Posted on 08/14/2004 5:03:09 AM PDT by ninenot
Machine tool sales are offering another sign of a manufacturing economy on the mend, although growth has been somewhat uneven and less than certain.
Sales of machines that factories use to make everything from automobiles to appliances were up nearly 32% the first six months of 2004, a report released this week says.
"We are doing pretty well right now, but what's scary is the majority of our work is for one customer," said Howie Taylor, an executive with Key Products Co., a machine-tool company in Milwaukee.
Taylor has been in the toolmaking industry more than 30 years, and most recently he has been calling on clients across the nation to drum up business.
"I get mixed reviews from them," he said. "Some are landing new, high-volume jobs that will require machine tools, and others are getting nothing."
From January through June, the U.S. had $1.25 billion in machine-tool sales, up 31.9% from the first six months of 2003, according to the Association for Manufacturing Technology in McLean, Va.
The strongest machine tool sales were in the Midwest, where companies spent more than $500 million on equipment. That was up 36.6% from the first six months of 2003, when the industry was crawling from the bottom of the recession.
"Absolutely we get a sense that capital spending is coming back," said Robert Gardner, a vice president with the AMT.
Machine tool sales figures were gathered by the AMT and the American Machine Tool Distributors Association based in Rockville, Md. Sales have climbed steadily but are still down from the late 1990s, according to the two trade groups.
"Our industry had a sales peak in 1998 and then saw it decline for almost five continuous years," Gardner said. "You guys in Wisconsin saw what happened" with dozens of manufacturing companies that eliminated jobs and closed their doors.
There are several drivers behind a rebound in machine tool sales, Gardner and others said.
First, there's pent-up demand for machines as factories get some of their first new business in years.
Second, higher profits have allowed some companies to invest more in capital equipment.
"We think this will keep going for a while," Gardner said. "It's a global industry now, and probably more than half of the equipment made here is exported."
But the ability of many companies to buy new machines, as much as they need them, has been badly eroded by increased raw material costs that have taken away profits.
There's been nearly a 17% decline in sales of metal-forming machine tools this year, for example, according to AMT data. The sales decline for these tools was 44% in the Midwest.
Metal-forming companies often make large steel parts such as automobile hoods and refrigerator doors. About half their operating expenses comes from the price of metal, and it has skyrocketed in recent months.
The industry's raw material costs have increased between 40% and 100% since January, said William Gaskin, president of the Precision Metalforming Association in Cleveland.
"We are kind of in a pickle," he said.
"Our industry is doing better, order-wise, but is cash poor because of raw material costs. One company I recently talked with was paying 21 cents a pound for steel in January, 44 cents in July, and expected to pay 46 cents this month. And they haven't been able to pass these costs on to their customers. The customers say keep the price down or they will buy their stuff from China."
The typical metal-forming company planned to spend $800,000 on new equipment this year, up about 14% from 2003, according to a survey earlier in the year by the Precision Metalforming Association.
"My guess is a lot of companies aren't doing that spending now," Gaskin said. "Our members are busier than they were a year ago, and some are very busy. But we have a disaster when it comes to making a profit. It's my guess that about one-third of our membership is really in trouble."
Some Wisconsin machine tool companies have found niches building customized equipment that can't easily be duplicated by foreign competitors, said Michael Klonsinski, executive director of Wisconsin Manufacturing Extension Partnership, a non-profit organization that helps companies with productivity issues.
Wisconsin lost dozens of machine tool companies and metal shops in the recession. Those that survived have seen a surge in orders, Klonsinski said.
"But, long-term the industry is still under a lot of pressure," he said.
Some companies are scrambling to order factory machines and meet a deadline for a significant tax break, said Gardner, with the Association for Manufacturing Technology. The 50% equipment expensing allowance expires Dec. 31 unless it is renewed by Congress.
"Companies pretty much have to get their machine tool orders in during the next month or two, or the equipment won't be delivered in time," he said.
