Monthly Archives: September 2010

Less Money For Uncle

The “Jobs Bill” that President Obama signed Monday may have sounded like another “stimulus” boondoggle, but it really has a lot of important goodies for the machining world.

The section of the bill that has immediate impact for the machine tool business is the expensing provision. The current rule was scheduled to expire by the end of 2010, which would have reduced the write off from $250,000 to $25,000. The new law pushes up the expensing provision to $500,000. For smaller companies making profits, this provision, which extends through 2011, will mean better cash flow and less money for Uncle.

Other provisions in the bill backstop the Small Business Administration with major new resources to lend to small business. With banks so frightened to find loans and credit lines, this major infusion of guarantees by the Feds should get the bank examiners off the backs of the loan officers.

The ability to use losses for five years to offset profits should also start to lubricate the economy.

The Administration and Congress finally appear to be starting to “get it” as far as small business is concerned. Funny, how an election can focus people’s minds and even gather a consensus across party lines.

It was nice to see Brad Ohlemacher, president of EMC Precision of Elyria, Ohio, a third generation screw machine guy of all things—attending the signing ceremony. To quote the illustrious Rodney King, “Can’t we all just get along?”

Question: Does a law like this actually change business people’s minds regarding expansion and hiring?

Photo from florida.inetgiant.com

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Auction Blog

Brown & Sharpe 3/4 inch No. 2 Ultramatic R/S CNC Automatic Single Spindle Screw Machine from the auction

Last week Roseland Metal Products of Dolton, Illinois, was auctioned off by Loeb Winternitz Industrial Auctioneers. I think an event like the Roseland sale tells us quite a bit about what is going on in the small contract shops—the core of precision machining.

Roseland was a casualty of the recession but also of a management that made scant investment over the last 10 years. The most significant capital investment was the retrofit of six out of 15 Brown and Sharpe screw machines with an early incarnation of AMT’s ServoCam upgrade technology.

Roseland bought a SNM clone of the New Britain model 52 in 1998. The past decade has been a cruel one for shops like Roseland, which kept playing the old game without expanding its customer base.

I talked to Charlie Winternitz, who skillfully orchestrated the sale for the seller of the Roseland assets. He told me that 160 bidders signed up for what he had viewed as a tough sale. More than 100 bidders bought items. This is surprising breadth for a smaller auction that brought approximately $300,000 gross with no equipment newer than 12 years old.

The SNM multi sold for $19,500 plus buyers fee, while the ServoCam Brownies brought $7,500 to $15,000. A 2” standard cam B&S brought $8,000. The sale tells us that a lot of folks are interested in buying old school equipment but they are unwilling to go to the bank to buy it. If they can pay for it out of cash flow or from the piggy bank they are interested, but if they have to check with their banker it’s often a “no go.”

The sale also indicated that old CNC equipment has little value. Four nice Traub TNM lathes from the mid 90’s with magazine loaders couldn’t crack $4,000 each, and a Brother drill and tap 1993 vintage brought $8,000 plus BP.

Buyers scouted the tooling for sexy nuggets, which indicated that business in the hustings has some life. For example, two B-13 Reed thread rollers with New Britain bases brought $650 each on average—cheap for a user, but a strong price at a Web auction.

Roseland tells me that bargain hunting buyers are plentiful now, even in shop depleted screw machine land. Buyers are frugal, but willing to spend if there is an attractive deal.

Question: Can an old screw machine shop like Roseland still be viable today?

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Lying With Precision

NPR’s All Things Considered recently interviewed Charles Seife, the author of a new book entitled Proofiness: The Dark Art of Mathematical Deception. The book discusses methods used by advertisers and politicians to spin polls to make them seem convincing. One of the methods the book covers is claiming specific numbers when stating “the facts.” For instance, Seife brings up the example of Senator Joe McCarthy identifying exactly 205 communist infiltrators in his first report. Shortly after, McCarthy raised the number to 207, and then decreased it by a few people the next day. By giving a specific number his statements gained legitimacy.

Blessed with not having a booth at the IMTS show last week, I got to walk the four vast halls of McCormick Place and visit a plethora of exhibits (164 to be exact) where I talked to a whopping 186 booth workers. At times some booths actually had more staff than visitors.

Two icebreakers I employed when walking into each booth were the questions, “How is the show going for you?” and “How is business looking lately?” Ninety three out of 100 times the answer was on a spectrum of business being “decent and improving” all the way up to “Business is awesome! We sold 12 machines in the first day and eight in the second!” Needless to say, the 46 representatives of the Today’s Machining World team left the show feeling pretty damn good about the market. If business was great and or improving for most of our potential clients (58 or 65 to be exact), it bodes quite well for magazine advertising revenue in the coming 3.5 years.

