Dorel to end bicycle industry’s last assembly operations in the U.S.

MONTREAL – Dorel is closing the bicycle industry’s last assembly operations in the United States and shifting the work from Pennsylvania to third-party suppliers in Asia.

The Montreal-based company said the change, which will affect about 100 employees, is part of a restructuring at its recreational and leisure division to be completed this year that will “enhance its competitiveness.”

“We were the only bicycle factory left in America and you just can’t be as competitive as the Far East,” chief financial officer Jeffrey Schwartz said in an interview Thursday.

Dorel’s plant in Bedford, about 170 kilometres east of Pittsburgh, took a major hit about four years ago when most assembly work was transferred to Taiwan and mainland China, affecting hundreds of jobs.

What remained at the Cannondale plant was the partial assembly of just a few bike models. Parts were shipped to Asia where they were partially assembled and sent back for final assembly. The steps added transportation costs and delayed getting bikes to market.

Schwartz said eliminating those extra steps will save more than US$6 million by 2015, after incurring US$14 million-US$16 million before taxes in restructuring charges, about 70 per cent of them non-cash.

“Maybe it should have been done three years ago but it really wasn’t identified properly until now,” he said.

“Almost all of our competitors do those functions near where the factories are in the Far East, and the idea here is to do that, and do what everyone else is doing, so that we can be competitive.”

Dorel (TSX:DII.B) acquired Cannondale in 2008 for about US$200 million, adding high-end bikes sold to independent dealers to the mass market line of Schwinn bicycles it began to sell when it entered the business four years earlier.

The restructuring will also see the company transfer its bicycle research and development facility in Bethel, Conn., to the division’s new headquarters in nearby Wilton, Conn.

A retail lab that trains people on how to sell and market bikes will be shifted to a retail store adjacent to the headquarters. Part of the Bethel site will be converted to train people on using its Guru computerized bicycle fitting system that was purchased in 2012 from a Quebec company.

Sluggish bike sales and earnings caused by soggy weather prompted Dorel to cut 50 jobs last June.

Dorel had expected to make up lost sales but the protracted bad weather in the U.S., Canada and Europe that prompted price discounts means that 2013 bike earnings won’t exceed last year’s levels, it said at the time.

The company is expected to report March 4 that consolidated adjusted 2013 earnings will slip more than 20 per cent to US$2.69 per share on US$2.45 billion of sales, according to analysts polled by Thomson Reuters. However, fourth-quarter adjusted earnings are expected to be up 6.6 per cent to 97 cents per share on US$641.6 million of revenues.

Schwartz said Thursday’s restructuring isn’t tied to market conditions and would have taken place regardless.

“It just didn’t make sense anymore. It’s a very competitive industry and we can’t afford to spend money where it’s not adding value and we can’t afford to add extra time in the supply chain and that’s what we were doing with this operation.”

Meanwhile Dorel — which is the world’s largest maker of car seats — applauded the U.S. government’s proposal to upgrade standards to protect children from death and injury in side-impact car crashes.

The proposed regulations by the National Highway Traffic Safety Administration would improve standards for child seats for children weighing up to 40 pounds to include a new test that simulates a side crash. The agency estimates the standards will prevent the deaths of about five children and injuries to 64 others each year.

Schwartz said most of its safety efforts over the past three years has been on side impacts, with an air protect system being added to several products.

“People have been working on building side impacts and to have a standard that we all know we need to focus on instead of every company doing their own thing is a good thing.”

The company manufacturers a number of children’s products under the Safety 1st, Quinny, Cosco, Maxi-Cosi and Bebe Confort brands, while its bikes and related products include brands such as Cannondale, Schwinn, GT, Mongoose, IronHorse and Sugoi. It has annual sales of US$2.6 billion and employs 6,300 people in 24 countries.

On the Toronto Stock Exchange, Dorel shares closed down six cents at $41.15.