Mohawk Industries CEO says recovery years off

Mohawk Industries CEO says recovery years off

August 27th, 2011 by Ellis Smith in Business Around the Region

Melissa Kernea prepares to pick up a load of yarn off of a conveyor belt at Mohawk Industries, Inc. in Dalton, Ga., in this file photo.

Photo by Staff File Photo/Times Free Press.

CALHOUN, Ga. - A full economic recovery could be years away since consumer confidence slipped following the country's debt debate, the head of the nation's biggest floorcovering company said Friday.

Jeff Lorberbaum, chairman and CEO of Mohawk Industries, called on political leaders to create confidence and "get out of the way" of job creation.

"We need government to create confidence through consistency," he said at the Gordon County Chamber of Commerce's first State of Industry event. "When you get uncomfortable, what do you do? You spend less."

That decline in spending has hit manufacturers like Mohawk especially hard, as consumers worried about their jobs have chosen to hold off on expensive home upgrades like new floors and carpet.

Since homebuilding started to fall in 2006 and lenders restricted the availability of credit, flooring manufacturers have gone through "the largest decline in the history of the flooring industry," he said. Carpet sales are down nearly 40 percent from the peak levels five years ago, Lorberbaum said.

"Government policies were put in place to help people own homes, and we thought it was a good policy," he said. "We had people with almost no income who were able to buy houses. It was ridiculous."

Then, "Lo and behold, you have to pay the piper sooner or later," he said of the meltdown in the subprime mortgage market.

The flooring industry hit rock bottom in 2010, forcing plant closures and mass layoffs throughout Georgia's carpet belt.

Flooring's recovery has been further stymied by the rising price of petroleum, which is both the basic building block for creating carpet as well as a major cost of transporting flooring to customers.

Lorberbaum acknowledged, however, that the debt crisis has had the positive effect of forcing Congress to agree to tackle the growing national debt, a thorny subject that could result in spending cuts, tax increases or a combination of the two.

"Sometimes the only way to get everybody to agree is, you need a crisis," he said.

FOREIGN CHALLENGES, OPPORTUNITIES

Though Mohawk itself is building plants in Mexico and Russia to take advantage of growing demand there, Lorberbaum said, domestic flooring industry is not as susceptible to international competition as other lines manufacturing.

The cost of shipping and storing tile, carpet and wood flooring forces international competitors to spend money on inventory management rather than plant efficiency, he said.

But he's not resting easy.

The specter of another recession and new regulation could further dent demand and raise the cost of doing business in the U.S., he said.

"The question is, are we expecting another recession?" he asked. "Not many people believe that we are."

GEORGIA OUTLOOK

Chris Clark, president and CEO of the Georgia Chamber of Commerce, admitted that some of the states surrounding Georgia had shortened the Peach State's lead in manufacturing over the past decade, with the state losing some high-profile businesses like Volkswagen to Tennessee.

But Clark said Georgia is focused on creating good conditions for business, fighting new rules from Washington and fixing outdated state regulations.

"Everywhere we go, it's the rules and regulations from Washington that are crushing our state," Clark said.

"We've got to have regulatory reform not just at the federal level, but at the state level as well," he said. "We believe manufacturing is key to the renaissance in this state."

HOUSING

Weak housing growth and tight credit remain the biggest obstacle to the carpet industry's recovery, Lorberbaum said. The Mohawk CEO said it could take "four to five years" to reverse.

But John Watson, former chief of staff to Ga. Gov. Sonny Purdue and principal at TPA Realty Services, said things already are improving.

What he called "dealflow," an important measure of the number of loans being made by banks to homebuyers, developers and businesses, has been picking up.

"The only way to work through the surplus inventory is for the banks to shed the assets at a low enough cost and at a low enough basis so that the investor can make a buy," he said.

Selling through foreclosed inventory is important, Lorberbaum agreed, but so is perspective.

"This is the same thing that happens in every cycle," he said. "What's abnormal is the depth and length of time. Instead of one to two years, it's going to last three to four years."