Volume 39, Issue 10, October 2004

theBUSINESS

Sooner or Later ...
It was Going to Happen
by Lyle R. Hill

I am a student of Economics … I really am. In fact, for a while I was actually an adjunct professor of economics at Olivet Nazarene University. Olivet’s campus, located about 60 miles south of Chicago, is one of the prettiest you’ll ever see, especially in the fall. 

For about three years I taught classes in Olivet’s Graduate School of Business. I had the opportunity to teach a few different courses, but the one I liked the most was economics. But don’t be mislead … while I liked it a lot, the students didn’t. It’s a hard course to make interesting, and exciting. 

Years ago, probably while trying to stay awake during an undergraduate economics class I was taking on that lovely little campus in Bourbonnais, I came to the startling conclusion that the entire world is being driven by basic economic principles. That nothing else, with the exception of religion and love, matters one iota. And I was not in bad company with my thoughts. In later years I would discover that guys like Thomas Jefferson and Ben Franklin came to the same conclusion early in their careers. Of course, there is a huge difference between having knowledge and actually applying it for some good purpose. And getting stuck in the glass industry for more than 30 years also greatly limited my ability to capitalize on this wisdom. But the fact that I know what I know, even though it has brought me little financial benefit, has provided me with hours of analytical and reflective enjoyment. 

So, when I read the September 13 online USGlass News Network Newsletter, a small smile creased my face. I always spend a minute at the end of my day taking a quick look into the USGlass electronic newsletter. It helps me keep up. And there, right on top of the day’s headlines it read: “Glass Industry Expands Despite Oversupply Fear.” This was no surprise to me. The glass industry has always acted in a “contrarian” manner … that is to say, it acts in an impractical, illogical manner. Pricing is a good example of this. Material and labor costs go up, but the flat glass guys lower their prices. On the auto glass side, a new price list reflecting inflationary impacts is published, and yet a bigger discount is negotiated, which not only gives away any increase, but also drops prices to levels lower than they were before the new price list was generated. I have believed for years that the single biggest problem in the glass industry is a classic supply-demand one. Supply has far exceeded demand for many years and this has forced prices to remain artificially low. I further believe that it all starts right at the top of the supply chain, but to some extent, all of us are to blame. 

Most economists believe that markets adjust themselves continually … from a supply-and-demand perspective … and that all markets are moving toward some level of equilibrium. I think the last time we got a glimpse of this was in the early 1970s, although I won’t pretend to have enough knowledge to make this statement with a high degree of certainty. And I guess, as a student of economics, I hoped that our industry was moving toward equilibrium, that supply and demand would balance and that prices would stabilize. I believed that it was gonna happen and that it would happen before my career ended. Now … I’m not so sure.

the very next day, I again read through the USGlass daily electronic newsletter and there it was … the confirmation of the inevitable and an unmistakable sign, at least to me, that better days are not right around the corner. The second newsflash read: “Glass Imports Exceed Exports in 2003” (see related story on page 30). This is historical … this is a first, but not a last. In fact, I predict that this will never be reversed. And if, indeed, the biggest part of our problem starts at the top of the supply side, our problem is now worse.

I met with a few foreign representatives a couple of years ago and after reviewing their pricing, I asked them how they could possibly make and ship such a relatively cheap commodity product from overseas at such unbelievably low prices? The leader of their team smiled and said we don’t have the “L”s that you have here in the states. I asked him what the “L”s were. His smile got a little bigger as he said, “We don’t have labor unions to fight us, laws that over regulate us or lawyers to sue us.” By the way, their pricing for good quality product was about 40 percent less than what the domestic producers were charging for the same materials. 

I guess sooner or later it was gonna happen … I just wish it would have been later. Much, much later. 

Editor’s note: To receive your free electronic USGlass News Network Newsletter go to www.usgnn.com to sign up. 

the author

Lyle R. Hill is president of MTH Industries of Chicago.lhill@mthindustries.com


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