Trouble ahead for tool shops

Cooling of boom could cause industry shifts, analysts say

There will be a major shift in Windsor’s tool, die and mould sector within five years as the current manufacturing boom cools, says a top auto industry forecaster.

The latest data shows many of the area’s smaller tool shops — with annual revenues in the $5 million to $10 million range — will likely be sold to larger players or shut down completely, said Laurie Harbour, of Harbour Results.

“We expect it will remain very strong for the next 18 to 36 months, but post 2020 it appears (auto model) launches will slow down and the demand for tooling will slow down.”

Windsor and Essex County had 212 tool, die and mould companies in 2015, according to Statistics Canada. There are roughly 90,000 employees in the industry on both sides of the border, primarily in Michigan and southern Ontario, Harbour said.

“The big shops will continue to get all the work, but the little shops are going to struggle,” she said. “I’m not sure the labour count will change. But the small shops will struggle.”

Many of this area’s smaller shops have remained strong in recent years as they have been able to feed on outsourced work from their bigger counterparts, which have been unable to handle the volume of work created by the booming economy and auto sector.

Automakers plan several years ahead and place orders from tool makers about 18 months before a model is launched. There will be a slow down after 2020 for several reasons, Harbour said.

One is the looming switch to self-driving and electric vehicles.

There is also expected to be a reduction in the number of new vehicle models coming to market.

“It’s not going to be anything near what we saw in 2008-09,” Harbour said of the slowdown. “I’m not predicting a recession by any stretch.”

“The big shops should be fine. They will continue to get work, but the little shops will struggle — especially if they do not have a niche or specialty.”

Many will be bought out as the larger shops continue to secure orders and take advantage, she predicted.

Another factor is the large number of Windsor tool and mould shops that have aging owners, who may have no desire to weather another slowdown, Harbour said.

“Owners may soon start thinking now is a good time to sell, because in five years the market may not look so good,” she said. “Succession planning is a big question.”

But another tool industry watchdog believes there will only be a slowdown to more normal revenue levels for local tool, die and mould shops.

“(The industry) is very cyclical,” said Craig Wiggins, of Tooling and Equipment Capital Solutions Inc. “(General Motors) or Ford is not going to refresh their truck program every single year, so there is going to be a drop off. Yes, we will be due for a downturn, but I believe after three more spectacular years.”

He also believes owners will be well-prepared after learning from the 2008 economic crash.

“I always tell my clients, make sure your bank sheet looks great because an economic meteor always hits,” Wiggins said. “When it hits, those with a strong balance sheet weather the storm and stay in business.

“A big factor is (owners) who went through 2008-09 are now war time generals. After what they went through, if they survived they are better business people. They learned so much they won’t let themselves be as leveraged next time as back then.”

He also believes those who own tool shops on the Canadian side are better off than their American counterparts because they have more insurance options to back up borrowed money.

“You will see a slowdown, but I don’t think it will be doom and gloom,” Wiggins said.

Owners may soon start thinking now is a good time to sell, because in five years the market may not look so good. Succession planning is a big question. LAURIE HARBOUR, analyst