1985 was a difficult year for Eberhard Faber Inc. Despite an overall increase in sales of nearly 7%, several factors negatively impacted their bottom line, including: increased marketing expenses, price-cutting by the competition, a substantial reduction in inventories, as well as delays in getting new products to market. Despite their losses, the company felt its expenditures laid the foundations for another ten years of increasing earnings, just as it had enjoyed between 1971-1981 after having suffered similar difficulties in 1970.
But for nine consecutive years, there had been a downward-trend in gross profits for sales of wood-cased pencils. By 1985 wood-cased pencils accounted for 20% of business sales, but only 10.5% of the gross profit. In contrast, the company’s line of markers had the highest profit at 37% though they accounted for only 25% of business sales. Unless a dramatic remedy could be found, Eberhard Faber, Inc. considered dropping their core pencil business altogether.
In February, the company announced they were moving its pencil-assembly operations to Nogales, Mexico. By moving its complicated processes off-site, Eberhard Faber Inc. projected savings of more than one million dollars in manufacturing costs, though most of that recovery wouldn’t be realized until 1987. The move would also mean sending approximately 100 of 250 hourly-wage jobs to Mexico—something that employees, the workers’ union, and local newspapers found disagreeable, to say the least.
The news wasn’t all bad: sales for licensees of Eberhard Faber Inc. were encouraging, even with significant political and economic upheaval occurring in some of the countries in which they did business. Licensees included AMSPEC in the Philippines, FACELA in El Salvador, LAYCONSA in Peru, Fabrica Argentina de Lapices in Argentina, Izumya Co., Inc. in Japan, Squirell & Cia in Chile, and Escritura Dominicana S.A.
But success for 1986 would depend largely on the move to Mexico; one that would take place in an atmosphere of increased labor-management hostility, and in the midst of a downward-trend in sales of wood-cased pencils.