U.S. Machine Tools Are Clanking AgainZachary Schiller
Consumers just can't seem to get enough of those Ford Explorers and Jeep Grand Cherokees. So Dana Corp. is making axles three shifts a day, seven days a week. "We're at capacity," says Daniel Hendricks, controller at Dana's Spicer Axle Div. in Fort Wayne, Ind. Dana's response? Invest $70 million in new equipment: gear-cutting, grinding, drilling, and other machine tools.
Dana isn't the only company buying such goods. As American industry moves into overdrive, one of its most beleaguered businesses--the U.S. machine-tool industry--is getting back on its feet. Amid the thousands of attendees at Chicago's McCormick Place for the industry's biennial trade show-- which wrapped up Sept. 15--was a pervasive sense that the poster child of America's industrial decline is making a comeback.
INTERNATIONAL APPEAL. The rebound bodes well not just for this $5 billion business but for all of U.S. manufacturing: Machine tools are the "master tools" that make everything else. "It's a bellwether for U.S. productivity," says Daniel J. Meyer, chairman mf machine-tool maker Cincinnati Milacron Inc. Adds Berthold Leibinger, chief executive of top toolmaker Trumpf & Co. in Germany: "America has realized that a fation must produce hardware, not just software and services."
Orders to U.S. toolmakers were up 24% in the first seven months of 1994, to $2.5 billion. The news was even better for producers of presses and other metal-forming equipment. Powered by auto makers and their suppliers, which shape a lot of sheet metal, orders have shot up 55%. And the order runup may have legs: The average age of the metalworking machines used in the U.S. hit an all-time high in 1993. "There's a tremendous pent-up demand in the machine-tool industry," says Brian McLeod, sales and distribution chief at Fadal Engineering Co.
American machine tools are becoming more popular overseas as well. Exports for the first half are up 24.2%, to $626 million, boosted in part by China's torrid economy and big orders in Canada. "What surprises us is our international business," says Milacron's Meyer, who sees demand percolating in most of the regions throughout the world.
Still, overseas competitors are more than keeping up, particularly the Japanese. Imports are claiming 50% of the U.S. market this year despite price increases, an uptick from the 46% or so they have enjoyed since the 1980s. A strong U.S. market is sucking them in, while the expiration of voluntary trade limits by Japan at the end of last year is contributing, too.
The weak dollar also is helping some Japanese toolmakers. U.S. transplants, including Japan's Mazak and Okuma America, which invested heavily in U.S. production during the '80s, now rank among the major domestic producers. Okuma America's business "is the best it has ever been," says President John Hendrick.
TRIMMER BACKLOGS For American machine-tool makers, the challenge now is reversing a decade of weak demand, inconsistent management, and ownership changes that crippled the industry. But executives say they are up to the challenge. Many of them are determined not to let backlogs swell as they did back in the early 1980s, a problem that opened the door to imports that in turn captured half of the U.S. market.
Machine-tool executives are saying customers have made it clear they can't raise prices much--even in the face of strong demand. So they are working on cutting costs and hiring only sparingly. Profits, though, aren't soaring as they have done in past cycles. Still, the American machine-tool industry at long last is reversing its decline. That's something for business to cheer about.