TOUGHING IT OUT : Blue-Collar Firms Caught in Vise of Price Squeeze

A lot of workers in Orange County don’t don white paper gowns and gloves or walk through six air locks to get to their work station. They slide open a corrugated aluminium door, stroll across a stained and debris-strewn concrete floor, sidle up to their stamping press and get dirty.

Despite a national reputation as a booming center of high-tech growth, a service economy poised for greatness on the edge of the Pacific Rim, Orange County still supports a sizable number of heavy manufacturers.

There are at least 34 aluminium, brass or steel foundries in the county, several blast furnaces and more than 100 metal-stamping, tool-and-die and sheet-metal shops. Companies with as few as six to as many as 1,000 employees make doorknobs, washers, heavy pipe, hoists, cranes, farm equipment. There are even a few companies in the county that make bullets.

It’s a dirty job, creating everything from sewer grates to titanium rivets for jet fighters, but people are doing it.

The question is: for how long?

Many manufacturers came to Orange County before the urbanization and growth of the last 15 years. Attracted by cheap land, room to grow and a life style envied in many parts of the world, the manufacturers set up their factories and assembly lines, pushing back the orange groves that were the first of the county’s low-tech industries.

Today, industrial manufacturers are toughing it out in a much different Orange County.

Real estate prices are high; flat, open space is hard to come by, and the blue-collar work force is increasingly moving to more affordable Riverside and San Bernardino counties.

At one time, the Holly Sugar Corp.’s yellow brick factory on Dyer Road in Santa Ana was surrounded by 50,000 acres of sugar beet fields. But in 1983, after several years of losses, the company faced reality--it was more profitable to sell the remaining 20 acres its factory sat on for $8.5 million than keep operating.

Now, the Holly factory is gone. The busy interchange of the Costa Mesa Freeway and Dyer Road is dominated by the Orange County Technology Center, a $46-million research and development office complex completed in 1984.

Those low-tech companies that remain do so despite dramatically increased land and housing costs that have transformed the available labor force into one that is predominantly white-collar. As one manufacturing consultant said, “Where can somebody who makes $5 to $8 an hour live?”

The long-term business plans of several of the county’s remaining large factories include relocating outside the county. Some firms plan to move because of high land and labor costs, others cite pressure from the cities that once welcomed them. Cities now want to replace the sprawling one- to two-story factories with cleaner businesses that generate more taxes: commercial high-rise buildings, office parks, shopping centers and research and development-oriented light industry.

Toxic waste disposal requirements, ever more stringent air quality requirements, emission restrictions, increasing energy costs, all contribute to the shrinking fortunes of the county’s smoke-stack industries.

“There’s a point at which a manufacturer in Orange County will say, ‘Forget it pal, we’re just not going to do business here,’ ” said Tom Ellick, president of the California Manufacturers Assn. and a former vice president at Fluor Corp. in Irvine.

“Look at land costs” in the county said Ellick, who lived in Orange County for 16 years before moving to Sacramento to take the CMA post. “Labor is certainly not inexpensive. The airport and the freeways are a disaster. Add that to the other costs of doing business, and unless Orange County starts reversing what’s reversible, there will be a shift out of the county to the Central Valley, where you have all the things Orange County used to have.”

Combined with strong foreign and domestic competition and increases in material costs, the battle that manufacturers must wage for survival is a grim one, but not hopeless.

Some Optimism

Some of the county’s heavy manufacturers plan to stay. Hyatt Die Cast & Engineering in Cypress moved to Orange County in 1969. It rejects the notion that the county’s heavy manufacturers are doomed to extinction, said Frances Moor, Hyatt’s controller.

“We can still maintain land here . . . and still make a profit with the product we deal in,” she said.

In fact, some industrial firms are even seeing business improve because the same high-tech companies that are supplanting them need metal working firms to craft the frames for the computers and because the finished computer systems are helping some manufacturers become more cost efficient.

