Members of the National Association of Manufacturers'(NAM) Council of Manufacturing Associations were asked in a recent survey, "What will be the practical effects of rising energy costs on your company and how will you adjust?" The following are their responses in their own words:
We will not be able to pass along the costs. Maybe 20% but the rest we eat. When our margin is almost non-existent it will probably put us in the red. We are very good at what we do but really feel like our backs are to the wall with our raw material up 23% and our energy up 15%. These are our #1 and #4 expenses. Hard to adjust due to the sheer size of the increases.
Increased cost of doing business will dramatically reduce bottom line and affect our employment numbers. Passing on price increases will be difficult and reduce demand for American made product.We either have to increase our price, which will cause our customers to buy offshore or lose money.
It will raise our manufacturing costs such that we will not be profitable unless the market will accept the cost pass through. The company is reviewing all energy savings projects and other means to remove operating costs. Usually when a price increase such as energy occurs - industry to offset lays people off because that is the quickest removal of cost. May not be the best decision but might be the only one at this time.
The company will have to reduce other costs in order to offset the unprecedented increase in energy costs. Cost reductions being considered include employee layoffs, higher medical contributions by the employees, across-the-board salary cuts and complete shutdown of marginal facilities. Stopping contribution to 401 k plans. Reduction of sales incentives.
We have shutdown in 2005 U.S. production units for the most natural gas intensive products and have begun to import those materials which we used to produce in order to sustain downstream production units. Additional units are at risk and only continue to operate because worldwide demand currently allows natural gas prices to be passed through. When replacement plants are built in regions of the world with lower energy prices these units will likely close. Some of the earlier questions are difficult to answer in a meaningful way in that eliminating uncompetitive production in the U.S. can improve your margins, but you are making less money.
We are faced with moving our production to China to deal with the higher costs of energy just to keep our profits at the same level as three years ago. The lost of over 90 employees.
Energy costs directly affect our raw material costs, therefore increased energy costs increase our cost of goods manufactured. Likewise, higher energy costs directly affect our cost of manufacturing. We are forced to raise our selling prices and attempt to maintain a profit margin adequate enough to sustain our business.
We use substantial amounts of natural gas. Its high cost reduces our profit margin and our ability to be competitive. Lower profit margins reduce our ability to purchase new equipment and reduces our ability to create new jobs.
We will be in a crisis mode this winter. We have already started an energy surcharge priced at date of shipment to account for rising energy costs.
We manufacture commodity products (wood & paper products) that are price to compete in global markets. If we tried to pass energy cost increases to our customers, our competitors (especially foreign competitors who enjoy lower energy prices) would undercut our prices and we would lose market share. Recently, we informed paper & pulp customers of a Nov. 1 energy surcharge; we don't know yet how our customers will respond. We are continuously looking for ways to increase returns to shareholders - this challenge is no different. In addition to increasing productivity, we are deploying capital investments that increase our energy efficiency and reviewing the long-term fit of non-competitive facilities.
We are implementing energy conservation measures at all facilities. Rising energy cost will have resulted in stepped up efforts to seek alternatives such as manufacturing offshore.
Ideally, we would increase our selling price but this will only expedite the purchasing of automotive parts to over-seas suppliers. Therefore, our employees must accept lower wages to offset energy increases. Either way, American workers lose.
The inflation in our raw material costs now parallels the 1970's. We have experienced fuel surcharges as high as 22.5%. Our domestic manufacturing clients can not compete with Asia as it stands now. Manufacturing is coming to an end in this country in all sectors.
This could nail our coffin along with unrealistic cheap imports!
With a large, natural gas casting furnace, our manufacturing costs will go up greatly. While we will try to pass on the costs to our customers, they will likely not accept higher prices because their discretionary funds have been evaporated due to the much higher cost of plastic resin for which natural gas is the raw material.
Energy is 40% of total costs, so it has a huge effect. We will adjust primarily by capital investment into energy efficiency projects and will attempt to pass along the increase to customers.
Lower profits. If there is no relief soon, we'll need to handle shipping and handling costs differently than present.
Inflationary spiral of costs and the inability to pass through the cost increases fast enough. Reduction in consumer confidence due to uncertain business conditions.
Less capital equipment investment and hiring due to diminished profit margins.
Rising energy costs without full price recovery will decrease cash flows. Lower cash flows will negatively impact investment and could lead to closings.
We will not be able to continue operations as we have in the past. We have engaged all employees to help with conservation and change efforts.
It will rise steel and aluminum prices as well as transportation costs so high it will kill what is left of our industry here in the North West.
We cannot continue to absorb the higher prices in the plastics we purchase for resale caused by higher energy costs. We can pass on a small percentage to customers but must absorb approx 85% of the higher costs!
Energy costs for the plant is natural gas. That's going up almost 30%. However, energy costs to run our fleet of trucks and semi's has gone up over 50%!! We have to pass this on to our customers... who pass it on to the retail consumer. Just in the past few weeks, with the rise of foam costs, a product retailing for $499 for a queen set will now have to retail for $699. It is certain to have a dampening effect on overall demand.
We are concerned that energy costs will derail the housing market which is supporting the overall economy.
We have increased productivity in order to offset energy costs, but have still lost 10% in margin.
We will attempt to pass along what costs we can, but will have to temper these adjustments in order not to lose market share to domestic and foreign competition, especially the latter.
Our site will loose market share to global competition that is not facing the increases in energy as the US. We could close in <5 years due to this issue.Our suppliers of polyethylene resin are becoming increasingly less competitive compared to other regions in the world due to high natural gas costs. The downstream businesses like mine which employees 200 steady manufacturing jobs will be lost because we cannot buy raw materials and remain competitive. For our survival we'll close ou