Question: Do you believe the IMTS exhibitors’ claims that the manufacturing sector is looking up for 2011?

Alternative question: Do you usually question Gallup polls?

Ballooning Numbers of IMTS

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Impressions of IMTS In No Particular Order

The question most commonly asked at IMTS is, “How is the traffic?” That’s probably the wrong question today. The better question would be, “Are people buying?” Answer—not a lot at IMTS, despite what the big builders say for public consumption. But the mood at the show is quite good, with many attendees saying they plan to buy equipment in the future.

Despite the alleged tightness of credit, there seems to be no shortage of cash for machines companies need to expand and improve. Lack of financing may be the problem for the people who didn’t make it to the show.

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One of my joys during IMTS is discovering somebody out of the blue who can explain his business so clearly that I can see a ton of applications I never had even considered. Schreiner ProTech, tucked into a corner in the North Hall, makes marking equipment and film that has a myriad of uses. If you need to put serial numbers on a part, they have a product. If you need to label a flashlight or a lock or a military part, they have a solution. I was intrigued by a membrane seal for an insulin pump they make with proprietary equipment. They are selling more products to the other exhibitors than the random walk-ins who find them at IMTS Booth N5091.

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The DMG/Mori Seiki combined exhibit space is aircraft carrier big. They are spending over $8 million on the show with the goal of selling 200 machines. They’re making a statement, even if they sell half that.

Doosan took Haas’s spot on the floor from 2008, while Haas took a smaller less strategic location. Both have had a lot of action. This may reflect the big Haas push into China, India and Eastern Europe, and Doosan’s rising stature in North America.

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IMTS’s crowd looks old, overweight, male and white – except for the Asians who are young, thin and wear ties. Amidst the thousands of people at the show there are very few smokers, even outside the permitted area.

McCormick Place has never looked better and the food is significantly improved. Also, I haven’t heard one complaint from exhibitors about the notoriously difficult union workers at McCormick Place.

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We had a wonderful 10 year anniversary party Tuesday night for Today’s Machining World at Harry Carry’s restaurant. Celebrating with friends, family, colleagues and machining folk was a great gift. Barack sent his regrets.

Question: If you could have one new piece of capital equipment for your shop for free, what would you choose?

Membrane Seal for an Insulin Pump Made by Schreiner ProTech

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Swarf: The Twinge Factor

By Lloyd Graff

Today’s Machining World Archives September 2010 Volume 06 Issue 07


Several years ago Graff Pinkert had a deal with a fellow who made a good living buying surplus machinery from government stockpiles and reselling it around the world. We talked about his bidding strategy and he told us his approach.

He would assess his risk in bidding on a bulldozer or crane and put down a price he was comfortable with. Then he would put down successively higher figures. When he reached the number that made his stomach twinge, he circled it and let it settle in his body for a while.

He told us he had learned from hard earned experience that the stomach twinge bid was the one that usually succeeded. The comfort zone bids won occasionally, but generally were also-rans.

I think the “twinge rule” is one of the most important and difficult laws to master for a business person. In business we negotiate with fear every week. Over time, many people understand their personal risk tolerance.

Some are adrenaline junkies and look forward to their “twinge” moments. Most people despise the fearful reaches and value predictability and safety.

The writer, Wayne Dyer, has written about going to a spa where there were a dozen sitting pools with temperatures ranging from very cold to very hot. Almost everybody gravitated towards the two pools that were around 100 degrees. He tried every pool and found he enjoyed them all.

Fear and uncertainty are constant companions in business today. The “twinge test” still works for those of us who can live outside the tepid zone.

The DMG/Mori-Seiki USA partnership is starting to pay dividends. I recently talked with a client who’s buying one and possibly two expensive DMG twin turret lathes. He liked the DMG technology, but he told me he would not have considered buying DMG if they were not selling through Maruka on the East Coast. Maruka is the Mori distributor based in Rocka-way, New Jersey, and it now also sells DMG. He trusts them, he respects his salesman, and he believes in Maruka’s support.
The DMG/Mori-Seiki showroom in Hoffman Estates near Chicago is a superb facility, but it is the reliability of Maruka that will ultimately make the New York sale of a $500,000 machine tool.

