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Volume 6, Issue 1                                                January/February 2005

SPECIAL REPORT:

Find Out What Impact These Issues Will Have 
On the Fenestration Industry in 2005
by Alan B. Goldberg

Will the economy grow as projected? Will the residential market be stronger? Will security become a larger issue in design specifications than it already is? Will the stringent codes of Dade County help fabricators and component manufacturers? And, what about China?
DWM asked experts from several segments of the market—machinery and equipment, sealants, spacers, hardware, gas-filling, insulating glass —as well as window 
and door companies and the associations that support them to 
give us their predictions for 2005. Following is what the forecasters had to say. 

Machinery and Equipment
“We are very optimistic about next year,” said Mike Biffl, national sales manager for Stürtz Machinery Inc. “The level of activity we are seeing now is a very good indicator that we can expect a solid year. Our customers who serve the residential market are talking about expansion, which we find to be very encouraging. As far as product development, we will continue to focus on the friction-welder project [a key component of the Intra System].” 

The Intra System is an innovative technology that makes use of a four-point welder to weld around an IG unit with a cycle of 30 seconds (see DWM, January-February 2003, page 56). Sealant applied by robot is continuously adhered to the frame, creating a fusion assembly. Improved structural strength and elimination of glazing beads are among the benefits. 

“We plan to introduce the Intra System to selected customers this winter and fully promote it in the fall (of 2005) with a formal introduction at an industry trade show,” said Stephen Field, executive director, Intra Product Development, Inc.

Stürtz and Bystronic Inc. are two of the partners in the Intra System. Bystronic, like Stürtz is optimistic about the coming year. 

“The last two years have been challenging, but we are encouraged by what we are seeing in the second half of 2004 and for all of 2005,” said Marcel Bally, director of marketing and sales at Bystronic. “Enthusiasm by our customers to consider investments in new equipment is a very positive sign. While it may not be a banner year, 2005 is expected to be a welcome improvement over 2003 and 2004. 

He said the company will be increasing its sales force in order to fully support the residential market. 

“On the technology side, we have completed the development of our ‘framesealer’ glazing robot that will be an integral part of the Intra System,” said Bally.

Erdman Automation Corp. also has a positive mindset looking ahead to 2005. 

“There are many positive signs as companies are acquired, companies are implementing lean manufacturing and they are finding ways to be more competitive,” said Jerry Wells, sales representative. “The demand for more automation certainly helps us. Our products are up 15 percent and we see many opportunities next year.”

For GED (which recently changed its name to GED Integration Solutions), 2005 will be a continuation of a market that has been strong since the third quarter of 2003, according to Pete Chojnacki, director of marketing and information technology. 

Chojnacki pointed out that the company’s recent acquisition of Samson Automation (see article, page 22), a manufacturer of vinyl fabrication equipment, puts GED on both sides of the material aisle, which is reflected in the new company name. He said this will allow the company to offer customers more options than in the past.

He said there are a number of factors affecting demand for windows and doors, such as the consumer’s desire for greater security, the impact of the Dade County building codes and a growing consumer need to have a product that is just a little different than their neighbors. 

“We see them [the Dade County building codes] creeping up the East Coast to Long Island and the New England states,” Chojnacki said. “And then there is the trend toward differentiation, which is on the rise. For example, the use of decorative grids is approaching 50 percent. Is this style or just the need to be different? We’re not sure. Differentia-tion can be seen in other ways—such as in spacer materials, and that certainly affects us, and alternative materials which will continue to grow, if for no other reason, then as a way to offer something different.”

Sealants
Dave Cooper, business manager at ADCO, said the company’s IG sealant sales were up 20 percent in 2004 and he expects this trend to continue in 2005, particularly with new sealant systems packages. 

“We are very encouraged by what we see in the residential market which has shown steady growth,” he said. “The situation in Florida is certainly having a positive impact on our business. New tests for sealant—higher temperatures, tougher cyclical tests—particularly with low-E glass are placing greater demands on the sealant package.”

