US Manufacturers Regain Strength

IT sounds like the plot of a low-budget movie. A small manufacturing company teeters on the brink of failure. The grandson of the company founder leaves his job as an English professor, takes over, and with the help of his brother and computer-smart mother, he turns around the company.

It's no movie, though. By reengineering the workplace and reducing inventories, George Wendt has turned Chicago Metal Rolled Products Company into a profitable small manufacturer. "We are having a ball running it," says the youthful Mr. Wendt.

Having a ball? In American manufacturing? Something must be changing.

Three years ago, Andrew Grove was a gloomy man. As chief executive of semiconductor giant Intel Corporation, he predicted the United States would become a technological colony of Japan. Today, he is more upbeat.

"The decline has stopped," he says. The personal computer industry "remained resolutely US-based.... We have all drawn our lines and dug ourselves in for the foreseeable future."

These mood changes are important. The gloom that once pervaded just about all American manufacturing is lifting on many factory floors. It's still not clear that US manufacturers have turned a corner. The sector is so diverse that for every bright spot there's an industry in trouble. Factory employment has dipped lately. No one believes it will ever regain the importance it held in the 1950s and 1960s.

The difference is that after years of decline, many American manufacturers feel they can hold their own against foreign rivals.

"There was a time a few years ago that every manufacturing company felt they were in trouble - even when they were doing well they thought it was only a matter of time" before foreign competition would gobble them up, says Keith McKee, director of the Manufacturing Productivity Center on the campus of the Illinois Institute of Technology. Today, "that's changed noticeably. They no longer feel inferior." High-tech comeback

Take wafer fabrication equipment - the machines that make computer chips. After years of decline, US companies are staging a major comeback. They moved from 34 percent of the world market in 1991 to 42 percent last year. Japan's share went down during the same period: 55 percent to 47 percent.

Semiconductor makers have also made a few gains. "We went from being fully dominant to a state of precipitous decline to a state of being flat to a state of slowly chipping our way back a point at a time," says T. J. Rodgers, head of Cypress Semiconductor Corporation. "And that's what I see in the future. We can beat 'em [the Japanese], but we are talking trench warfare."

Even Japanese automakers appear less dangerous than they used to. Japan's share of the US car and light truck market peaked at 26 percent in 1991. Last year it was down to 22 percent. This year the erosion continues. Industry analyst David Cole foresees a long stalemate where Detroit will stand its ground.

The new optimism may turn out to be wrong.

"What's happening is one of my biggest fears," says George Fisher, chairman of Motorola. "The alarm tends to go away as the economy recovers. They [companies] are not going to spend time on the underlying weaknesses."

"It's the illusion of the high yen, low dollar," adds Bennett Harrison, professor of political economy at Carnegie Mellon University. "American companies are still not doing that well."

It was Mr. Harrison, along with scholar Barry Bluestone, who coined the term "deindustrialization" to describe the decline of US manufacturing in the 1980s. Harrison says that process is still under way. Although US companies have improved the quality of their products, Harrison says they have not addressed the other shortcomings that he and Mr. Bluestone pointed out a decade ago: worker training, collaboration, and strategic thinking.

Exports certainly have brightened the manufacturing picture in the short term. From 1985 to 1992, the top five US manufactured exports grew on average twice as fast as the top five US manufactured imports, according to the US Commerce Department. If the Japanese and European markets continue to slow down, then the market for US goods will probably slow down too. Vanishing defense jobs

Defense cuts could throw manufacturing for another loop. A Labor Department economist estimates that if President Clinton's proposed defense cuts are carried out, 594,000 out of a total of 18 million manufacturing jobs will disappear between now and 1997. About 450,000 defense-related manufacturing jobs have been lost in the past five years.

Also, no American manufacturer is writing off the Japanese.

"I've watched the Japanese adapt to fire, flood, and earthquake," says Ed Sack, chief executive officer of Zilog, a chip manufacturer in Campbell, Calif. "They will adjust to the lower dollar-to-yen ratio."

But Douglas Ostrom, senior economist at the Japan Economic Institute, is not so sure. "The Japanese companies are making a lot less money in Japan than they used to," he says. With domestic profits down and their protected market under attack, the companies will be much harder pressed, he adds. The nonprofit research institute is funded by the Japanese Foreign Ministry.

So maybe, finally, the US is putting the brakes on its long skid in manufacturing. "It's not that things got better," says Steven Davis, associate professor at the University of Chicago's graduate business school. "It's just that they're not getting worse."