Manufacturers In All Sectors Bleeding Jobs By CARLOS MARTINEZ Staff Reporter Just by looking at the largely empty parking lot at Boeing’s Rocketdyne Propulsion & Power in Canoga Park, it’s obvious things aren’t the way they used to be for the defense contractor. “Now we have about 4,000 people here and that’s just a fraction of what we had back in the early days of Apollo.” said Stephen Jacques, director of operations. Jacques doesn’t have to go back to the 1960s to make comparisons. Once the builder of all rocket engines that propelled American astronauts into space, the company hit hard times in the mid 1990s when defense spending and space-related projects slowed to a crawl. Today, it is slowly recovering with the development of engines for the Delta IV rockets used for satellite launches as well as the development of other engines and systems for the military and the National Aeronautics and Space Administration. But it remains unclear whether the company will stay in the Valley after Alabama officials earlier this year began openly courting the company to move there where it already operates a testing facility. Neither Rocketdyne nor its parent Boeing are currently commenting about possible moves. But Rocketdyne has had its share of layoffs. About 3,000 workers lost their jobs between 1994 and 1996 an example of a declining manufacturing industry in the Valley, a sector that has seen steady erosion in the past several years. Between 1991 and 2001, 32,000 manufacturing jobs were lost in the Valley, going to 90,000 jobs from 122,000 jobs in that time, according to a study by the San Fernando Valley Economic Research Center at Cal State Northridge. But the bad news doesn’t end there, Just in the last two years the number of manufacturing jobs in the Valley has dwindled to 82,900 with more expected to be lost next year, the center predicts. At the same time, the number of manufacturers in the Valley has gone from nearly 3,600 in 1991 to about 3,100 today. Many of those who lost their manufacturing jobs migrated to the lesser-paid service and retail industries, said Daniel Blake, an economics professor at CSUN and director of the center. Education is partly a factor in the industry’s troubles. While CSUN and other colleges continue to turn out engineers and technical experts, high schools and technical schools are graduating fewer people qualified to run high-end factory machinery, leaving community colleges to pick up the slack. Global competition is also a factor. “We’re seeing an industry that is still impacted by the economy and world markets and we’re not seeing any sign of a return for that sector,” Blake said. With increased competition from Asia, high fuel and energy costs combined with growing workers’ comp costs and already high tax rates, manufacturers in the Valley are not likely to see an upswing any time soon, experts say. Even with an otherwise optimistic economic forecast for the Valley, Blake says things aren’t so bright for the manufacturing sector, which he adds may have already bottomed out. And it’s not just aerospace that’s taking a beating. Many other segments of manufacturing in the Valley have all seen their employment numbers head south in a big way. A status report: Technology Technology, which saw slow growth during the early 1990s before really taking off in the late 1990s, saw its bubble burst with the loss of nearly 20,000 jobs between 1991 and 2001. The rapid rise and decline in technology shocked many in the Valley, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “There was a lot of growth in that area and it seemed that it would continue, but it didn’t and it impacted a lot of jobs in the Valley,” he said. The up-and-down nature of the technology sector was a new experience for many who saw new chips and processors quickly go by the wayside as newer, faster and more efficient chips kept coming along. “It became a roller coaster for a lot of companies,” said Lou Tomasetta, president and CEO of Camarillo-based Vitesse Semiconductor Corp. which started out as a super computer chip maker before that market crashed and the company moved on to make chips for the telecom industry before changing again into a manufacturer of data storage chips last year. Having cut nearly 600 jobs in the last two years, Vitesse is typical of many tech firms that have struggled with a bad economy. A down tech market has meant the closing of Conexant’s Thousand Oaks plant last year and at the same time the acquisition of optics component maker Luminent by its parent MRV Communications which had spun it off in 2000. The rise of technology firms in China and much of Asia where there are government subsidies and a cheap workforce have also worked against local manufacturers who have struggled to compete. But high end technology and a steady stream of new products has kept some local tech firms in the game against overseas competitors offering cheaper knockoffs, Kyser says. The technological edge must continue for these firms to survive, says Kyser who cautioned that the gap is closing. As for the future, Kyser says local technology firms must make their manufacturing processes better and continually develop new products in order to survive. Defense While many manufacturers have struggled in this new economy, some have managed to find their niche and grow. Van Nuys-based ITT Systems Gilfillan Radar Group is one such company. A maker of radar systems for air-traffic control and air-defense systems, the company is seeing an upsurge in business since 1998 as demand for improved defense systems has picked up here and around the world due to concerns over terrorism and potential conflicts. “When companies like Northrop Grumman were laying off people, we were picking up their people so the recession never touched us,” said Ron Crossman, director of business development. But employment has declined. The company had employed 2,200 people at its height in 1987. Today it has about 400 workers due to its automated manufacturing processes. But most other Valley defense contractors like Sensor Systems of Chatsworth, which makes aircraft guidance equipment, and AML Communications, a communications systems integrator, have continued to suffer from a down economy. The promise of business from homeland defense initiatives has not developed for local businesses, said AML CEO Jacob Inbar. But Kyser sees the defense sector improving as the government doles out more contracts to upgrade or maintain current defense systems. The Iraq war, he said showed gaps in the nation’s defense capabilities. Packaging Marfred Industries is a small fry when it comes to the cardboard packaging