Still, the older smokestack companies must learn to cope with a virtual inability to expand in the county.

Alfred Gobar, a real estate economist in Brea, said businesses such as fabricated metal producers require a lot of land per employee, making rent expenses a significant proportion of their cost of doing business. High-tech firms, on the other hand, enjoy higher profit margins and employ more persons per acre, he said, so rent isn’t as critical a factor for them.

And, Gobar said, the research and development building concept has driven land values up to $8 a square foot, limiting the sites priced at the $4 per square foot that makes it economically feasible for heavy manufacturers to expand.

Aluminium Forge Co. has been located near the intersection of Main Street and MacArthur Boulevard in Santa Ana--close to the old Holly Sugar factory site--since 1932.

Mark Ashton, manufacturing manager for the company, which generates 85% of its business from military contracts, said that the factory’s parent company has scouted out some property in the Riverside area as a possible relocation site because, Ashton said, “we can’t grow much more; we’re running out of room.”

Standing in the shadow of the new hotels and office complexes clustered around Dyer Road, MacArthur Boulevard and the Costa Mesa Freeway, the factory is being pressured to close up and move on, Ashton said. There is “static from people saying we’re putting out bad emissions,” he said. No amount of lobbying will persuade the city to let Aluminium Forge add more space, he said.

“The steel mill and the sugar factory were pushed out,” said Ashton. “We’re next.”

Bristol Industries is more definite about its future plans it intends to move to either Riverside or San Bernardino County within 10 years, general manager Robert McDaniel said.

The company generates revenues of $15 million a year, McDaniel said, and employs 175 people at its Brea plant.

“We’re a profitable company. However, Bristol is sitting on some very valuable real estate,” McDaniel said. “We’ve accepted it as part of our forward planning that we will relocate the physical facility.”

In Costa Mesa 32 Years

Soundcast Co., a 65-employee foundry that does 60% of its business casting valves for its parent corporation, Griswold Industries, has been at 1731 Placentia Ave. in Costa Mesa for 32 years, said Donald Redding, foundry manager. But these days, Griswold maintains another foundry in Yuma as a “safety valve” in case costs in Orange County rise too high and all foundry operations must be moved there, Redding said.

Not only are land costs high, but suitable sites where factories don’t feel government and citizen pressures about smoke, noise and smells are few. And, because many factories are set up in an assembly line arrangement, heavy industry--if it has a reasonable expectation of growth--must either build a satellite factory outside the county to handle that growth or simply move its existing facility elsewhere.

Kwikset Emhart Hardware, which has been in Orange County for 40 years and has no plans to leave, chose to meet growth in this market by building another manufacturing plant in Bristol, Okla. The company’s 1,000-employee factory in Anaheim is an assembly line operation that creates doorknobs, dead-bolts and lock sets.

“The cost of land is extremely high, but we still wanted to expand here in this location.” said Donald Mackay, Kwikset’s vice president of industrial relations. Oklahoma won out, however, when the company found that there wasn’t any room for expansion at its present site and “we couldn’t have another building across town because we are a production line type operation.”

For most companies, though, duplicating an existing plant or building an annex out of the county is not the most cost-effective answer. To create a satellite plant in Riverside, for example, could mean increased transportation costs from moving raw materials back and forth from the new site to the existing site in Orange County. Or, the assembly line layout of the factory might preclude having some of the manufacturing in one place and the rest in another. That leaves one alternative for many companies: leave town.

Labor Force Shrinking

Soaring costs--of land, housing and transportation, even of recreation--have had another effect on manufacturers. The number of blue-collar and semiskilled laborers who reside in the county is shrinking.

Mark Baldassare, an associate professor of social ecology at UC Irvine, said the one thing lengthening the stay of heavy manufacturers in the county is foreign immigration. But, Baldassare said, the availability of those low-cost laborers is just prolonging the inevitable: those industries will ultimately be replaced by high-tech and white-collar businesses.

