Why this Buffalo manufacturer is “a little bit excited” about an economic slowdown
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Matt Gehman is general manager of three business — which he co-owns with his wife, Melissa — about 15 minutes south of downtown Buffalo, New York. They have 25 employees, and wages the past year have started at $22 an hour, plus full benefits. Two of the businesses, MMG Industrial and Metal Locking Service, share the same concrete-floored room for their manufacturing work.
“Marketplace” host Kai Ryssdal visited Gehman’s facility in late October to talk about wages, inflation and the labor market. The following is an edited transcript of their conversation.
Matt Gehman: We have a union shop in here called Metal Locking Service. They specialize in heavy equipment, mostly in the locomotive industry. Very niche business. We’re the only one that does it, we’re the only one qualified to do it.
Kai Ryssdal: Say more about what it is that you do. Because one imagines locomotive repair as not very specialized, as a guy who knows nothing about it. Tell me about it.
Gehman: OK, so there’s two main locomotive manufacturers out there. One being General Electric — they make the engine of cast iron. We have a proprietary process to repair cast iron mechanically, no welding, no heat applied whatsoever. But with the locomotive engine blocks being cast iron, we need to go out and fix them wherever they are. Sometimes they come here; sometimes we fix them out in the field. And we are the only qualified vendor to do this repair, so if any GE engine fails around the world, we either have to go do it or it’s got to come to us.
Ryssdal: It’s a niche thing. But you’ve got a market, right? You’ve got a ready-made market.
Gehman: Ready-made market. We keep the competition out of our knickers on that one because of the validation process, the time it takes to get people trained to do this type of repair.
Ryssdal: You guys have to be certified by GE?
Gehman: Correct. So we own all the IP, it’s our repair process. They can’t copy it. And we’re entering our, I think, fifth-consecutive no-compete contract, which is a wonderful thing.
Ryssdal: Yeah, I bet. So, what is this thing called, an engine block, right?
Gehman: Yep, that’s the crank case or the engine block for a locomotive. Sixteen cylinder.
Ryssdal: This thing got shipped here? It’s got to weigh 5,000, 10,000 pounds.
Gehman: Thirteen thousand. And actually, today we have some coming in, some going out. This one’s a completed repair. This is getting ready to ship.
Ryssdal: Did you start out in this doing the actual work? Or you’ve been management the whole time?
Gehman: No, actually, I personally grew up in the steel fab shop in Pennsylvania. So I was a welder. Yeah, so I was welding by the time I was 5, because my father owned the business. So I grew up in steel. But then as we looked for a business to buy, this was a natural progression. We do some fabrication here, but mostly it’s machining. So I had to learn that side of the business for sure.
Ryssdal: Tell me about the people who work here.
Gehman: So we have highly specialized, very technical skill sets. We cannot hire people and bring them in and plug them in. It’s 100% on-the-job training at our expense.
Ryssdal: How often do you think about inflation?
Gehman: Oh, every day. When our guys travel, they get paid per diems, they get paid gas mileage, we pay for work boots, etc. All of that we have set pricing on because we’re in a three-year contract. So the price we are giving our guys today, as health insurance increases, we have to eat it all. So we have to build that in and be forward-looking as we establish our contract pricing.
Ryssdal: Are you worried?
Gehman: Oh, yeah, we’re worried. I mean, in one sense, I’m worried about how are we going to cover our cost in our contract. But tongue-in-cheek, we’re a little bit excited because we haven’t been able to get any qualified employees in here for years and years and years because the economy’s been doing quite well and overheating. So as things taper off, we’re looking at this as an opportunity to grow the business.
Ryssdal: Are you fully staffed right now?
Gehman: We’re not fully staffed. We’re roughly five to six shop employees lower where we need to be for our targets.
Ryssdal: So how are you going to find those five to six people?
Gehman: Well, we’re doing some local advertising. But what we’re trying to do and set ourselves apart is create this flex time, flex pay, flex benefits-type mindset. So the idea was, not everybody wants to be making 30, 40 bucks an hour if they can have six weeks of vacation or “I need my health insurance 100% paid for by my employer.” So we give packages to employees, you know, the total package compensation is roughly the same based on their skill set. But we can massage it and get the concentration where they want it so that they jump here.
Ryssdal: Is it working for you? I mean, if it’s working so well, how come you’re still five or six people short?
Gehman: Well, once we get them here, it’s mostly a program we’re offering to try to retain the people. And that, so far, is working.
Ryssdal: On the theory that you want to grow this business, how would you do it? If labor is so tight, right, you got a certain defined customer base with GE engines, how are you going to grow? Do you have to grow?
Gehman: We need to grow a little bit just so that we have some redundancy, because we have too many people that they’re the only ones that know how to do certain aspects of the business. But we are such a small shop in the grand scheme of things. We could triple, quadruple our size, and we could keep everybody busy. We don’t ever make active calls to sell the business. It just keeps coming in.
Ryssdal: So why don’t you have 150 people working here?
Gehman: Because we found it becomes a hard thing to manage. Just getting a toolbox from here to California, two years ago, no problem. Now, nobody will guarantee it. It takes more than a week. You cannot run a business that way, it becomes this logistical nightmare. So we’re cherry-picking jobs, what are the jobs are the most profitable? And you know, as we see that we have to turn down some of those, that’s when the trigger is to say, we really got to get some more people in here. That’s where we’re at now.
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