Are we in a period of deflation in America? Will prices for goods and services, real estate and machinery trend downward for the foreseeable future? Will wages also move down? Will the value of cash be greater and illiquid assets like homes and machinery get harder and harder to sell?

This is a question of enormous importance to not only econo-mists and statisticians, but to everyone who doesn’t live in a cave. The bond market is alerting us to the possibility of deflation, with the 2-year U.S. Treasury paying a .5 percent return and the 10-year yielding 2.6 percent. And this is in a period of trillion dollar federal deficits with foreigners supposedly skittish about U.S. debt.

If people are scared about repayment of principal or debasement of the currency, they will not accept less than three percent for 10 years.

The “sky is falling” inflation vigilantes who play the bond market were near apoplexy a few months ago about the pandemic of government deficits. Now many of the Henny Pennys, like Mohamed El-Erian of Pimco, are warning of deflation ala Japan in the 1990s.

I don’t think anybody really knows if we are entering a prolonged period of deflation, but I think that developing a contingency plan for deflation is wise. And the first commandment would be “Thou shall not own real estate.”

The worst thing to own during deflation is land and buildings. Better to rent with short-term leases and options to renew in case prices start to go way up. Small business people have traditionally built wealth by owning their buildings and renting to themselves, but this is absolutely wrong during deflation. Tokyo real estate has been a terrible investment for the last 20 years.

Leasing machinery and cars would be the way to go if prices slide. If a new Haas VF2 machining center dropped $10,000 in price over three years, the used value would depreciate accordingly.

An additional kicker is the likely appreciation of the U.S. dollar against foreign currency, which we have seen happen with the yen’s rise. This would make imports cheaper.

Deflation would bring wage deterioration and givebacks. We are already seeing a lot of this. We may soon be asking the counter intuitive question “Is my pay decrease in line with deflation?”

For the investor, big multi-national companies with well protected dividends would be the ticket. A company like Altria that pays six percent by selling to tobacco addicts might be a good bet, if you can stomach owning the stock.

If one figures in the recent drop in home prices, we are in a deflationary period now. It’s a depressing prospect, but if you adapt to it, perhaps you can make it work for you.

As the details gradually emerge from the BP oil spill it becomes more and more clear that the management in London had incentivized the troops in the field to skimp on maintenance to enhance the company’s bottom line. There probably is a connection between the BP refinery explosion at Texas City back in 2005 and the Deepwater catastrophe in the Gulf. It appears to me that London had incentivized its employees to emphasize the short-term bottom line and ignore the future consequences (see “Book Review”).

With the U.S. productivity statistics showing incredible improvement in efficiency month after month, it prompts the question of whether productivity incentives are always good long-term.

In the machining game, there is a danger in setting productivity targets that invite people to game the system. If one machine operator or shift is competing with another the temptation for sabotage in the plant is real. When teams compete against norms and other teams, the peer pressure within teams can become destructive to the enterprise. In a coal mine, where tonnage means everything, safety is often neglected, which may culminate in tragedy.

Sales incentives based on monthly or quarterly results often end up with employees gaming the system.
I’m interested in your experience with incentives.

I had the opportunity to spend several hours with Mitch Liss of Edsal Manufacturing (interview on page 34), a major producer of steel shelving and office furniture with sales of $200 million, based in Chicago. Mitch gave Noah and I an insider’s view of purchasing politics by big box retailers and huge catalog sellers.

He said that within massive organizations like Wal-Mart or Grainger you find two distinct parties influencing purchasing decisions, the buyers and the global (strategic) sourcing groups.

The shelving buyers, who work closely with the sourcing people, have the responsibility of making the final call about what product makes it to the sales floor or catalog and how much is ordered. The sourcing guys are charged with scouring the world to find cheaper shelves. Their salaries and bonuses are dependent on increasing the amount of dollars out-sourced, primarily from China.

The purchasing guys have little interest in where the product ultimately comes from, as long as it sells well. This drives a guy like Mitch Liss crazy because every rack and shelf he makes is a sitting target for the strategic sourcing dudes.
What bugs Liss is that the incentives are rigged to favor foreign placement of orders, even though he usually offers an equal or lower final price to the reseller.

His biggest irritation is with Costco, who he’s been trying to sell to for eight years without success. He says he can sell a better product for less money than the Chinese currently supply, but the buyers refuse to allow him to be seriously considered head-to-head against the competition. Evidently, for the Costco buyers, the idea that an American firm based in Chicago can undersell the Chinese is so ridiculous that Edsal cannot even demonstrate its products side-by-side at Costco headquarters in Washington state.