One of the changes ADCO is making is to provide sealant systems as a package that matches a spacer type or system. 

“We are finding that fabricators are very receptive to a sealant system that is designed to work with another technology. We are noticing a greater alliance between fabricators and machinery producers. The result is that larger manufacturers are testing with sealant and spacer manufacturers. We must play an active role in this trend,” he said.

He also noted the greater use of alternative materials, specifically thermoplastic (TPS) warm-edge spacers, and says this material has a bright future in North America.

“It is a technology that is at the bottom of the “S” curve and is only going to get stronger, especially since we are seeing a lot of interest in TPS. In the residential market, warm-edge is up in the 80-percent range whereas in the commercial market, it is hardly used,” said Cooper. 

According to representatives at H.B.Fuller, the economy appears to be gaining momentum going into 2005. Consumer spending seems relatively strong although it could be negatively affected by increases in gas and heating oil.

“The good news for the window and door industry is that consumers continue to invest in their homes,” said Kristen Gray, sales manager, window business unit. 

However, she pointed out that suppliers and window fabricators are being hit hard by increases in steel and petroleum-based products and material shortages. 

“China is creating a big sinkhole for many types of materials, causing material shortages and the need for allocation,” she said. 

Gray added that these shortages and price increases are not temporary and will have to be factored into projections and pricing policies.

Gray said there are opportunities for window fabricators, distributors and contractors to sell higher-performing, more profitable products to those markets affected by hurricanes and effected by stringent building codes. This includes the use of warm-edge insulating glass technologies and other thermally–efficient components which became more of a consideration and selling point in light of the emphasis on energy efficiency. 

“Windows and doors that pass the difficult impact codes and exhibit higher design pressure (DP) ratings will have a distinct advantage,” she said. 

According to Gray, consolidation will continue to affect the window and door business on a global basis.

“We see more global players entering the North American market with everything from equipment and components to finished window and door products,” said Gray. 

“Lower-priced imports from China and other countries will affect the entire industry with pricing pressures. It will require consistent, high-quality products and exceptional service to hedge off this competition but will likely place a strain on suppliers and fabricators.”

Representatives from Sika Corp. agree that the sealant and adhesive market is poised for growth. 

“Based on responses from our customers, we are very optimistic about 2005. We will be begin promoting our new sealants and adhesive technologies under a ‘Full Range Experts’ tagline intended to illustrate the breadth of Sika applications, including new field installations,” said Greg Moran, market field manager. 

The company’s package of specialty products is focused on high-performance window and door applications. 

“The stringent building codes in Dade County that are now being adopted in many states will have a very positive impact on our business as will the growing requirements for blast-resistant products,” he added.

Spacers
Describing 2004 as an outstanding year for TruSeal Technologies, Ric Jackson, director of marketing and sales and business development, said it was a period of uncharacteristically strong growth in housing starts and demand for windows. 

“We attribute a large part of our growth to new products and new customers and about half to the new housing market,” he said.

But the housing market, according to Jackson, is not expected to be as robust in 2005.

“We use Ducker Research for our projections and it appears that demand for windows will be down 1.5 to 2 percent. Initially, construction will be affected and remodeling will follow suit,” he said.

In spite of this slight downturn, Jackson says the company is optimistic about 2005 because of opportunities and, once again, a boost from new customers and new products. 

As far as imports, he said they are seeing glass products from Asia and not very much in the way of window products. 

“We are active in Asia so we are able to see both sides and monitor this situation very closely. Imports are mostly copy-cat products that do not meet our [industry] standards. I believe as long as we maintain high standards and continue to produce high quality units, we will maintain a competitive edge,” said Jackson. 

Hardware
For G-U Hardware Inc., 2004 was an excellent year and the company expects to do just as well in 2005.

“Our market is very high-end (European style hardware) and we believe it will continue to remain strong,” said Ken Lange, vice president/general manager. “People who have the money will spend it. In the middle-to-low end, however, it is tough to predict at this point how that will materialize. With interest rates going up, the added cost could have a negative impact.”

