Wind Energy in Michigan is 'On the Edge of a Cliff'

Story first reported from freep.com

With the auto industry on the verge of collapse in 2008, former Michigan Gov. Jennifer Granholm and other state officials were eager to diversify the economy and create thousands of jobs by making a big push into alternative energy.

To capitalize on the state's strengths, they focused in particular on the manufacturing of parts for wind turbines.

But four years later, the drive to grow a new sector built on clean energy has lost momentum with little to show, the victim of turbulent industry conditions, Washington politics and what some critics would call misguided government policies.

Several high-profile projects have encountered significant delays and have yet to launch full-scale production. They include a manufacturing plant for large wind turbines in Saginaw, a new foundry in Eaton Rapids to make iron parts for wind turbines and an innovative ethanol plant in the Upper Peninsula.

In late June, one of the state's major solar industry players, United Solar Ovonic, was liquidated.

Even some of the wind turbine parts suppliers that have successfully launched production have seen a sharp drop in orders because of uncertainty over whether a production tax credit that expires at the end of December will be renewed. Ventower Industries in Monroe started building giant wind turbine towers late last year in a new factory, but its business would be three times larger if the tax-credit situation was resolved, said Scott Viciana, the company's vice president.

"The wind industry is on the edge of a cliff," said Matt Kaplan, associate director of IHS Emerging Energy Research, a consulting firm in Cambridge, Mass. Although, wind turbine repair companies are doing well compared to manufacturing companies, because repair is less costly than replacement.

He and other experts predict that 2012 will be a record year for the installation of wind turbines as companies rush to take advantage of the tax credit before it ends. On the flip side, however, the number of installations could plummet to record lows next year, Kaplan said.

The tax credit isn't the only headwind facing wind turbine parts manufacturers. Just like in the solar industry, the wind industry has too much production capacity, which is driving turbine prices lower. That's good for the growth of wind energy but puts pricing pressure on turbine parts suppliers. Kaplan forecasts that the industry is on the verge of consolidation.

In Michigan, the alternative energy industry lost a key proponent when Granholm left office at the end of 2010. She tried to transform the state into a manufacturing hub for wind and other renewable-energy industries, providing millions in grants, tax credits and other incentives to entice companies to the state. A team of economic development officials worked to grow green jobs.

Today, Michigan has 35 wind-related manufacturing plants, according to the American Wind Energy Association. In 2010, the state had nearly 80,000 green jobs, which accounted for 2.1% of its total employment, a U.S. Bureau of Labor Statistics study found.

The growth of the alternative energy industry has always been dependent on government subsidies. Critics, such as the Mackinac Center in Midland, have long opposed this assistance, arguing that these business ventures should be based on market forces.

Under Gov. Rick Snyder, programs specifically designed to spur the growth of the alternative energy industry no longer exist. The state revamped its economic development strategy with the goal of treating all industries equally.

"We're doing what we can to help all industries in Michigan be competitive," said Steve Bakkal, director of the state's Energy Office. He contends that successful companies will be those that are supplying products for multiple industries, not just wind or solar.

But at the moment, several projects that are trying to break new ground in the alternative energy field have run into difficulties.

Two years ago, Northern Power Systems announced plans to manufacture large wind turbines, something that had never been done in the state. So far, the Vermont-based company has made and sold only two prototypes of its next-generation turbines to a wind farm in the Upper Peninsula.

The uncertainty over the future of the production tax credit has caused customers to delay placing new orders, said Douglas Prince, Northern Power's chief financial officer.

The company's leased facility in Saginaw is "kind of in standby mode right now," Prince said. "We're hopeful the market will recover."

In central Michigan, a plan to make iron parts, which are called castings, for wind turbines at a new foundry in Eaton Rapids has also been delayed. The foundry was supposed to open at the end of 2011, promising lower-cost and higher-quality castings. But it ran into management, financing and other problems.

Eaton Rapids Castings hopes to start production this fall but still needs to find additional investors, said Lennart Johansson, the company's CEO and one of its owners.

To offset the uncertainty in the wind business, the foundry plans to make castings for other industries. It has scaled back its initial production volumes.

To be sure, the outlook isn't completely bleak. A few ventures are making progress, most notably Energetx Composites in Holland. The company, which has nearly 80 employees, won an order to build more than 200 large wind turbine blades for a customer it cannot name, said David Slikkers, Energetx's chairman.

He and other family members saw blade manufacturing as a natural fit because they have been building boats for decades as the owners of S2 Yachts. "We have been composite fabricators for 50 years," Slikkers said.

