Is American Manufacturing Losing its Strength?
Increasing number of foreign components present in 'American-made' products
American manufacturing is not the powerhouse it once was.
In 2007-2009, manufacturing job losses exceeded 2 million. And, despite adding more than 600,000 jobs since January 2010, the market has not fully recovered to its prerecession numbers, according to the U.S. Bureau of Labor Statistics (BLS).
However, HVAC manufacturers like Daikin Industries Ltd. and Uponor North America are reinvesting in American manufacturing facilities and spending hundreds of millions, resulting in thousands of jobs for American workers.
So, as a contractor, consumer, and an American, do you favor American-made products, and, if so, are you willing to pay a premium for domestic systems
PROUD TO BE AN AMERICAN
“I’m an American through and through. I wear an American flag tie most days, and I love our country,” said Butch Welsch, owner of Welsch Heating & Cooling Co. in St. Louis. “We’re recognized as the greatest country in the world because of our good leadership, hard work, and ability to do things right. But, I’m not sure we’re doing that anymore. As a result, we’re losing out to other areas in the world, specifically in manufacturing.
“I think Carrier announcing it is relocating its Indianapolis operations to Mexico is interesting because practically every manufacturer has had a plant in Mexico for a number of years,” he continued. “I remember when Carrier moved its coil plant down there 20-25 years ago, and it was just a minor blip on the radar. For some reason, this one is causing a whirlwind. Our company is a Bryant dealer, and when the announcement was made, there was a little bit of a firestorm because union people will typically support the union manufacturing system. But, it hasn’t changed our salespeople’s attitudes. They’re going to give the customers the best system that is right for their house, regardless of what brand it is, which is what I want them to do.”
There are a number of things adversely impacting American manufacturing today, including rising labor costs, increasing government regulations, hefty business taxes, a lack of qualified labor, and more.
“The shortage of skilled technicians is becoming more and more of a problem. That issue ties into this problem because the sheet metal and HVAC trades have traditionally been passed down from fathers to sons,” Welsch said. “What’s happening now is our guys are making enough money, and they all want their kids to go to college. That’s not a bad thing, but, like a guy said to me the other day, ‘if everyone goes to college, who is going to pick up the garbage?’ And, that’s kind of an over-exaggeration, but, the point is, we want our kids to have it better, but there’s got to be people willing to do manual labor. And, we’re not really growing people into those fields. That’s one of our problems in this country and one of the reasons manpower costs have gone up in manufacturing — not a lot of people want to go into it. Supply and demand means the price of labor goes up. I don’t know all the details, but I suspect people in Mexico are really happy to have a manufacturing job, and they’re willing to do it for $10 an hour instead of $25 an hour or whatever the numbers are.”
Welsch noted it’s hard to find any product manufactured in the U.S. in most stores because products from all industries are being made overseas.
“We’re no longer a manufacturing country. I don’t want our customers or employees thinking we’re bailing out on the country, but it’s a different place than it was 10-15 years ago. I don’t particularly like it, but I think we have to be realistic about the fact that if we’re not going to provide the people to do the jobs, manufacturers are going to have to go someplace where they can get it done.”
A GLOBAL ECONOMY
Most contractors like to believe they’re selling American-made products, but, more likely, they’re selling products that are assembled in America, said Steve Lauten, president of Total Air & Heat Co. in Plano, Texas.
“The reality is that none of us offer 100 percent American-made products anymore,” Lauten noted. “Many of the components inside American-labeled products have foreign-made parts, and, to be honest, it’s been that way for a long time. Is that bad? I don’t think so. Most of the products we offer have printed circuit boards made in other countries and capacitors that are mainly made overseas. Many compressors are now made in Mexico, and a lot of the refrigerants being used are imported. Most thermostats are not American-made, though they might be assembled in America. As long as the products meet our needs and work as designed, where they’re made is not critical.”
Lauten admitted that he prefers using North American-made products, including those created in Canada and Mexico, in addition to the U.S.
“To be honest, the U.S. has evolved into a world economy, and those who fight against that concept are likely losing business,” he said. “Living in Texas, I would estimate 85 percent of our customers are not from Texas, and a large percentage of our customer base was not born in the U.S. We welcome them as Total Air & Heat customers. With diverse customer bases comes opportunity, including a labor force. Ductless mini-split systems are mainly made in Asia, and we sell a lot of them. Many of our customers have not had ducted systems in the past. Most electronics, such as cell phones, TV’s, and computers, are foreign made, and that doesn’t change anything for most people. As long as the product meets the needs, I think country of origin is not an issue.
“Contractors need to focus on how well they do their work, and the rest will take care of itself,” Lauten said. “I do believe some brands are better than others, but, if they’re not installed correctly, even the best brands fail.”