He indicated that the company’s new products will focus on tilt-and-turn hardware, which he says has good potential, particularly since the testing required to comply with the Dade County codes.

“Tilt-and-turn will work well in this market where the standards are rigid,” added Lange. 
For HOPPE North America, the trend is toward swing-and-slide hardware in the middle to upper range throughout North America.

The company views 2005 with much optimism.

“The economy is looking healthier past this election year. 2004 was good for us. We hear from our customers that the bubble is not going to burst, especially in high-end homes,” said Pat Junker, vice president of sales.

In the interest of cost savings, the company has implemented best practices and lean manufacturing. 

“Consolidations will continue to be a factor in the industry as (key) companies get bigger; and we must be a part of that process. We will be affected by the current building codes in Dade County which will work their way to other parts of the country,” Junker said. 

Truth Hardware has reviewed industry forecasts and customer input and anticipates the residential construction business to be down about 7 percent compared to 2004, according to Jim Quinlivan, marketing director.

Quinlivan considers imports from China to be the most significant issue affecting every manufacturer from components to window and door fabricators.

Insulating Glass 
Cardinal predicts another good year for the fenestration industry. 

“Even after an election year, we believe the country will need housing starts to remain strong because it [housing] supports many segments of the economy,” said Tom Kaiser, vice president. 

Kaiser explained that certain parts of the country will show strength. Damage from storms and hurricanes in the Southeast will generate a lot of activity. The growth of jobs from housing starts, remodeling and replacement will bolster these areas.

He said that consolidation will continue as ownership profiles change.

“Home centers will motivate existing suppliers to become national in scope so they have a larger presence and my sense is that this would serve as a catalyst to consolidation,” Kaiser said.

As part of a program to increase service to customers, Cardinal will be adding new plants in Texas, Oregon, Arizona, Oklahoma, Utah and Virginia, and adding value to its products through new features and benefits.

Gas-Filling
For FDR Design, 2004 was a record year and 2005 looks promising.

“2004 was our best year ever. From what I am hearing from customers, I have high hopes for the economy in 2005,” said Randi Ernst, CEO. 

But Ernst expressed concern about the influence from China, current test methods and unit failures. 

“The industry needs to look beyond a protectionism-type mentality because that is not going to help. Imports from China are going to be the sleeping giant. We need to wake up and work out this problem,” he said. 

“Following the merger of IGMAC/SIGMA in October 2000, I expected to see progress in certain areas, namely certification testing. We continue to use tests that were developed in the 1960s. The methodology has not changed in four decades. I am seeing a high number of unit failures in the field and yet there is no acknowledgement that a failure problem exists. While we’ve certainly made advances in technology, automated lines, for example, do not necessarily translate into high-quality products. Our industry needs to get its act together on durability and raise the bar,” he added.

Ernst explained that manufacturers must look beyond North America and compete with a product of the highest quality.

“I believe the way to compete (globally) is to make a superior product. The overseas market is critical to us,” he said. “In our case, FDR Design is partnering with a company in Europe. You cannot be successful if you are only going to operate in North America. 

Our company will continue to be innovative because that is our strength. For us, the new frontier in product development is exotic gases.”

Windows and Doors
I view the economy for 2005 to have slow-to-moderate growth, with new construction slowing and better-than-expected remodeling sales,” said George Simmons, president of BF Rich Windows & Doors.

Simmons pointed out that increased energy costs should drive remodeling sales, resulting in better-than-predicted sales in 2005. And he expressed his concern about China.

“China is beginning to have an impact,” he said. “It will force all of us to at least take a look at their products, not because we want to, but because competition will force us to. We are not in favor of using their products at this time; however, my position is to continue to look at them and educate ourselves on how they are impacting our business.”

BiltBest is aggressive in its projections for 2005. 

“We are forecasting about 20 percent growth in our business (97 percent residential) which we feel will come from a strong market and an increase in market share. We are expanding our sales and distribution network and we have revised our promotional materials to create brand identity,” said Randy LaMotte, president.

One of the changes he mentioned for next year was bringing the production of radius units in-house. 

