By THOM SENZEE Contributing Reporter As the Dow tumbles, banks fail, and a belt is cinched around America’s credit system, Valley-area manufacturing firms are bracing for a rough ride following a year of slower sales brought on by the reverberating effects of a meltdown in the real estate-market. Three companies, ranging from a small specialty parts manufacturer in Sun Valley; to a medium-sized maker of cutting-edge microwave communications technology in Valencia; to one of the world’s biggest names in washroom equipment located in North Hollywood; illustrate how the epic downturn in the national economy has affected local industry so far. The stories include tough setbacks, a temporary reprieve, and sound long-term planning that is now paying off. Some of the region’s smallest companies are taking the first hits. “Every product we sell is a commodity in a very large supply chain,” said George Guzman, operations manager and co-owner of PRS Manufacturing in Sun Valley. “But our product is something people can definitely live without.” “With the cheap products that are coming from China already putting competitive pressure on us, then the housing industry crashing, now this; we are really feeling it.” PRS makes dozens of lines of small, high-density plastic parts for uses in irrigation, building, and electrical-engineering projects. The company grew quickly during the high-times of the housing boom, but recently had to lay off all but two of its nine employees. Meanwhile, the firm’s two principals are currently forgoing most of their salaries in order to keep the company operating. Gone, too, is the company health plan. “We are actually breaking even right now,” Guzman said. “But that’s it.” He has even taken a measure that might have seemed drastic only months ago. “I ended up working for Starbucks on a part-time basis in order to alleviate what the business is not paying us.” A big drop in orders from home-improvement stores signaled the coming of a trend. PRS had once hired people to help keep The Home Depot and Lowe’s stores stocked. “We have lost a good 80 percent of what we used to sell to the housing industry,” Guzman said. “Now some of our distributors are not even ordering stock, and our drop-shipping business has gone up by 40 percent.” With end users of irrigation connectors, electrical harnesses, and pipe fittings going straight to manufacturers in order to save money, Guzman said some distributors PRS has worked with for years, which once ran fleets of delivery trucks, now only have a single driver working full time. “They say sales have declined due to the current economic plunge, and they have laid off almost 60 to 70 percent of their employees in the past month or two.” Those distribution firms, Guzman said, represent the irrigation, telecom and electrical industries. But not all is gloom and doom for PRS Manufacturing. There is a bright spot. Guzman said the company has secured an SBA loan that will be funded as soon as the firm moves to its new location in Lancaster. “We’re now paying $9,000 a month in rent,” he said. “There, we will be paying $5,000. I’m sorry to have to leave the Valley, but we have no choice.” Also on the positive side, PRS owns its own manufacturing equipment outright. “We do expect to be around a year from now,” Guzman said. “We will make it.” Some believe Southern California’s diverse economy will protect the region from the most extreme effects of the nation’s financial woes. The entertainment, new media, and defense industries, and to some extent the import and export business, may provide a modest buffer against recession, economists, such as Los Angeles County Economic Development Corporation’s Jack Kaiser have said. One Valencia company has a couple of factors acting in its favor for the time being. First, its customers are broadcasters in the midst of a universal, FCC-mandated conversion from analog to digital, with the hardware-heavy transition costs being picked up by the telecommunications industry (i.e., Sprint/Nextel, AT & T;, etc.). “It takes a lot of labor and hardware to take broadcast from analog, which takes up to 10 times more spectrum than digital, and they the broadcasters have to finish the conversion by next year,” said David Barbour, marketing manager at Troll Systems. “Telecom wanted 3G and they needed more of the spectrum, so they were willing to foot the bill, which is good for our microwave business.” Barbour doesn’t believe his business is exactly “insulated” from the fear of economic collapse, which is currently hovering over the heads of some companies in other industries. “I just think we are lucky to have a bigger kettle of fish broadcasters than some industries’ customer base,” he said. “Then you have the conversion that is happening now, city-by-city, and that will drag on past the deadline of February 2009.” Secondly, Troll Systems has a recession-resistant class of clientele the military. “We also have products in the battlefield,” Barbour said. “We’re not the primary satcom communications systems, but we are the first-line contingency microwave technology the military uses on the ground in the battlefield.” With two wars and global instability near all-time highs, the U.S. Army, Navy, Air