business which is led by conglomerates Smurfit-Stone Container Corp. and Weyerhaeuser Co. but its business has been hit by a down economy and foreign competition as much as its larger competitors. Having endured a tough period in the 1990s, Marfred went on the offensive and streamlined its operation with an automated manufacturing system and four-color printed boxes with high quality paper as demand for that segment increased. It was the biggest changeover in the company’s nearly 60-year history as it spent millions on new equipment to cut costs and stay competitive, said Randy Phares, general manager for manufacturing for Sun Valley-based Marfred. And it worked. The company was able to grow and expand as it opened a Las Vegas facility to better serve customers outside California even as cheaper products from China hit the market and economic woes took a further toll. Today, Marfred is fighting back with increased services and a more efficient operation. For Mark Frydman, president of Woodland Hills-based Box Brothers, such troubles with foreign companies and a sluggish market have been common in his industry. “I hope that 2004 is better, but I’m always an optimist,” he said. For Kyser, the outlook is cloudy for general manufacturing like packaging and the manufacturing of other durable goods as the overall economy continues to founder. “You’re going to see a continued decline, but it’s going to slow down because the value of the dollar is going down and it makes us compete better,” he said. Entertainment The entertainment industry has its manufacturing or set construction side which flourished in the 1970s and 1980s when the major studios closed or cut back their set manufacturing facilities in favor of outsourcing those services. But as the 1990s arrived, production began moving out of California and into Canada where wages and other costs were cheaper, forcing companies like Scenery West to look to business elsewhere. It now makes sets and display pieces for museums, theme parks and shopping malls around the country, said Tim Knipe, director of business development at Scenery West, a North Hollywood-based company. Many companies weren’t as lucky but others like Scenery West and WonderWorks in Canoga Park, adapted themselves to a changing market. Manufacturing sector still large The simple fact, experts like Kyser say, is that despite troubles within the industry, many Valley manufacturers remain in business and continue to maintain their share of the market, showing manufacturing still remains a big although dwindling part of the Valley’s economy. According to CSUN’s Blake, manufacturing is the second largest sector of the Valley’s economy with 13 percent of the labor force. In first place is the entertainment industry with 14.9 percent of the workforce. Third is retail with 11.9 percent. While many large employers like General Motors, Lockheed Martin and Northrop Grumman have left the Valley, many smaller ones have stayed, said David Braunstein, president of California Manufacturing Technology Consultants, a non-profit group aimed at assisting manufacturers. “We know the large manufacturers have gone, but the ones who stayed are a big part of the Valley economy and in some ways, the backbone of the economy,” he said. While overseas competition offers cheaper and readily available products, local manufacturers have been able to compete by offering quality products and support for the product in a timely manner, Braunstein said. Thanks to improved manufacturing methods that reduce the number of employees, Valley companies have remained competitive, Kyser said, though many still continue to suffer. Hampered by high workers compensation insurance costs, high fuel costs, tough environmental laws and high taxes, manufacturers in the Valley and elsewhere in the state will continue to face a harsh economic environment for the foreseeable future, Kyser said. “There isn’t anything out there that shows there will be a recovery for the manufacturing sector in the state,” he said. Assemblyman Keith Richman, R-Northridge, blames part of the industry’s troubles on a legislature that has steadily passed anti-business initiatives. “Legislation has been driven by special interest groups and liberal Democrats who have not taken into account the impact on business,” he said. “The legislature has not only neglected that sector but it’s been killing jobs there.” But Richman said he was optimistic about possible measures to improve the manufacturing sector under Gov.-elect Arnold Schwarzenegger who has pledged to reform the workers’ comp system. Today, however, there are no plans for tax cuts for manufacturers, or incentives to build modern factories or even a measure to effectively reform workers’ comp. Fred Gaines, chairman of the Valley Industry & Commerce Association, says Valley manufacturers, most of whom are small businesses, have had little success in getting their message to legislators. “It’s easier for large companies to get involved in government affairs, but with smaller companies it’s more difficult so they’re not getting noticed,” Gaines said. His own organization has lobbied on behalf of Valley business interests, but he admitted it has not focused on manufacturing. Bruce Ackerman, president of the Economic Alliance of the San Fernando Valley Economic Alliance, says he’s seen little organized effort from Valley manufacturers to be heard in Sacramento. “We really don’t hear much from the manufacturers here so it’s difficult to say if they’re being heard by legislators,” he said. “They’re not involved very much with us or VICA.” Indications are that the worst is over, said Kyser, but he cautioned that the sector would likely see further decline before it sees improvement. In California alone, 57,000 manufacturing jobs were lost last year or about 167,000 jobs in the last three years, according to California Manufacturing Technology Consultants. Nationwide, the U.S. government says there have been 38 consecutive months of declining employment in the manufacturing sector with no end in sight. But Joseph Carson, director of global economic research at Alliance Capital Management in New York, says manufacturing jobs are being lost on a worldwide basis. He says due to pressures of competition and the advent of new automated plants in Asia and Europe which require fewer workers, jobs will continue to be lost here and elsewhere for years to come. As for manufacturers in the Valley and the rest of the state, part of the answer to the industry’s troubles seems to lie in one direction Sacramento. “It’s going to take legislation to change things,” said Braunstein. “And a lot of work.”