“This move will allow us to improve our margins, our lead times and ultimately our sales for our entire product line,” he added.

LaMotte pointed out that one of the challenges is dealing with a labor shortage.

“Unemployment in our area is low. Through retirement, we are losing some good people and we are having a difficult time finding replacements. Unfortunately, because of our location, we don’t have the resources of a more populated area.”

The availability of purchased components (raw materials/hardware) from overseas is a concern and LaMotte is hopeful that pricing from imports will be less volatile and more stable. 

Kolbe and Kolbe Millwork Co. Inc. had an excellent year in 2004 and sees more of the same in 2005.

“Part of our growth has been due to new products introduced in late 2003 and early 2004 and the addition of new distributors in key market areas,” said Bob Kasten, vice president of sales and marketing. “2005 is looking very much like a carbon copy of 2004, at least for the first half of the year.”

Kasten said certain factors could change their forecast such as the interest rates, the stock market and the general attitude among potential home buyers whether a new house is the best investment. 

“Our plans for 2005 are to add more distributors and more sales people,” he said.

Republic Windows has also expanded its network with several new and large dealers and very ambitious plans for 2005.

“We are looking forward to an even stronger year in 2005. Our new construction business continues to grow and a new enhancement window line is generating much excitement. And a web-based online entry system for window dealers will be launched in the first quarter,” said Amy Zimmerman, vice president of marketing.

Regarding the China situation, she pointed out that it will be difficult to compete with the quality of units made in America.

“Until their window is AAMA certified, I don’t see China as a major competitive factor. The Chinese will have to adhere to the same standards as American companies. 

Consumers, and the vinyl industry both need to be protected—consumers from inferior products and the industry from any damage to the public’s perception of vinyl. It has taken years to educate consumers about the pros of vinyl, and we have made great strides as an industry through self governance using NFRC and AAMA. I would hate to see all that progress take even a tiny a step backward due to inferior products flooding the market,” she added. 

Sierra Pacific Windows views 2005 favorably but not like 2004.

“We’ve had phenomenal growth this year. Although we are looking at 2005 for continued, good growth, we will not repeat 2004. Two of our biggest issues in next year will be the economy, more specifically a flat housing market (90 percent of the company’s business is in residential) and the availability of some key materials,” said Rod Preston, general sales manager of the window division.

He mentioned a labor shortage as another challenging issue.

“Builders are telling us that labor is becoming a real struggle, particularly for small builders (of high-end homes). And, they represent a significant part of our business,” he added.
Growth has warranted many internal changes, Preston explained.

“We are becoming more systems-driven, more automated and more flexible. We have to in order to survive.” 

Sunrise Windows Ltd. forecasts sustained double-digit growth in the residential market (which is 90 percent of its business), according to its president Gary Delman.

“2004 has been a record year for us. In fact, every year since we’ve been in business (1994) has been an excellent year,” he said.

“We are very optimistic about next year as we remain in this growth mode. We see our market expanding geographically. We will introduce more new and innovative products,” he added. 

“We must keep looking for ways to differentiate ourselves. The remodeling contractor has a lot of competition. Homeowners are looking for smart and good investments and they want things done right the first time.”

Delman points out that Sunrise is a small player in a huge industry and even though there are consolidations and acquisitions, “as long as we can provide quality products to the consumer, we will continue to do well and grow.”

He said it is all about focus.

“Large corporations focus on cost-cutting to improve their profits, even if it means lessening the quality of the unit in the interest of savings. We want to put more energy into making a better product as opposed to one that may not perform well,” he said. 

Having gone through a start-up period in 2004, Thermal-Gard is positioned for a strong year.

“I am very encouraged and I think 2005 will be a great year for us,” said Mike DeFelice, who purchased Thermal-Gard Building Products, Inc. in April 2004. 

He pointed out that one of the targets (in the residential market , which is 100 percent of the business) is new construction, specifically smaller lumber yards. 

“We are going to provide service to mom and pop businesses and set up a consignment arrangement for them that will establish stock items,” he said. 

