Oil Prices: Making Adjustments, Feeling the Heat

By November 12, 2007Economy, Energy, Trade

NPR’s “Morning Edition” had a story today on the economic effects of high oil prices, exploring the seeming inconsistency of $90-plus per barrel oil with continued economic growth. Jay Bender, an NAM board member whose family members run Falcon Plastics, a custom-injection molding company in Brookings, S.D., was given good opportunity to comment. NPR interviewed Bender in January 2003, when ol stood at $32 a barrel, and he worried that raw materials would be getting more expensive.

“That’s going to be a challenge and if it does squeeze our bottom line too hard, it will have an impact on our ability to invest in capital equipment and grow our business,” Bender said in 2003.

Today, he says, the cost of raw materials has increased, but “I would say probably not as much as I thought it would and maybe what I was forgetting [in 2003] … is when these costs go up they impact my competitors as well.”

So, how is his company doing now?

“We’re doing well,” he said. “I would say it’s the same scenario as three or four years ago that our sales are continuing to increase, our top line is good, we just set a sales record in August and we broke it again last month in October.”

Bender said he has survived because by becoming more efficient, fighting back against higher prices and passing on some increases to customers.

Which is the same strategy other manufacturers have adopted to remain in the game.

Which is not to say that ALL manufacturers can take the same course; Chinese competition in a global economy has reduced many companies’ pricing power — the ability to pass on costs — and raw materials represent different percentages of costs according to industry. Companies that use tin and silver, for example, have been hit hard by rising prices.

But Jay’s points are well-taken, and a testament to U.S. manufacturers’ business smarts. Think how much better we could be doing if Congress and states would pursue policies that reduce costs instead of raising them.

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