And near the Port of Monroe, Ventower expects to have built 15 towers for large wind turbines by this fall. It occupies a new factory on a former industrial landfill and has hired 53 employees. But the industry slowdown caused by the tax credit situation is holding back its growth.

"I would have orders booked through the bulk of next year if the tax credit was not an issue," Viciana said.

More Details: Hitting a Green Wall

Here are some of the high-profile alternative-energy business ventures in the state that have shut down or run into significant delays:

* Northern Power Systems' large wind turbine plant: The Saginaw plant has yet to launch production and is operating with a skeleton crew.

* Eaton Rapids Castings: Foundry to make iron parts for large wind turbines in Eaton Rapids has been delayed. It is still trying to get financing.

* United Solar Ovonic: The maker of solar roofing materials filed for bankruptcy in February and sold its assets at the end of June.

* Mascoma's cellulosic ethanol plant near Kinross in the Upper Peninsula: Groundbreaking was supposed to occur this summer. The company says construction will start at year's end after engineering design work is completed, contracts are awarded and financing is finalized.

* Astraeus Wind Energy: In 2010, company announced plans to make spar caps for wind turbine blades in Port Huron. It is still in the testing phase.

* Danotek Motion Technologies: Was supposed to start making generators for large wind turbines last year. The company says production will begin this fall in Canton. It has 28 employees, down from 45 at the end of 2010.

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Honeywell Boosts Outlook on Sales of Car, Plane Parts

Bloomberg / BusinessWeek

Honeywell International Inc., the maker of car turbochargers and aircraft parts, boosted its full- year forecast after third-quarter profit topped estimates.

Earnings will be as much as $2.52 a share this year, the Morris Township, New Jersey-based company said today in a statement, up from a July projection of at most $2.50 a share.

Honeywell said sales at all divisions rose on a year-over- year basis, with industrial growth pushing up revenue at the Automation and Control division, the company’s largest. Demand climbed for turbochargers from automakers in Europe, and sales increased at the Aerospace unit as planemakers and owners bought more components.

“We are now seeing an uptick in aerospace’s commercial aftermarket,” Chief Executive Officer David Cote said today on a conference call with investors and analysts.

Net income declined 18 percent to $499 million, or 64 cents a share, from $608 million, or 80 cents a share, a year earlier, Honeywell said. Revenue climbed 9 percent to $8.39 billion.

Honeywell rose 59 cents to $47.26 at 4 p.m. in New York Stock Exchange composite trading. The shares have climbed 21 percent this year.

Analysts, on average, projected third-quarter profit of 62 cents, on revenue of $8.22 billion. Analysts predicted full-year profit of $2.54 a share.

Honeywell’s pension expenses have hurt earnings because the company’s accounting methods recognize losses quicker than those of other industrial companies. Pension-related costs cut third- quarter profit by about 18 cents a share. Honeywell expects about $1 billion in pension contributions this year, Chief Financial Officer David Anderson said on the call.

Honeywell today forecast 2010 revenue of $33 billion. Analysts estimate $32.8 billion. In 2011, sales may grow 5 percent or more, the company said.

Manufacturing Feeds the Recovery, but Can It Persist?‏

CNBC

As the U.S. economy began to show signs of life late last year, it was carried largely by an unusual leader: manufacturing. In terms of both output and new jobs created, U.S. manufacturers have posted strong numbers for several months running.

Yet with the mixed results of two regional manufacturing reports this week—the New York Federal Reserve's Empire State Manufacturing Survey and the Philadelphia Federal Reserve's Business Outlook Survey—it remains to be seen if the short burst manufacturing received from U.S. businesses cautiously re-entering the economy this spring will extend much longer.

"People had to restock shelves at some point," says Cliff Waldman, an economist for Arlington, Va.-based Manufacturers Alliance, (MAPI). "What has to happen now is real demand has to enter."

But Thursday's Philadelphia Fed survey, which covers factories in eastern Pennsylvania, southern New Jersey and Delaware, suggested that business demand remains tepid. Despite a slight increase in the survey's diffusion index of current activity—its most comprehensive measure of manufacturing conditions—certain line elements dipped, including an eight point drop in new orders.

"Domestic demand, while recovering, is not exactly a barnburner," says Waldman.

The Philadelphia Fed survey also revealed a softer-than-anticipated outlook on factory hiring. Manufacturing employment has been a bright spot in an otherwise bleak job market, adding 101,000 jobs since December 2009, according to the U.S. Bureau of Labor Statistics. While both the Philadelphia Fed and the Empire State survey, released Monday, recorded positive readings for May hiring, they also found future employment outlooks tied heavily to business demand. Forty-three percent of the Philadelphia-region factories who reported no present intention to hire further employees indicated uncertainty over product demand as the "most important" reason why they were keeping ranks trim.