DeFelice mentioned that he expects to form alliances with other local manufacturers (competitors) in ways where the companies can accommodate each other. 

“For example, we are looking to supply glass to one company and they will build a step-down unit for us,” he said. “We plan to do a lot of marketing where it is mutually beneficial,” he added. 

Regarding imports and the impact they could have, DeFelice was not very concerned. 
“From my perspective, I don’t think a unit made outside of North America can compete with our (the industry’s) quality,” he added. 

Associations
Richard Walker, executive vice president of the American Architectural Manufacturers Association (AAMA) described the residential market for 2005, both new and remodeling, as looking pretty good but not quite as strong as 2004.

“In the coming year, our architectural member people are anticipating a slow climb from the hope to see the bottom in their segments (from an overbuilt shopping and office building market),” said Walker. 

He added that the association hopes to develop a tailored performance standard for windows in regions affected by severe wind storms and hurricanes.

For the Aluminum Extruders Council (AEC), a key issue in 2005 is the future of aluminum in the residential market.

“This past year, the market has been strong for aluminum, particularly on the residential side,” said Rand Baldwin, AEC president. “We believe aluminum will end up as a comeback material for residential use. One third of all aluminum extrusions go into windows and most of those are in the residential market. Our promotional program, Keep Aluminum Windows, has been very successful. In the non-residential market, durability has been the key factor and that plays to aluminum’s strength. Overall, the trend could be a little bit of retrenching.”

For the Window and Door Manufacturers Association (WDMA), there are many issues that will keep them busy. 

“According to many forecasts, 2005 will be a year of leveling off, particularly in the residential market,” said Alan Campbell, WDMA president. “2004 was very robust. In the non-residential market, we see indicators that there will be a modest increase, particularly in office, educational and health care facilities. Factors that are influencing next year will be higher rates, the impact of the election, the focus on green building materials and an increasing awareness of environmental certifications. Environmental programs will, no doubt, be a very important issue. We’ll see a continuing, if not greater, exposure of components from overseas, mostly in hardware, profiles and extrusions for the window industry. China will certainly be getting a lot more attention in 2005.”

For the most part, our forecasters are looking at 2005 with enthusiasm and optimism. But there are issues that could very well impact manufacturers and fabricators—the rigorous building codes of Dade County, consolidations, alliances, globalization, imports from China—all of which could dictate where we are going in 2005. 

Staggering Price Increases … 
How Much Can Manufacturers Absorb? How Much can they Pass Along?

There seems to be no end to price increases. Regardless of the cause, the effect is the same and so is the challenge … absorbing higher costs by finding ways to reduce expenses, operate more efficiently and eliminate waste. Here is how some manufacturers are coping.

“We use acrylic because of its superior thermal properties to that of its glass counterpart of equal thickness. But, standard acrylic naturally costs more,” said Matt Petit, vice president of sales and marketing for Petit Industries.

Petit cites a key raw material used in acrylics, monomers, as having increased across the board, affecting all acrylic users. 

“For us, it translated into a 13 percent increase this year. We’ve seen four increases since last year. We’ve also had an increase in the cost of resin which is used in our moldings. And, it cost more to ship our product because of rising fuel costs,” he added.

Petit expressed concern over the company’s ability to absorb everything.

“There is no question that the sum of all of these higher costs will pinch our margins and, ultimately, the end-user because we can only do so much. Yet, we do not want to force burdens on the broader market that they cannot bear.” 

Petit explained that all of its components are made domestically “which hurts us more because we could shop elsewhere and pay less. How much longer can we continue operating this way remains to be seen.”

He said oil prices could conceivably go as high as $70 a barrel.

“My hope is for a far less reliance on petroleum for transportation usage through the use of natural gas, hydrogen fuel cell technology and other renewable energy sources. This would reduce manufacturers’ costs significantly because demand will not exceed supply.”

BF Rich Windows & Doors also sees the pressure from rising prices.