“The amount of land needed for those plants and the type of labor needed just don’t match very well with whom we have living here and how much land costs,” Baldassare said.

Projections by the state Employment Development Department in Santa Ana show the number of non-farm laborers, craft workers and machine operators shrinking from 29% of the county’s work force in 1980 to 27.7% in 1990, a downward trend that labor analyst Alta Yetter-Gale said she sees continuing.

In 1980, an EDD report showed white-collar and service industry workers making up 71% of the work force and predicted that the number would increase into the 1990s.

Ashton at Aluminium Forge said that his task of finding and hiring 45 suitable semiskilled workers during the last three weeks was a “pain in the rear end.” There just aren’t enough people in the county who are willing to work on a factory floor, he said.

At Bristol Industries, 25% of the employees live in San Bernardino or Riverside counties, plant manager McDaniel said. Part of the reason the company is expecting to move within the decade is to be in an area “more desirable for many of our employees because housing costs would be less” than in Orange County, he said.

Modernization Solution

But through modernization, manufacturers may be able to make a go of it in the county. Perhaps more important for manufacturers than merely upgrading machinery, is rethinking past business practices, several consultants say.

Greg Hohman, a consultant with Arthur Young & Co. in Costa Mesa, said that, with some exceptions, manufacturers are being squeezed between their own internal inefficiencies and competition from those who have modernized.

First and foremost, heavy manufacturers must plan strategically. Company presidents “must get their long-range plans out of their heads and into those of their key managers,” giving the company a unified vision for the future that will guide them in their business decisions, Hohman said.

As part of that process, manufacturers need to increase the effectiveness of their information systems which, in some cases, are five to 10 years out of date, Hohman said. At a relatively low cost, microprocessing computers can streamline operations by turning out payroll checks faster and keeping better track of inventory and cash flow, Hohman said.

Some low-tech companies already are taking advantage of those opportunities, selling their wares to companies that put the product to some very high-tech uses.

Chambers Investment Casting in Santa Ana makes tail fins for missiles. Bristol Industries creates nickel alloy nuts and bolts designed to withstand the searing temperatures of a jet engine.

And Cherry-Textron, which employs more than 500 people at its Santa Ana plant, makes rivets. Those rivets--some made out of titanium--are engineered for specific clients who will use them in welding together jet fighters and missiles carried by atomic submarines.

E.M. Blackman, president of Small Business Manufacturing Consultants in El Toro, said that despite a definite decline in profits for businesses that forge and process raw materials, he sees an increase in business volume for sheet-metal firms--largely due to the demands of computer makers who need metal frames to encase their screens, keyboards and circuitry.

One reason that FMF Industries in Anaheim, a sheet metal fabricator, has been able to expand its business is that it has been implementing a number of the strategies Hohman advocates.

FMF leases the building it occupies and uses the ‘Just in Time’ zero inventory concept, new quality inspection processes and computer-controlled lathes and mills, said James Laib, the company’s vice president.

“The owner,” James Laib said modestly about his father Howard Laib, is being “really innovative all the time” to keep costs down and find more work when the firm’s traditional business is slow.

The 65 employees of the company build, among other things, medical equipment and computer consoles, working for such high-tech firms as Hewlett-Packard Co. and Beckman Instruments Inc. in Fullerton. The company generates approximately $4.5 million a year in revenue, Laib said.

And the Moritz Foundry, which has been in Santa Ana since 1941, has found its business growing after turning 90% of its production to proprietary products like manhole frames, drainage grates and metal trash receptacles which they market nationally.

For heavy industries that want to adapt, Orange County has some distinct advantages, Hohman and Blackman agree. There are plenty of service companies and high-tech firms that manufacturers can go to for help.

“It’s all a case of utilization of resources,” Blackman said. “The manufacturers who wake up rather than give up are the ones who’ll make it.”