As a sector whose share of the economy has only shrunk with each passing decade—manufacturing accounted for 11.5 percent of total GDP in 2008, versus 21.3 percent in 1978—its current performance is hard to appreciate when speaking in relative terms. Still, U.S. manufacturing remains a positive indicator for economists analyzing a nascent economic recovery.

Omair Sharif, an economist for RBS Securities, remains unfazed by any recent pullback in manufacturing's strong run for 2010.

"Philly and Empire reports still point to very healthy growth in the manufacturing sector," says Sharif. "[Both] show continued growth in factory activity in May, even if it is somewhat slower than it was in April. Because the reports run through the first half of each month, my sense is that some of the slowdown may have had to do with caution on the part of firms due to the escalation of the European debt crisis."

Global markets stretched and shaken by a historic economic downturn will likely continue to impact the fate of U.S. manufacturing. An Asian-led export rebound has had strongly positive implications for the sector, as booming Asian economies have stepped up their demand for American goods. Yet with shaky European markets threatening to unsettle business operations worldwide, manufacturing could take fresh hits just as quickly as it gains, leaving its progress caught in a murky middle.

"It's an uneven global recovery to say the least," says Waldman. "My best guess in manufacturing output growth is moderation."
 

Factory Orders Rise for 10th Time in 11 Months

Forbes

WASHINGTON -- Factory orders rose in February, bolstered by strong demand for industrial machinery and commercial aircraft. It was the 10th increase in 11 months as manufacturing continues to provide crucial support for the nation's economic recovery.

"We're not a red-hot economy," said Tim Quinlan, an economist at Wells Fargo. "But the recovery is still plodding along."

Manufacturers, which were hit hard by the recession, are benefiting from overseas orders and increased business spending on capital equipment. Quinlan estimates that factory orders fell by about 25 percent during the recession but have recovered about one-third of that amount since last spring.

The Commerce Department said Wednesday that new orders rose 0.6 percent last month, just ahead of analysts' estimates for a 0.5 percent increase, according to Thomson Reuters. Still, that was the lowest uptick since August 2009.

January's orders also were revised higher to show an increase of 2.5 percent, the department said.

Separately, a private company's report on payrolls Wednesday disappointed Wall Street analysts. Payroll provider ADP said that employers cut 23,000 jobs in March, well below economists' forecasts for a 40,000 gain.

Stocks were mixed after the data, which comes before Friday's employment report by the Labor Department. The Dow Jones industrial average fell about 21 points in midday trading though some broader indices ticked up.

In the factory orders report, economists were encouraged by a 2 percent rise in orders for capital goods such as computers and machinery following a sharp drop in January. That means businesses have started to increase their investment spending, economists said.

In addition, inventories rose by 0.5 percent last month, the fourth increase in the past five months and better than the 0.3 percent rise seen in January.

Auto makers and other manufacturers cut their stockpiles sharply during the recession, and rebuilding stockpiles will help fuel the recovery. Larger inventories also would indicate that companies are confident about future sales.

Still, inventories aren't growing as quickly as many economists would like.

"That suggests to me that firms are still cautious about their sales outlook," said Zach Pandl, an economist at Nomura Securities. He would like to see inventories increase at closer to a 1 percent pace.

Businesses reduced their stockpiles for warehouse material handling at a much slower pace in the final three months of last year, compared with the rapid drawdowns during the recession. That swing contributed about two-thirds of the fourth-quarter's economic growth. The gross domestic product increased by 5.6 percent in the fourth quarter, the fastest pace in six years.

Orders for big-ticket manufactured items, known as durable goods, also rose 0.6 percent in February, slightly higher than a preliminary estimate released last week. Machinery orders jumped 5.1 percent, driven by higher demand for heating and air conditioning equipment and turbines and other power generation gear.

Orders for commercial aircraft, a volatile category, jumped nearly 33 percent last month. But the auto industry continued to struggle, with orders for motor vehicles and parts falling by 1.7 percent, the second consecutive drop.

Nondurable goods, such as chemicals, food products and apparel, rose 0.3 percent, a healthier showing than many economists expected. Chemical orders, particularly of pesticides and fertilizers, as well as food products, led the increase.

Some Manufacturers are Finding a Silver Lining
Story from the Wall Street Journal

TAYLORSVILLE, N.C. -- Roy Calcagne offers a simple explanation for why, in the midst of a grueling downturn, his company is selling more sofas and love seats than before.

"We're stealing market share," says the chief executive of Craftmaster Furniture Inc., a maker of upholstered pieces with two large factories here.

