View From The Trenches

Boy, it sure has been an interesting first four months of the year for the auto glass business!

If you had told me that the PPG sale would be in the dumps along with the nation’s number-two installation firm by the start of May, I would have dismissed you as being a negative nabob. One thing for sure as many independents gather this week in Vegas at the Independent Glass Association convention, I bet there will be no lack of tongue-waggling gossip and conjecture during the social hours talking about the changes taking place literally before our eyes within the industry.

One maxim that has never been disputed is that change is constant with the AGRR sector. Someone always seems to try to build a better mousetrap or business plan and the effect has been that it fails magnificently. We’ve seen manufacturers enter and drop out of the retail side. Distributors were falling by the wayside until the influx of Chinese glass darkened their bottom lines for the past five years or so.

Today it has gotten shaky again with the rising costs in fleet and human resources. This entire industry seems to ignore basic economics that reasonable profits, not razor-thin ones, are needed to sustain it. When are we ever going to learn?

Diamond Glass currently is on the bankruptcy block and its future is nowhere certain. It was a company that was built on the mandate that it would not be undersold. Please note what that concept got them. Nothing will surprise me once the outcome of the bid process becomes public knowledge. The “winner” of that contest could be the “usual suspects,” but I think eyes will roll (heads are optional) once the names are announced early in May.

PPG officials announced that they have every intention of selling their auto glass division after their first attempt did not exactly go Platinum. First of all, I’m sorry for the uncertainty that must exist throughout the affected divisions. I’m also sorry as a customer because I see the company wallowing and I don’t see that changing until a sale takes place. PPG will continue to primp the bottom line like an ugly girl in a club at 1 a.m. hoping that someone will pick her up. What may be an economic fact is that with the demise of easy credit, it becomes harder to find a buyer that has $500 million or so lying around in its accounts. That may mean the seller very well may be forced to split sections off and sell them separately. With the weak dollar, more international players may look with interest into buying some or all parts.

I’m going to miss Happy Hour in Nevada where these two events would certainly occupy a few conversations and tea leaves readings. I do regret not being able to attend. When you have a single-point store and are the sole source of installation income, conventions become a luxury that many can’t afford. Sadly, I am in that category, for I’m sure that I am missing opportunities to meet and to hear speakers and owners that can pass on useful help in operating my business as well as yours. I’m not trying to shill the IGA but it looks like that it has surpassed other auto glass conventions in product participation and attendance.My closing thought comes at looking at what’s ahead. Somewhere out there are future leaders in the industry that may just be opening their first shop or starting elsewhere in the industry. My advice to you: Look to the past to avoid mistakes of the future. Make sustainable profits, treat your employees fairly because they are the means to your success and, last but not least, have them install responsibly. Help raise our industry’s level of consumer appreciation and acceptance. If you can’t do anything like that, go to work for a big corporation and get good benefits. You can always use dental insurance.

One of the items that took place over the past week but was little noted was the completed purchase by Zeledyne of the Carlite glass holdings from Ford. Mr. Robert Price, the principal investor of Zeledyne, promised to keep the two U.S. manufacturing plants open and productive. Taking him at his word, I would like to thank him and to offer any and all support to him.

I don’t want to sound xenophobic but I have great concerns about the shifting of manufacturing jobs to China and places in the Third World. I understand the “flat-world” economic reality that exists but what causes me to worry extensively is where those segments of our population are going to be employed if they cannot or are not suited for a college education. They all can’t work for McDonald’s, Wal-Mart or even Safelite.

I grew up in Rochester N.Y. It was the home of Kodak, Xerox, Taylor Instruments (which made thermometers), Hickey-Freeman (noted men’s suit-maker) and Rochester Products, a GM parts plant. DuPont had a plant two blocks from my home where I used the company’s brick wall as a pitching backdrop. Today, compared to three decades ago, it is a near ghost town of manufacturing. I’m not convinced in the least that America benefits when jobs fly overseas.

Kodak once employed more than 35,000 people in Rochester alone. Their annual bonus was the most eagerly awaited economic event in the area. Today, thanks to film being supplanted by digital memory and any type of camera being built overseas with cheap labor, the work force has dropped to under 10,000 and still shrinking. My father worked for Taylor Instruments. Its plant in Rochester covered about three city blocks and I’m guessing it employed at least 1,000 people. Today, that property is devoid of buildings and covered with gravel and the jobs went both south to North Carolina and overseas. My DuPont pitching backstop is an empty lot as well.

The high schools in Rochester last year had less than a 50-percent graduation rate and I will ask anyone reading this essay this question: What are these kids going to do with the rest of their lives? Whether it is economic, social or just circumstantial, not every person is suited for a college degree and I simply want to know what opportunities these children can expect. Removing manufacturing jobs detracts a great deal of options and that scenario is being played out in hundreds of cities and towns throughout the United States, especially the Northeast and Midwest.

Well, I’m sure you are asking yourself, how does this pertain to auto glass?