Ping
And the rats will say what we need is more steel tariffs.
If more tariffs were in place before there would be much larger domestic steel production.
Not so. If you jack up the price of U.S. steel you murder downstream manufacturers, who are themselves under heavy import pressure. The domestic market steel market erodes either way, unless you think Komatsu is going to start importing U.S. steel for production and reexport as product, just to give Caterpillar a break.
You can pretty much judge our economy on the machine tool business. Manufacturing has been the basis of our wealth for decades, nothing else has replaced that and there is nothing else that really can.
Japanese companies claimed they were still "recovering" from WWII right through the 1970's and did not allow American companies to set up distribution or buy Japanese companies. Then in the 80's through a combination of greater scale of economy, an unvalued yen, and American mismanagement, they took the market over.
Although you may not have seen it, about 10 days ago NuCor Steel started screaming bloody murder.
You remember NuCor--the non-union re-processor of scrap steel, that was the Great White Hope for the libertarian economists--they made lots of money, and grew very fast. After all, they didn't bother with all that messy mining, processing, and smelting; they just melted the old stuff and sent out new stuff.
Well, NuCor has discovered that slave-labor hurts them; they are now losing market share to PRChina, and it's really significant to them.
No surprise to anybody with common sense. Subsidized PRChina steel exports, along with slave labor, no OSHA, no EPA--the perfect formula to bankrupt the US steel industry--even the re-processors.
Enjoy your smart-aleck ride. The next car you buy will be 75% PRChina.
The Mill (Cincinnatti Milacron) underwent extensive credit-agreement restructuring last year--they were within an inch of Chapter 11. Anybody hear anything lately from Giddings & Lewis?
Some may recall Kearney and Trecker, now on the scrap-heap along with their purchaser/successor.
Besides The Mill and G&L, I don't think there is another major, multi-line machine-tool house in the USA.
FWIW, this article reflects VERY well the situation in Wisconsin--while the machine-tool sellers and machining shops are doing OK, the emphasized part (metal-benders--AKA fabricators) are still getting killed.
At some point the metal-benders have to turn around, or they will simply turn off the lights.
G&L bought out the assets of Milwaukee's K&T sometime in the early 90's with the intent of killing off the company. The clown (whose name escapes me - though he made the cover of Fortune magazine once) who ran G&L at the time had once been fired by K&T did it as an act of retribution.
I had a student in a night class I taught at MSOE who at the time was transcribing all the K&T drawings into the system used by Giddings so they could charge exorbitant prices for repair parts.
This year again I'll play the sad game of "find the American companies" at IMTS. Every two years it gets harder. These firms should be treated as national treasures.
Uhhhhnnnn...
I thought K&T was sold to a Detroit competitor back in the 1970's.
G&L may have bought the Detroit outfit and the K&T drawings with it...
I recall that one of G&L's presidents was fired because he claimed to have a degree which he did not have...could be the same jack you're speaking about.
And yes--if you REALLY want to cry, go look up a 1975 edition of the Wisconsin Manufacturer's Guide, and compare to today's version. Note carefully how many of the 1975 entries are now owned by interests OUTSIDE of Wisconsin--or for that matter, outside of the USA.
Disgusting.
That was run as Cross and Trecker. They bled K&T so white that the engineers working on new CNC systems had to buy components out of their own pockets at Radio Shack.
It is a hobby of mine, knowing where the bodies of the American Machine Tool industry are buried. If you want to read a good book about the demise of the industry read; When the Machine Stopped
We have developed a very successful counterstrategy to this in our business. We call it; GET UP AND LEAVE THE ROOM.
You might not leave with a contract, but you will leave with something more important - your human dignity.
About half the time yo get an offer to come back, the other times you didn't lose anything worth having.
You're right: Cross bought K&T and it became Cross & Trecker; thanks for the memory.
As to "get up and leave the room," I understand that GM's little Hitler Purchasing Hotrod managed to get so many suppliers to leave the room that he was finally asked to leave GM.
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