“Industry price increases on raw materials have put pressure on us all to maintain acceptable margins. We have had to look at new ways to offset these escalating costs by improving our production and labor costs through new technology and equipment, ” said Chris Lorber, vice president of sales at BF Rich Windows & Doors.

At BiltBest, there seems to be no end to rising prices.

“We have seen energy costs going out of sight,” said Randy LaMotte, president. “Diesel fuel is higher than unleaded gas. Aluminum prices were up more than 27 percent. The cost of lumber has doubled. Plastic is going up because of the rising cost of oil.” 

He pointed out that there are other costs that keep increasing and one of them is litigation. 
He pointed out that other costs keep increasing, including litigation. 

“We need tort reform because legal fees are spinning out of control,” said LaMotte.
Medical benefits are another. He also mentioned the increasing cost of investments.

“Introducing new technology is certainly necessary to keep us in the forefront but it too is costly,” he said. 

LaMotte explained that the company is aggressively pursuing ways to absorb these costs.

“We are rolling out a lean manufacturing program that we expect to generate substantial cost savings. We are working with our suppliers on just-in-time to reduce inventories. We expect to see savings from some of the new technologies we are implementing to improve our production. And through our incentive programs based on productivity and quality control, we hope to offset some of these fixed costs.”

LaMotte added that only so much can be done and at some point, part of this cost must be passed along.

The situation is no different at Republic Windows. 

“We have had price increases of between 30-to-40 percent on all of our aluminum coil,” said Amy Zimmerman, vice president of marketing. “We use coil to roll-form into reinforcements some of our screens and all of our glass spacers. We have also seen significant price increases in metal hardware and parts. Resin prices have increased as well, which has been reflected in the pricing we are receiving from our extruders.

Unfortunately market pressure dictates that we hold pricing on our products, as consumers are not willing to bear the higher costs.”

Zimmerman pointed out the dilemma of being a smaller manufacturer.

“As an $85 million manufacturer of custom vinyl windows, we are not as able to take advantage of quantity discounts like larger manufacturers who can build stock sizes and add to their inventories. Custom manufacturers build windows when they receive the orders and are therefore more susceptible to price fluctuations,” she said. 

The squeeze is also being felt at Sierra Pacific Windows 

“We have seen more increases in 2004 than in past years. Glass is one of them” said Rod Preston, general sales manager of the window division. “The biggest impact is in energy costs. Aluminum has skyrocketed. Plastics are very high because of petrochemicals. And there is more volatility. In the past, we could always count on long-term pricing from suppliers. But not this year!”

Preston mentioned that the consumer sees things differently.

“We are feeling the pressure from consumers who want better pricing and better products. So we are caught in the cross-hairs,” he said. “2005 is going to be tough for contractors and a lot of manufacturers, and I don’t think it is going to get better. It certainly puts some unique challenges in front of all of us (window and door manufacturers).”

Sunrise Windows, Ltd. faces it also.

“There is no question that price increases have been significant and not just on raw materials,” said Gary Delman, president. “It seems to be on-going in every aspect of our business. We see every line item of our operating cost on the rise, and we certainly can not pass everything onto the consumer. We’ve been in business for ten years and we’ve only announced two price increases. We work very hard to offset these costs by improving our efficiency. In fact, we are very aggressive at eliminating waste. But this year, we are getting hit harder than ever by increasing prices, so it’s certainly been a bigger challenge than in past years.” 

Thermal-Gard Building Products Inc. has been unaffected by price increases in 2004 because of contractual arrangements made at the time the company was purchased in April 2004. However, 2005 will be another story.

“We will see these (price increases) right after January first,” said Mike DeFelice, the company’s owner. “And, glass is no exception.”

One cost that DeFelice will be able to control is energy. 

“We are in a unique situation. Through other businesses, I have drilled my own gas wells in the area and I’ve been able to dedicate these to the plant. So our only cost is transportation. In anticipation of many rising costs, we are implementing production efficiencies that will help us significantly,” he said. 

Alan Goldberg is a contributing writer for DWM. He has more than 30 years of experience in the insulating glass industry. 

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