What's happening at Craftmaster is just one example of the survival-of-the-fittest competition taking place across the economy. The recession has already killed off some major retailers, including Circuit City Stores Inc. in January, and prompted the shutdown of manufacturers known for everything from auto parts to storm windows.

When businesses flame out, there are often others on the sidelines, like Craftmaster, ready to pick up the pieces. Most companies don't like to openly discuss the demise of competitors. But in hard times, the grim reality is that grabbing business from fallen players is one of the few avenues to growth -- or at least a way to minimize a company's own sales slide.

Michigan's Case Systems, a manufacturer of custom cabinetry for schools, offices and medical laboratories has seen steady business even within the especially hard-hit state.

At Craftmaster, which assembles upholstered sofas and chairs that sell in stores for less than $1,000, revenues rose 4% last year and have grown 5% since January, according to the company. That might seem like a modest increase, but given the state of the industry, it's remarkable. Sales in the $80 billion U.S. furniture market, which is closely linked to housing, were off by an estimated 20% over the past six months, say analysts.

Several large producers have shut down in recent months and others are shedding workers and closing factories. La-Z-Boy Inc., known for beefy recliners and other "motion" furniture, has laid off nearly a quarter of its workers over the past year and posted deep losses. On the higher end, Ethan Allen Interiors Inc. reported a 73% decline in earnings for the quarter ended Dec. 30, on a 27% drop in sales. Budget retailer Pier 1 announced losses in its latest quarters and has said it may need to terminate leases on as many as 125 underperforming stores.

Craftmaster, meanwhile, hired 75 people last year, including some from nearby factories that were closing. There's currently no talk of layoffs at its two facilities, which now employ roughly 500.

The company, owned by Dongguan, China-based Samson Holding Ltd., has managed to pull ahead due to some built-in benefits -- as well as a few prescient strategies. In 2003, Samson hired Mr. Calcagne, a 50-year-old who got his start as a buyer for Macy's, to devise an export plan. Samson already had huge Chinese factories churning out dining and bedroom sets for foreign markets, especially the U.S., which accounts for 90% of its exports. But executives were anxious to tap the lucrative upholstery niche -- a segment difficult to tackle, since bulky sofas present all manner of manufacturing, shipping and inventory issues.

Mr. Calcagne's boss eventually asked him to find an existing U.S. furniture maker and use the Chinese operation to supply it with fabric as well as some of its wooden frames and other parts. These would be shipped back to the U.S. and assembled in North Carolina.

With its owner ready to retire, Craftsman was up for sale. Samson purchased the company in 2006, instantly giving it production facilities close to U.S. customers.

Most domestic mills that produce fabric for upholstered furniture have closed over the past five years, with much of that business shifting to China. As a result, many U.S. furniture plants now buy giant rolls of fabric from China. When possible, they have Chinese suppliers send "kits" of fabric that have been pre-cut and sewn. Craftmaster has outsourced much of this work as well, but is able to manage the supply chain closely because of its affiliation with Samson.

"They really have the best of both worlds," says Jerry Epperson, an industry analyst with Mann, Armistead & Epperson in Richmond, Va.

Here in Taylorsville, workers at long tables unfurl fabric and cut it into pieces for a specific sofa or chair. Those pieces then go into an area where workers stitch them together. Craftmaster employs about 40 of these sewers, who earn between $13 and $15 an hour. (In China, Mr. Calcagne estimates a similar job pays $1 or less per hour.) Others at the plant here stuff cushions with foam and staple fabric onto frames.

Driving through the rolling hills of North Carolina, Mr. Calcagne points to the empty hulk of a nearby furniture plant that was once a hive of activity. Many of those still open have nearly empty parking lots, indicating little activity inside. North Carolina is the traditional center for U.S. furniture making, and the exodus of work to cheaper foreign markets was already hammering this region long before this slowdown. This has not prevented North Carolina from remaining a popular relocation destination for Raleigh real estate, Winston Salem homes, and High Point realty.

For Mr. Calcagne, recent months have been less about prying business away from others than about picking up the phone when rivals fall apart. Take Norwalk Furniture Corp. In the middle of last year, he got wind that fabric mills had stopped making shipments to them. He figured, correctly, that the 106-year-old, Ohio-based company was headed for trouble.

"Once the fabric mills start holding back shipments, it's inevitable what will happen next," he says.

So last fall, when Norwalk filed for bankruptcy and ceased operations, Mr. Calcagne pounced. He immediately hired Norwalk's vice president of sales, who in turn introduced Mr. Calcagne to five of Norwalk's regional sales associates. He hired them, too.