Interesting how Costco has remained blind to the fact that Edsal sells millions of dollars of products to Home Depot, Lowe’s, Menards, Grainger and McMaster-Carr.

I would think that an American company would at least get a fair look by a firm that sells most of its goods in this country.

Chelsea Clinton married Marc Mezvin-sky recently. Why should I care?

I care because Chelsea is American royalty and she just married a Jew. And not a plain clothes Jew or a hidden heritage Jew like John Kerry, but a practicing one. For better or worse, I grew up seeing everything through a Semitic lens. Bernie Madoff was a colossal thief, but for me it’s worse because he was a Jewish thief. I cared that Scott Feldman won 17 games for the Texas Rangers last season because he is Jewish. I voted for Al Gore in 2004 because Jewish Joe Lieberman was the vice presidential candidate.

For my generation of post World War II Jews, life is about proving Hitler did not win in his effort to exterminate us. The phenomenal success of Jews in America during the last 50 years in business, politics, science, the arts, academia etc. and the amazing ascendance of Israel, despite being surrounded by militant enemies, afford me great pride. When Elena Kagan was confirmed to the Supreme Court she became the third Jew on the Court. To most of America, she’s another New York liberal woman, if they care at all, but to me she is an MOT—a Member Of the Tribe, which makes her important. I keep score and I always will.

My acute sense of Jewish success in the U.S. scares me. I wonder when the next wave of jealousy and resentment will pop up like a mushroom. Personally, I am ashamed of my Jewish brethren at Goldman Sachs, whose cynicism and greed helped bring on the economic collapse of 2008. I am surprised that the resentment against Wall Street has not morphed into overt anti-Semitism and that the Tea Party movement has stayed away from “blaming the Jews,” which was common during the Great Depression.

When I heard the title of the new Steve Carell movie was “Dinner for Schmucks” I feared it was Hollywood turning on the Jews, but now I think I’m just ultra-sensitive about the topic.

I have taken a chance in writing about my Judaism and my Jewishness. It may be risky for business reasons, but to my surprise I feel very little pushback for it.

This country has changed in my lifetime—for the better. Chelsea Clinton was married under a chuppah, the canopy traditionally used in Jewish weddings, by a rabbi and a reverend, and the traditional Jewish Seven Blessings were read. It wasn’t that big a deal in the press. The father of the groom was a former congressman who had been in jail and married a congresswoman. But who keeps score anymore?

Summer jobs have run their course in 2010, for those lucky enough to get one. My first summer job was in 1960, when I was 16 years old. I found it by placing a situation wanted ad in the Chicago Tribune. I advertised my skill as a writer, perhaps slightly embellished (well, doesn’t everybody) and promptly heard from a small magazine publisher located in downtown Chicago. His name was Hadley and he published The Civil Service News which was a job posting rag, and Midwest Ports, a nondescript magazine about local shipping.

Hadley hired me for a little more than minimum wage, gave me a desk, and told me to write some stuff for Midwest Ports. The job was a blur. The exciting part was the 20 minute train trip to the Loop, working in the office building next to the Shubert Theatre, and occasionally eating at Wimpy’s Hamburgers for lunch.

I worked for Hadley, who wore sunglasses indoors, for six weeks. He was a grouchy curmudgeon so I stayed away from him as much as I could. Then out of nowhere he called me into his office and fired me. No explanation, just bye bye. One of the ad guys called me over while I was packing my pencils. He said Hadley had learned I was Jewish, which was all he needed to know.

It was an interesting lesson for a teenager to learn in his first summer job.

My wife Risa was cleaning out the garage and found a duffel bag packed with clothes, tools, photos and batteries. It was a “catastrophe” bag we had put together after September 11th, 2001.

We pitched the big jar of peanut butter and the oatmeal but kept the family photos and blank writing journals. It also held $120 in cash, which seems like a paltry sum for feeing Armageddon.

I know I am superstitious, but I wish we had kept the duffel bag as it was, just so we would never need it. I don’t think the idea is obsolete. I’m going to update a new “fee fast” bag with new pictures including our grandchildren, son-in-law and daughter-in-law, if for no other reason than to remind me about what is really important in life.

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Obama Shows Up at IMTS

A couple of weeks ago I asked in a blog whether or not you would like President Obama to come to IMTS. As expected, I got a solid response of Obama bashers, but my suspicion now is that Barack actually read the blog (we used to shoot hoops in his backyard together—just kidding), because he ended up deciding to come to the show in a big way.

