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Industry Outlook 1991: MANUFACTURING
TOOLMAKERS DON'T KNOW THE `R' WORD
Recession? Not in the U. S. machinery industry. Just talk to Bill Fife, the chairman of machine-tool maker Giddings & Lewis Inc. He'll soon get a visit from an Austrian manufacturer, a member of a German toolmaker's board, for whom the weak dollar could mean big savings on U. S.-made machines. Or take a subcontractor to Ingersoll-Rand Co. that Fife saw a few weeks back. It needed to upgrade a machine to improve the precision and quality of compressor parts it makes. Such customers abound, so "we're not seeing a downturn," says Fife.
If the economy tanks, of course, capital spending won't match the estimated 4.1% inflation-adjusted increase of 1990. In fact, orders for machines that aren't needed right away have started to weaken, some producers say. But demand is solid for machine tools, pumps, compressors, and materials-handling equipment--the most widely used machines in U. S. factories. Thus, machinery makers expect a flat 1991, at worst, after decent sales and profit gains in 1990.
PUMPED UP. Some producers concede that it's hard to believe their own order books, so markedly do they differ from the conventional wisdom on the economy. Take pumpmakers, for instance. "The industrial pump industry has had more business than it could collectively deal with for a couple of years," says Walter F. Ware, group vice-president for industrial products at Goulds Pumps Inc. Much of the demand is coming from paper mills, refineries, and power plants. In the latter two cases, Ware doesn't see any letup, so he's looking for at least a good first half.
Other factors also point to a reasonably good 1991. One is the robust U. S. civilian aerospace business, where Boeing Co.'s $103 billion backlog ensures strong tool orders. There are signs of more demand from oil-exploration companies. And even in weaker durable-goods areas, such as off-road equipment, U. S. companies are going ahead with long-planned modernizations to improve their global competitiveness. Says Robert A. Hoehn, president of conveyor maker Automatic Systems Inc.: "Nobody's using the word `cancel.' "
Now that Congress has passed a new clean-air law, even Detroit is likely to go forward with plans for a new generation of engines and transmissions. Orders from auto makers are showing up in toolmakers' backlogs. And export demand is still strong. The U. S. has a $1 billion-plus trade deficit in machine tools. But 1990's exports probably exceeded the $1 billion record set in 1981, analysts say. Led by Cross & Trecker Corp., some U. S. producers are even getting business in the Soviet Union.
There are, as usual, some soft spots in this outlook. One is a recent cutback in lathe orders, a startup item for small manufacturers. After peaking in 1989, forklift shipments, which fluctuate with industrial production, fell 11% in the first 10 months of 1990. They're expected to drop 10% more this year. And there's some slippage in timetables for big modernization projects, which tend to produce big machinery orders. "There has been a tendency in the last month or two for projects to be put on hold," says Christopher C. Cole, head of Cincinnati Milacron's machine-tool operations.
Such warning signs, plus lagging growth in some foreign economies and the credit squeeze at home, do make for uncertainty. Prices are becoming more competitive, and that's shaving margins. But "I don't think anyone is concerned that the roof is going to cave in," says Jeffery T. Grade, president of Harnischfeger Corp., a maker of cranes and other machinery. Just to be safe, however, Grade is keeping a tight hold on hiring and expenditures.
In general, notes E. Kidder Meade, vice-president for marketing at Litton Industrial Automation Systems Inc., survivors of the machinery industry's shakeout in the early '80s "are better and leaner than the companies we competed against in the '70s." Litton itself has automated clerical operations, has farmed out certain manufacturing chores so that it can expand and contract more easily, and is spending heavily on training workers to make higher-quality products.
VULNERABLE. Even so, more restructuring lies ahead. Toolmakers such as Cross & Trecker are struggling to make money. Hyster-Yale Materials Handling Inc., formed in a recent merger, is closing a lift-truck plant in Georgia and will do more to boost profits. And all U. S. forklift makers could be affected if a world-class producer, say Mitsubishi Heavy Industries Ltd., links up with Bulgaria's Balcankar, which is big enough to supply most of the U. S. market.
Anticipating such challenges, machinery makers are trying to offer more varied product lines and be more responsive to customers. Milacron, for example, is in the midst of a $250 million modernization that has already gotten it back into making low-cost machining centers, a market it abdicated in the 1980s. And by getting involved in engineering plans early, conveyor maker Jervis B. Webb Co. last year helped Ford Motor Co. slice six months off the time it ordinarily might have taken to add capacity to a vanmaking plant in Avon Lake, Ohio.
U. S. machinery makers will have to do more of this to compete in international markets. That's important, since the Japanese have become the world's No. 1 capital spenders. But for now, at least, U. S. manufacturers are trying to keep up. Even when the economy began weakening last year, they didn't "succumb to the short-term temptation to slash the hell out of capital spending," says Adrian T. Dillon, chief economist at Eaton Corp. Machinery makers hope these customers will stay focused on the long term--and buy more tools in 1991.Zachary Schiller in Cleveland