Dorel suspends most manufacturing at Michigan furniture plant, 170 jobs affected

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This article was published 17/05/2007 (6736 days ago), so information in it may no longer be current.

MONTREAL (CP) – An industry trend to consolidate domestic production in the face of Asian imports has prompted consumer products maker Dorel Industries Inc. (TSX:DII.B) to suspend manufacturing at its Ameriwood furniture plant in Dowagiac, Mich., affecting 170 of 215 employees there.

“The whole industry is shifting product to China and we’re following,” CEO Martin Schwartz said in an interview after the company’s annual meeting Thursday.

The decision was made after developing a supply network in China and improving the efficiencies at two other factories in Cornwall, Ont., and Tiffin, Ohio.

The market for domestically manufactured ready-to-assemble furniture has shrunken over the past five to 10 years, he said.

“We’d rather run two that are running at 80 to 85 per cent capacity and this way we feel we can make more money,” Schwartz said.

The Michigan plant, which was part of the’98 acquisition of Ameriwood, will be retained for warehousing, distribution and information technology. A final determination on the future of the site will be made within six to 12 months.

The suspension “will ensure the long-term viability of our domestic operations and speed Ameriwood’s profitability growth,” he told shareholders.

“RTA furniture is a business we know well and will maintain. We are confident that, despite a difficult environment, we will definitely prevail.”

The suspension at Dowagiac will result in a pre-tax restructuring charge of about $11 million, most of which will be recorded this year. Of that amount, about $9 million will be a non-cash charge representing the writedown of building, equipment and other assets.

National Bank Financial analyst Hugues Bourgeois said the decision is “neutral” and won’t significantly hit the company.

“It’s a very stable business,” he said of Dorel. “I don’t see anything that could be extremely negative for them right now.”

Dorel also expects to benefit from the decision of O’Sullivan Industries to cease operations in the next quarter.

The company forecasts organic revenue growth to be modest this year, but earnings improvements will outpace revenue increases.

Restructuring in Europe and the Michigan production suspension should produce results next year, said Jeffrey Schwartz, Dorel’s chief financial officer. “2008 should be a better year because by then the efficiencies will kick in,” he said in an interview.

Dorel recently introduced its rotating car seat, Axiss, in France. The product, which retails at between C$650 and $740, has to be redesigned before being introduced to the North American market in late 2008 or 2009.

Many of the hundreds of products launched annually are developed in co-operation with Chinese suppliers. Products imported from China made to Dorel specifications now account for more than half of Dorel revenues, compared with 20 to 25 per cent five years ago.

In many categories of products, the Chinese supply partnerships has allowed Dorel to compete quickly and at lower cost, said CEO Jeffrey Schwartz.

“China has given us the ability, if we are creative designers and can do good marketing and have a good brands, to get into categories really quickly and expand on those categories and that’s the benefit that China has given us.”

Dorel Industries is a global company engaged in designing, manufacturing and marketing consumer products sold through its juvenile, home furnishings and recreational/leisure segments.

Based in Montreal and with significant operations in the United States and Europe, Dorel employs about 4,700 people in 15 countries. Annual sales total US$1.8 billion.

Dorel’s shares were up 15 cents to $35.45 in trading Thursday afternoon on the Toronto Stock Exchange. Its stock has gained more than 38 per cent in one year.