SOUTHERN CALIFORNIA ENTERPRISE : A New Defense Strategy : Metal Shop Diversifies and Survives

The tubs at George Industries used to contain khaki-colored chemicals for anodizing 30-millimeter shells and the tips of cluster bombs. Now iridescent mountain bike frames and flashy aluminum children’s Pog slammers come dripping out of those same tanks.

The change in production was a life-saving measure for the East Los Angeles metal-finishing shop.

For most of its 43 years, George Industries depended on defense and aerospace work for almost a third of its income. But in the early 1990s, with cutbacks in both those industries, the shop was losing money, watching competitors fold and laying off some of its own employees.

That’s when company owner George Gering embarked on an aggressive campaign to find more commercial clients. With the help of a business consultant, a county aerospace-conversion loan and a Small Business Administration-backed loan, George Industries sought new markets and retooled.

Defense contracts now make up only 5% of its revenue, but the company has recently added 145 employees for a total of 320, and it expects sales of $12 million this year, up about $3 million over last year. The bulk of its work now consists of anodizing parts for recreational equipment and various household goods.

“A lot of military material went through George Industries before,” said Gering’s son David, who does public relations work for the company. “But now there’s a whole range of activities that we hadn’t been doing a year ago, all in the commercial sector.”

The turnaround for George Industries represents not only a personal victory for owners George and Claire Gering, but a prototype for defense-dependent small companies in Southern California that continue to struggle under defense and aerospace industry downsizing, said Jesus Arguelles, the consultant who helped revitalize the shop.

Mature companies such as George Industries whose potential for growth and expansion seem limited must re-evaluate their strategies and concentrate on creating unique consumer products to capture specialized market niches, Arguelles said.

“It’s the trend for the 1990s and the only way to stay ahead of obsolescence,” he said.

George Industries began in 1951 when 19-year-old George Gering, a UCLA chemistry student, used his mother’s pressure cooker to devise a new way to seal microscopic pores in metal parts.

To get professional validation, he sent his idea to a metallurgical lab that was doing work for the Army and Navy. Instead, it referred his work to Defense Department officials, who gave him a government contract to seal molds for radar domes. With a $1,500 loan from his mother and help from his college buddies, he began working with rented equipment in East Los Angeles.

Soon Defense Department officials for the Army and Air Force asked him to expand to anodizing, a technique to guard against corrosion by dipping raw aluminum parts in sulfuric acid and running an electric current through them. The process adds a protective oxide film that actually sinks into the metal. George Industries began churning out anodized parts for missile launchers, bombs, Hercules and Hell Fire missiles and shells, which made up 90% of its business.

“We got more contracts than we could shake a stick at,” said Gering, a tall and energetic 62-year-old. “By the time I was 25, the money was rolling in, and we plowed it back into the business.”

Throughout the 1950s, the company stood out among a crowded field of more than 450 other Los Angeles anodizing companies, thanks to standardized procedures and cost-control measures devised by Claire Gering.

“The anodizing and plating businesses were all mom-and-pop shops,” she said. “This is not big business. . . . Many of them were uneducated and unsophisticated” about business procedures.

It was their sophistication that enabled George Industries to began diversifying in 1963, when Lockheed Corp. and Douglas Aircraft Co. in Southern California lost ground to Seattle-based Boeing Co., triggering losses for smaller service providers such as the Gerings. They began anodizing new products--such as eyeglass frames, hot water heater buttons and backpack frames--and soon prospered again.

But the recession of the early ‘90s brought not only a loss of the company’s aerospace and defense contracts, but much of its commercial base as well. Home construction dried up in Southern California, as did the need for the company’s anodized brackets for wall shelves, picture frames, shower door frames and bathroom cabinet closures. The Gerings spent their savings keeping the business afloat, refinanced their home and laid off 40 employees before they met Arguelles.

In late 1993, the consultant helped them devise a business plan, reshape their finances and rethink their markets. The couple decided not to compete with anodizing shops in the South and overseas, which had cheaper labor costs and fewer environmental controls. Instead, the Gerings concentrated on unique processes they had invented, such as a decorative anodized finish resembling marble and artistic “silk-screening” applied before anodization. They hired a team of designers to concentrate on that aspect of the work.

The creativity was bolstered by new equipment financed by a $200,000 aerospace-conversion loan from the Los Angeles County Business Loan Program and a matching loan of $400,000 from Valley Bank in Moreno Valley, which was guaranteed by the Small Business Administration.

The mix of rethinking and refinancing is vital if former aerospace and defense businesses are to survive, said Rohit Shukla, executive director of the private, nonprofit Los Angeles Regional Technology Alliance, headquartered Downtown in the offices of the Los Angeles County Economic Development Corp.

Shukla oversees a matching-grant program in which half a dozen state agencies have pledged more than $200 million toward helping businesses. The companies must qualify under a variety of state requirements and get half their aid money from federal sources.

Shukla admits the requirements are hard to meet because the sources of funding are drying up. The $4-million county loan program that aided George Industries is pretty much exhausted. Meanwhile, federal aerospace-conversion bailout money via the national Technology Reimbursement Project and the Advanced Technology Program are targets of fiscally conservative Republicans, who say such programs are “corporate welfare.”

But Shukla points out that money alone is not the answer. Companies that previously concentrated primarily on the quality of the defense parts they produced now must adopt a more entrepreneurial attitude and look at the overall picture--their costs, markets, competition and game plan.