Robin Boyd, technical service advisor at US Supply Co. in West Conshohocken, Pennsylvania, said American-made products are no longer commonplace. “Made in America has become a cliché. For those who use products that are made in the U.S., they claim they are superior or that they are supporting American workers. When one American-made product is pitted against another American-made product, the marketing rhetoric becomes, ‘but all of the parts in the other brand are made in other countries.’ Very few brands have equipment with parts that are completely manufactured in the U.S. anymore.
“Even when a contractor’s favorite brand moves out of the U.S., the marketing hype then becomes ‘my brand is still made to U.S. specifications, even though it’s assembled in another country,’” Boyd continued. “Don’t expect many Carrier dealers to switch brands just because Carrier is moving its facilities to other countries. All of the ‘made in the USA’ ranting is nothing more than marketing hype.”
There are certain advantages to having products manufactured domestically, according to George Oakes, sales representative for North Central Fabricators LLC in Braham, Minnesota.
“As outside sales for a sheet metal fittings producer that buys steel from U.S. manufacturers, it’s in the best interest for our customers that we can build and deliver very quickly,” he said. “But, to say all the company’s products must be American-made would not be prudent. As a person involved in purchasing for a heating company, our wholesaler sells products from many countries. And the reason is cost, not that the product is not an equal product. At the end of the day, it’s about not losing the job because the bid was too high. So, yes, being American-made is important, but if a product made in another country is better, isn’t it in the customers’ best interest to use that one? We know the market is not always fair, but this is the world we live in.”
Younger customers don’t place as high a priority on domestic products as their predecessors. That trend is demonstrated in a recent CNBC study conducted by research firm Penn Schoen Berland that states only 43 percent of Americans aged 18-34 would spend more money to purchase domestically made products compared to 64 percent of those aged 65 and older.
Despite consumers’ ages, are they willing to shell out extra money to purchase American-made heating and cooling systems?
Joe Kruger, vice president, sales and marketing for Isaac Heating & Air Conditioning Inc. in Rochester, New York, said while it’s not often a deal breaker, customers do ask about American-made products.
“One thing we’ve been able to fly the flag on for years is most of the heating and air conditioning units themselves, the equipment, is all built in America, and that definitely resonates with our customers,” Kruger said. “They have a sense of pride in buying American-made products. As we move on, some of the manufacturers are starting to build offshore in different countries, which is definitely a factor for homeowners when they make a decision. Some of our clients will bring that up and ask where the equipment’s made. Many times, we have customers — especially people who are/were employed by manufacturing companies — who want to support local workers and manufacturing. So, there definitely is awareness out there.”
However, when it comes to paying more for that American-made product, customers are a little more cautious, Kruger noted.
“People are price-sensitive. They’re often willing to pay a bit more, but not much,” Kruger continued. “With the products we’re selling, the key factor is the manpower, the people who are putting the units in. So, for our industry, they can get an American-made product while supporting our local workers and people in their community by doing business with contractors. That certainly resonates with people.”
George Colon, owner of iComfort Heating & Air Conditioning Inc. in San Fernando, California, said his customers ask whether a product was made in the U.S. quite often.
“We’ll do our best to explain that equipment is assembled in the U.S., as most parts and components are made elsewhere,” he said. “On repairs and things such as capacitors and a couple of other parts, we do purchase and install American-made products only.”
However, in Northern Texas, customers rarely ask about a product’s origin, according to Lauten.
“It’s not a topic our customers bring up,” he noted. “They are more interested in what it will do for them — will it save money, is it reliable, and how long does it take to install? I’ve not had any customers who are willing to pay extra for products that are made in America, though they will pay extra to do the job right, to receive products when they want them, and for better customer service.”
Lauten said the lack of American-made HVAC equipment stems from an overabundance of government regulations.
“Increasing rules, regulations, and taxes will continue to force manufacturers to move to other countries,” he said. “I see Capitol Hill as being completely out of control, and if we as an industry don’t come together to do something about it, we are all in deep trouble. I feel manufacturers whose beginnings were in America are being forced to make hard decisions. I don’t think it is labor that is the issue; it’s Washington.
“Contractors have a rude awakening coming. The things being considered by the U.S. DOE [Department of Energy], OSHA [Occupational Safety and Health Administration], and EPA [Environmental Protection Agency] have never been more important,” Lauten continued. “I worry that most contractors are sitting on the sidelines and are focused solely on their own little worlds. Then, the other shoe drops, and they find themselves asking, ‘what happened? Why did we not do anything about this?’ The time to get involved is now, and it’s up to us to control our own destiny.”
Publication date: 5/16/2016