing businesses are also feeling the pinch, not just from the threat from imports but from a concoction of homegrown economic factors.

Even the guy who makes fortune cookies is feeling down on his luck. "Business is not good at all," declares Simon Chow, owner of MeeMee Bakery in San Francisco. "After 9/11, things really changed and we are still hurting."

Chow’s factory makes custom fortune cookies along with other sweets sold both retail and wholesale. But the recipe for success has some problem ingredients.

"It’s basically price-related," he observes. "Labor went up, sugar prices went up along with skyrocketing gas prices and, as a result, everybody’s suffering. Times are really tough."

The local minimum wage shot up quickly and that impacted all San Francisco employers. Chow notes that most everyone is trying to cut back employee hours, but when that occurs customers suffer. Many well-established businesses have closed after because the cost of labor has become too high. He has laid off several key employees and is trying to do double duty in the factory and at the cash register.

"I’m really not optimistic about the future of my business," he concludes. "I just go day by day" – cookie by cookie.

California’s Loss

Gino DiCaro, spokesman for the California Manufacturers and Technology Association, echoes the dreary outlook. "I don’t have a lot of good news," he concedes. "We’re not filling that (manufacturing) hole in California."

Lower-paying industry sectors are expanding while higher-paying jobs are decreasing. For example, the average annual salary of manufacturing workers is $68,000 compared with $42,000 for construction workers, the fastest-growing sector.

In the past couple of years, manufacturers have struggled with workers compensation issues but those have been worked out.

Still, manufacturers are making decisions to invest and grow in states other than California. Electricity rates are 80 percent higher here, plus the state’s tax burden and wage burden are more than the rest of the country. There are no new manufacturing facilities and the industry is generally stagnant, according to DiCaro.

"I think the biggest problem with this downturn is there is no state agency or no cabinet position to oversee and take care of manufacturing’s needs," he observes. "California used to be an innovative state and now it’s too costly and unpredictable to do business here. We don’t see anything in the future to change that trend."

The impact of this downward cycle will probably not be known for three to five years. Although there has been no mass exodus, small operations are quietly shifting to other states. There is an international component with competition from imports, but primarily it’s California versus the rest of the country.

"I don’t think there is one defining moment that got this going," DiCaro says. "California was generally lucky from 1990 to 2000. We lost aerospace jobs but got the booming tech industry. Now there is no reason for existing facilities to stay and grow."

Building new Skills

Manufacturing businesses in Los Angeles and Santa Clara County are gaining the most footing, but are having trouble finding qualified employees. The staffing problem began when high schools started emphasizing liberal arts curricula designed to prepare all graduates for four-year colleges. Only one in four high school graduates goes on to a four-year college, but until recently high schools had reduced or eliminated much of the vocational training needed by students seeking jobs right out of high-school.

"It’s a double whammy for the industry," DiCaro points out. "The ones that have job openings can’t find workers. The good news is Gov. Schwarzenegger is throwing a lot of money into career technical education.

"I hope it works."