Mr. Price is taking a gamble with his own money, it seems to me. He is trying to keep jobs here in America against some fairly daunting odds. The alphabet brands of Chinese manufacture have made a large impact here due to low pricing, much more than any stated variable in quality. In fact, lately we have seen some repercussions from the stampede to use China as a source of low-cost glass. Recalls due to poor tempering, questions about lead contamination of frit paint and even counterfeit parts have caused concerns about the integrity of the products received from the PRC. Domestic glass production have been hurt due to that fact along with the diminishing U.S. manufacturing output, which was so closely tied to the former Big Three auto builders.

It distresses me to see that our largest and oldest auto glass manufacturer has set up plants and shares technologies inside the PRC trying to wring out profits with from lower production costs and brazenly charge us, the retailers, a full wholesale price for those imported products. All the while, its domestic plants can’t even trim excess laminate from its finished product, making one think it cares very little about long-term quality since it is trying to extricate itself from the AGRR market.

I haven’t fallen that far from the turnip truck to believe that Zeledyne is an altruistic endeavor. They want to compete and to make sustainable profits. If Zeledyne can continue to provide us with a quality product, I would certainly support my continued loyalty to its purchase and use.

I would hope that there are many more buyers and owners who would support the continued presence of Carlite as a label of quality and buy it as well.

To me, “Buy American” is not some sort of nationalistic rhetoric. This country needs to recognize that we are paying a high internal price by shipping manufacturing jobs overseas. There has to be a way to keep those jobs home and give all Americans a chance and a method to climb the ladder of success and advance themselves. There is a very high degree of irony in the fact that those people who most shop Wal-Mart due to its low pricing are those most affected by the jobs lost producing those same products overseas. I also am painfully quite aware that in the AGRR market, where price is a huge issue as well, those clients who can least afford it are almost forced to buy Chinese due to its low cost. I applaud Mr. Price and Zeledyne for taking a risk and promising to keep its American plants open. I would like to see Carlite remain part of the American auto glass landscape for a long while.

Thanks to glassBYTEs.com™/AGRR magazine, I have had some of the most fascinating reading in months due to the coverage of the Diamond bankruptcy. While it is no surprise to me, the mechanics of Diamond’s troubles lead me to wonder about the state of “Big Glass” and of its future.

What amazes me is that here is a company that owes more than $100 million! It owns no tangible real estate since it leases its locations and vehicles. In courtroom documents, Diamond states that its “average glass transaction” is $213. I guess the most revealing thing is that it made only $2 million on $186 million in annual sales last year and that return is before “interest, taxes, depreciation and amortization.” Not exactly what the Wharton School of Business would consider a model business.

Glass manufacturers and distributors, it appears, are on the hook for more than $4 million. PPG, it seems, stands to lose the most at $1.5 million. I wonder what that means for the rest of us retailers. First of all, some of us have had to live with the aggressive (and apparently desperate) pricing practices of Diamond. Now we will have to all deal with the injury to the wholesale market as well although it seems that what is owed is fairly limited and certainly dwarfed by the percentage of Diamond’s sales.

The most serious problem is Diamond’s inability to pay off its bondholders, many of them from its 1998 need for funding. They have been unable to retire their debt and, with today’s tight credit market, I’m sure finding new sources has created this current crisis. Again it shows how important it is for any business of any size to be able to manage itself. From my viewpoint, Diamond placed a premium on volume and not profit and it has cost them dearly. No matter what the economy is doing, certain financial rules must apply and it seems that this company ignored some very basic ones and is now paying the price for its actions.

What worries me the most is, how much many of the nation’s auto glass businesses are truly profitable and not just doing it with smoke and mirrors? I look at the declining pricing that almost everyone promotes and wonder how many of those owners really know what it costs them to do business. Large chains employ bean counters that at least supply management with certain key figures with which to make decisions. Many single-point stores and mobiles rely only on a native gut feeling and a determination not to lose jobs. Both methods are hardly foolproof. This industry has chosen a path of discounting that is leading itself similarly to what the airlines are dying off from: Minimal profits to fill seats and a return that cannot sustain them in tough economic times.

One inviolable fact is that the auto glass installation business is still based on a craft and not just a product. It still takes a human to re-install a new windshield and hopefully do it with a reasonable skill. We have to deal with ever changing designs and long past ones as well. Our pricing methods reflect the lack of business acumen that much of this industry subscribes to; that the absence of a reasonable return is not necessary to function.

“Big Glass” to me are those companies that promote production style of installation procedures and market themselves directly to insurers and national fleets and have large regional or national coverage.

Diamond was one of the largest in that category. As I write this, the future is indeed very uncertain for their very survival. Retrenchment certainly has to be considered if not worse. I’m sure many of their competitors are not shedding crocodile tears for Diamond’s woes and are perhaps waiting in the wings to pick the bones so to speak of the ir once mighty rival. It certainly appears at this time that the rich will get richer and many of us will inherit the wind so to speak. To me, the larger question is how many more failures and re-organizations will it take for our industry to realize that taking the Wal-Mart approach to pricing is not the healthiest road to travel?