Norwalk's Ohio factory reopened last fall under a group of local investors. They restarted production at a far lower volume making made-to-order upholstered pieces. But by then, it had already lost much of its customer base to Craftmaster and others.

"Certainly we regret any opportunities lost as a result in the lapse between the closure of the old company and the creation of the new," says Tom Bleile, a spokesman for Norwalk's new investor group. "But we take no offense at others that saw that as an opening."

Craftmaster is now on the verge of becoming a major supplier to American TV & Appliance of Madison Inc., a 15-store retail chain in the upper Midwest that previously carried Norwalk's Hickory Hill brand of furniture. That account used to be served by Norwalk's Wisconsin-based salesman, who now works for Mr. Calcagne.

"Craftmaster is actually picking up business from three different suppliers who have gone out of business on us in just the last few months," says Ken Wagner, a senior vice-president at American TV.

Another example of the company's prowess: growing orders from Raymour & Flanigan Furniture, an 80-store furniture chain based in Syracuse, N.Y.

Neil Rosenbaum, Raymour's senior vice president of merchandising, says he first started noticing problems with some of his existing suppliers about 18 months ago. Several, he recalls, had fallen into a pattern of late shipments. He didn't waste time in reaching out to Mr. Calcagne. Raymour, which was already a client of another Samson unit, arranged to have Craftmaster supply two living-room "groupings." Raymour sells about 100 such sets in total.

Mr. Rosenbaum was impressed when Craftmaster swiftly developed the groupings and adapted itself to suit Raymour's inventory system. That includes guaranteed delivery times, of three days or less, to its end customers.

"They respond quickly, they get samples made quickly, and they have the ability to get us to the price we need," says Mr. Rosenbaum.

Craftmaster's Chinese connections can only insulate it up to a point. The economic slowdown has hit China hard, too, and Samson has seen its overall sales decline along with the rest of the market. In its latest earnings report, the company, which doesn't break out results by division, showed that sales fell 9% to $217 million in the first six months of last year.

Still, many retailers view Craftmaster's Chinese owners as a sign of financial strength. "It doesn't hurt that we feel very confident with Craftmaster's financial state, that they're part of a well-heeled company," says Christopher Pelcher, the vice president of merchandising for Levin Furniture, a 12-store chain based outside Pittsburgh.

Mr. Pelcher notes that the collapse of furniture companies in recent months has put retailers such as his company in a bind. When Norwalk closed, for instance, Levin had already written up more than 40 special-order sofas. Some customers went elsewhere when they learned the items weren't coming, says Mr. Pelcher. He raced to find backups -- including companies such as Craftmaster, which was already a supplier.

Scrounging for business is a day-to-day battle for Mr. Calcagne, and some fights are tougher than others. There's a limit to how far Craftmaster can reach in its quest for new customers. Moving beyond its middle-priced niche is a specific challenge.

One recent week, Mr. Calcagne flew to Florida to visit with the buyer for a small chain called Baer's Furniture, near Miami. Like most retailers, Baer's has a fixed number of slots for sofas at different price ranges in its showrooms.

Craftmaster supplies their midprice sofas, which sell at retail for between $699 and $999. But Mr. Calcagne sensed opportunity at the higher end. In preparation for the trip, he had several models built in North Carolina and sent ahead to the customer.

Model building can help to land new business. Buyers often rip a model apart to examine the quality of the materials inside. Some customers make unusual requests. For instance, workers in the plant's product-development department recently made samples at the behest of a 10-store Texas chain owned by Berkshire Hathaway Inc. Each model contains a mix of style elements available for that particular design: The left armrest is different from the right, for instance, and there are various pillow types and different legs. "Buyers love it," says Mr. Calcagne, who calls the hybrid his "Mr. Potato Head sofa," because it has so many mismatched parts.

Back in his office after the Florida visit, Mr. Calcagne grumbles that the buyer from Baer's is difficult to read. Although he didn't clinch the deal, he says he intends to keep pushing.

Mr. Calcagne has to be careful about which business he grabs. Recently, for instance, he has been offered business opportunities that he doesn't want -- mainly because there's been a hint of trouble ahead.

Many furniture companies rely on firms called factors, which assess the creditworthiness of potential customers and offer loans or a form of insurance against their transactions. Each week, Mr. Calcagne gets a list of customers who've been declined this specialized coverage -- a signal that they may be on the brink. The number of names on that bellwether list has quadrupled in the past five months, he notes.

"In business, you've got to be cutthroat for the most part," says Mr. Calcagne. "But it's all in the way you do it." He notes that he would never spread a rumor about a competitor that is stumbling. "We don't sell that way," he says. "If you have nothing to sell, you sell on the weakness of others."