Too much competition, too few workers, but Philly manufacturers are still hopeful

Randi M. Hershgordon, managing director of Context Business Lending LLC, spoke about manufacturing finance Thursday at a gathering on the state of manufacturing and finance, labor and the economy sponsored by the Manufacturing Alliance of Bucks and Montgomery Counties at the Valley Forge Casino Resort.

No one mentioned the T-word, but Philly manufacturers said in a survey that recent election results had them feeling more optimistic about the economy and their company's prospects.

Yet there is still pain: too much competition, too few skilled workers, and too expensive health care.

Michael A. Coakley, a public accountant who leads the manufacturing practice for Kreischer Miller in Horsham, explained the survey's results to a gathering of 80 manufacturers, vendors and workforce educators who met at the Valley Forge Casino Resort Thursday to hear about the financial, labor and economic state of regional manufacturing.

The event was sponsored by the Manufacturing Alliance of Bucks and Montgomery Counties.

In the annual survey of 101 regional manufacturers from Philadelphia and surrounding Pennsylvania and New Jersey counties, most said they expected to grow revenues and payrolls in 2017. Profitability increases, they said, would driven by improved methodology and increased use of new capital equipment rather than new business.

Companies increasingly plan to “substitute capital for labor,” Paul Harrington, director of the Center for Labor Markets and Policy at Drexel University, told the group. “The cost of technology has fallen. The potential for [increased] output is pretty good, but we’re going to do this without hiring” as many people.

So if manufacturers are investing more in automation and technology, why is the shortage of skilled labor such a pain point — cited by 41 percent of those surveyed in November as an obstacle to growth?

In the past, any high school dropout could get a factory job, Harrington said, “but now you’re not hiring high school dropouts.”

Manufacturing has lost jobs for decades, with the losses multiplying during the recession. In that time, Harrington said, manufacturers laid off tens of thousands of workers, and now, as business is improving, those workers “have moved on to other things” and new workers need upgraded skills.

The labor-supply constraint, Harrington said, means “you’re going to start leaving deals on the table” because of insufficient labor. (The Manufacturing Alliance recently sponsored a video contest to attract middle-schoolers to consider career and technical high schools, a pipeline to manufacturing jobs. Click here and here to see local videos.) 

“You’re always out of sync with the labor market because you have that training lag,” he said. Educators should be setting up more associate degree programs in fields such as engineering technology, to provide workers for the more complex factories of the future. 

Why aren't they? "It's just snobbishness," he said. "You live in a bubble, you act bubble-headed." 

Thursday’s first panel focused on financing, either to help manufacturers stay afloat or to help them raise money to expand or invest in new equipment.

All three panel members stressed the importance of building in-person relationships with lenders.

"If you don't sit down in person with your lending officer" and build a bond, you are missing out on the ability to better persuade the bank to lend, Mike Rainone, market president of BB&T Bank, told the group.

Karl Buettner, who heads the Philadelphia office of Baltimore-based High Bank, a boutique bank that arranges lending from private equity and other funds, said "high-net-worth individuals" are beginning to look to make private short-term loans without equity stakes.  Manufacturers need to be able to show these lenders how they will get their money out in about two years, he said.

"We work with companies that can't get financing from banks," said Randi M. Hershgordon, a managing director of Context Business Lending LLC, which lends in the nonregulated market. 

Companies go to Context when their banks end the relationship.

“We’re working with distressed companies,” Hershgordon said. Because risks are higher, she said, Context will likely work more closely with borrowers than traditional banks, and that candor is key to that relationship.