An Uncertain Future for Manufacturers

By November 9, 2012Taxation

For many small manufacturers in the defense industry, innovation and investment is the lifeblood of their business. They are driven by the ability to stay a step ahead of their competitors through the development of new and effective products. One such company is Nanocerox, an Ann Arbor, MI. based manufacturer of advanced materials for laser systems, missile optics and radiation detection. A younger company, founded in 1996 by Dr. Richard Laine, Nanocerox sprung from licensed technology from University of Michigan chemistry laboratories. Like so many companies, Nanocerox was born with an idea and has since flourished due to their innovative products.

Unfortunately, Nanocerox is under serious duress as a result of the impending fiscal cliff. They are part of a group of defense manufacturers set to be hit with a ‘double whammy.’ In addition to the massive tax increases that are set to take effect on January 1st, 2013, Nanocerox is facing significant cutbacks in business due to the required defense cuts, also set to take place at the beginning of next year.

The NAM released a study detailing how manufacturers are already feeling the squeeze and Nanocerox is a prime example of this. They have already undergone a reduction of 30% of their workforce, redone their benefits, limited executive pay and yet they are still facing serious hardship.

Nanocerox’s CEO Mike Kelly said, “We don’t have the capacity to cut any more – we’re down to the bone here. In preparation for the fiscal cliff we took several serious steps to reduce our costs – and it still seems like it might not be enough if we go over this cliff. Based on what I’ve seen out of Washington, I don’t have a lot of faith that they can come to an agreement that will offer any sort of long-term solution to provide certainty to businesses like Nanocerox.”

Certainty is key to small and medium-sized manufacturers. In the absence of certainty, manufacturers are forced to stand on the sidelines, unable to make the needed investments and hiring decisions to keep themselves growing.

Nanocerox has firsthand experience with the impact of uncertainty. In efforts to shore up the business, Mr. Kelly has attempted to lead significant diversification efforts for their products and expand into the private sector for sales. But with the defense cuts facing the United States, it is incredibly difficult to acquire the capital investment needed to make such an important expansion.

Kelly says that, “it’s a tough situation. We want to expand beyond the defense sector to protect ourselves and our employees against the impending cuts – but it’s these very cuts that are preventing us from achieving that. I need an answer from Washington, and I need it soon – otherwise I have no idea what the future will hold for Nanocerox.”

Join the discussion 2 Comments

  • RBC says:

    Given the amount of Universities in this country, we should be able to employ millions of technically qualified individuals in the manufacturing sector – the problem is that we don’t attract people to that industry. REASON WHY? U.S manufacturing companies don’t pay enough – NOT because they don’t want to pay their employees more – it’s simply because if U.S employers did pay a higher wage, they would not be able to be as remotely cost competitive with countries such as China who pay extremely low wages. HOWEVER, China has literally put a handful of U.S renewable energy companies (including Solydra and A123 Systems Inc.) out of business. WHAT IS THE PRIMARY REASON CHINA DID THIS? Based their governments heavily subsidizing the cost to manufacturer products in China. (There are many other reasons, but that is the primary one) OK, SO ANY GOOD NEWS? – The U.S is fixing that.. Sort of. The U.S Government has implemented a tax on Chinese manufactured solar products. SHADY BUSINESS TACTICS by CHINA? Well, they just moved their manufacturing facilities out of China, over to Taiwan and are still selling at the same price (about 30% lower that U.S made solar products and lithium Ion batteries) . This continued business tactic by China needs to stop. THIS in itself, has burned $750 million of U.S tax payer money. OK- Let’s end with some GOOD NEWS! The U.S has such an enormous supply of OIL and Natural Gas – and the cost of some renewable sources have dropped as much as 70% – SOLAR) that the cost to operate a manufacturing facility, will plummet. THIS MEANS the WORLD will become more reliant on us and we will use that power with great responsibility. The U.S will slowly but surely, become more cost competitive and other countries will become Energy Reliant on the United States = ENERGY INDEPENDANT AND out of our DEFICIT – ONWARD AND UPWARD! — RBC

  • What a horrible dilemma to be in! Washington can be your best friend and your worst enemy simultaneously.

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