Force and Marines are likely to remain good customers for Troll, as are European governments. In fact, a recent report by defense market-intelligence company, Forecast International, said that a $3-billion market for land-based communications systems, such as those made by Troll Systems promises to keep business moving for it and similar Valley firms that survived the aerospace downturn of the 1990s. “So we are doing fine for now,” Barbour said. “In fact, we are rolling out an entirely new line of products called Next-generation Newsgathering technology that will revolutionize the way newsgathering in the field is done.” Much of the microwave transmission television news relies on to bring up-to-the-minute reports, such as helicopter-based reporting, uses Troll’s equipment. Barbour expects most broadcasters to buy Next-generation Newsgathering equipment. “We are going pedal-to-the-metal forward,” Barbour said. “But, I don’t think anyone can ignore a $700-billion financial crisis. We’re not immune to disaster.” Another study in so-far-so-good is North Hollywood-based Bobrick Washroom Equipment. “It will be a record year in sales for us,” said Jerry Otchis, the company’s CFO. “Next year, however, we expect a very modest decrease.” The key to Bobrick’s success this year, in spite of a major slowdown in the construction industry its biggest source of sales is new product lines and its international business. One big driver, especially in Europe is a combination, floor-to-ceiling paper towel dispenser and waste receptacle unit that also sports an automatic hand drier between the dispenser and the receptacle. “Europe is a strong customer right now,” Otchis said. “They have a different standard for washroom equipment that requires, for instance, toilet partitions to be seamless, with no cracks that you can see through. We have a strong position in that market.” That does not mean Bobrick has been unaffected by the problems facing other companies. “The main concern we have is the number of business failures we’re seeing,” Otchis said. “Generally our bad-debt losses are very, very low because we’re selling product that goes into a building, which you can put liens on.” Otchis said there are more instances where liens are necessary these days. “Our average collection cycle is 60 days,” he said. “But our debt losses are less than one percent. That will probably double this year.” Otchis’ firm is making some changes as a result of the economic crisis. “We’re being more selective in the trade shows we choose to go to,” he said. “But we are a well-capitalized company that does things for the long term, not the short-term.” However, Bobrick plans no layoffs, hiring freezes, or other cutbacks. Accounting firm Kirsch, Kohn and Bridge serves some of the Valley biggest private manufacturers. KKB has seen some of its customers struggle in recent months. “The thing that’s really affecting us right now is in the amount of financial statements we’re doing, as our customers go to banks they may not have done business with in the past to find loans,” said partner Mel Kohn. “Internally, we have seen aging creep into our receivables,” Kohn said. “The client must also be dealing with older receivables.” As has been pointed out by economists at every level, the credit crunch is affecting manufacturers’ liquidity by taking away the credit lines they rely on for operational expenses and payroll. “That’s the biggest threat to companies,” he said. “It’s making them have to get creative in the way they find credit.” Enter the Valley Economic Development Center, headed by president and CEO Roberto Barragan. “We are now seeing companies with high credit scores above 700 coming to us because they can’t get a bank loan,” Barragan said. Whereas VEDC has often been a lending source of last resort in the past, companies that only weeks earlier had only to sign on the dotted line are being pressed for more documentation by banks, only to be declined after doing so, Barragan said. “The banks want perfect cash flow, perfect collateral with lots of equity, and still that’s not enough,” he said. VEDC is struggling to meet the demand for its SBA loans, and other loan programs. “We’re funded by government, by foundations, and by bank sources,” Barragan said. “But we’re doing three to four times what we expected to loan this year.” Barragan points to one company VEDC is working with that exemplifies the problem. “They own their own building, have good credit, and had a deal at Lehman Brothers to expand, but because that fell apart, they can’t get a bank loan,” he said. VEDC was able to get that manufacturer a $1-million loan package that was vital for its survival. In response the Valley’s and the entire city’s manufacturing community’s demand for credit, Barragan went to City Hall last week to rally support. He found some, he said. “The mayor and I are working to bring an emergency loan program worth $15 million, 5 to 10 of which will his the street by the end of the year.” That, Barragan said, is on top of the $20 million VEDC already has loaned this year. “Credit is the lifeblood of business,” he said. “It’s not discretionary. If credit doesn’t loosen soon, the banks will lead us right into a recession.”