His Cleveland speech, in which he proposed 100 percent write-offs of capital investments made from September 8th through 2011, is potentially an enormous present to our industry. He one-upped the Republicans, who are focused on the “Bush Tax Cuts” which primarily affect high earners who cannot shelter income, a relatively small number of folks.

If the 100 percent one-year depreciation becomes law, as I suspect it will early next year, it will be a catalyst for a major bump in machinery and equipment spending, assuming business continues to improve in manufacturing.

The knee-jerk Republican opposition to the Obama proposal will give way to sane thinking after the election. My guess is that this sop to business may signal Obama’s move to the center. It’s very similar to what we saw from Bill Clinton in 1994 when Newt Gingrich’s “Contract With America” brought a Republican Congress, which ironically may have saved the Clinton Presidency.

My suggestion to Barack is to raise the ante and propose a five-year, 100 percent write off which will enable big and small companies to get the cash flow to buy equipment and hire people.

Question: Is Obama moving towards the center?

Obama at Manny's Coffee Shop in Chicago, close to McCormick Place

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Six Questions for the 2010 IMTS

1) Will the Japanese and European builders be raising prices in dollars for their products? With the yen at 85, the pressure on margins must be heavy. But world-wide competition is brutal. A domestic producer like Haas has an advantage in North America, particularly with a bread and butter product like a vertical machining center.

2) Will buyers show up for the show? Ignore the supposed attendance numbers offered by show management—are there real people in the aisles and real customers talking to the exhibitors? Is IMTS now a super-regional exhibition, or is it still the really big national show worthy of the big bucks being spent by the exhibitors?

3) What is really new? Is there a hot new technology? Is there a game changing new company? Is the long-term deterioration of the productive workforce of baby boomers giving way to a hungry wave of men and women who see the factory floor as an opportunity?

4) Is money available for the expansion of small and medium contract shops? If 20 percent of America’s shops were wiped out in the recession, is there credit available so new and existing shops can fill the void?

5) Is this the year of deflation at IMTS? Will prices be lower than in 2008 or 2009? Will list prices be similar, but discounting rampant?

6) Will exhibitors and visitors be happy to be in Chicago, or revert to the familiar whine about the McCormick place unions pushing them to Orlando or Vegas?

Chicago's McCormick Place, Site of IMTS

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The Mormon Missionary Advantage


Pilkington Metal Finishing employs 110 workers and does upwards of $5 million a year in aluminum anodizing work out of a 72,000 square foot building five minutes from the Salt Lake City airport.

From his desktop computer, with the help of specially designed software, company founder and president Van Pilkington can monitor and track in real time, the jobs in progress of each of his production workers.

But it wasn’t always so. The business, he recalls only too well, began a quarter century ago about as modestly as an enterprise possible can: in a cinder block garage that her ented for $145 a month. With nobody but himself on the payroll, Pilkington loaded jobs into the back of the family pickup after his afternoon classes at the University of Utah, did them himself on the little tank line that he and his father had set up in the garage, delivered them a day or two later, then scurried home to type up invoices.

His father, who’d retired from the Air Force and worked for a Fortune 500 company that supplied chemical and process equipment to the metal finishing industry, had helped with $4,500 in seed money – and more importantly, suggested an eager account – a medical devices company that needed many of its expensive parts refurbished. “This is something we don’t want to do in-house,” the company’s purchase agent told Pilkington. “It’s a good opportunity for an enterprising young man like yourself.”

Read full article here

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Government Meets the Real World

I believe 2010 will go down as the year the wage discrepancy between public and private employees began to narrow.

According to a recent article in USA Today, the average yearly pay including benefits for a federal government worker is $81,000 compared to $51,000 for a private business employee. Cadillac health plans and defined benefit pension programs have bloated federal payrolls. State and municipal payouts have kept up with or sometimes surpassed those of the federal.

The tide is changing. The dike of unchallenged government pay and benefits is showing leaks. California is broke and politically stalemated, but furloughs are now common in the school systems and layoffs and hiring freezes are the norm. In Illinois, it appears that 10 percent of the teacher’s pension plan portfolio will be sold to pay current pension obligations. In Washington DC, 241 teachers were not rehired by the gutsy new school superintendent.

The rationing of jobs which we have witnessed in private business for the last 10 years is taking root in government. The latest monthly employment figures showed 131,000 lost government jobs. Some of these were temporary census jobs, but others were in schools, bureaucracy, police, sewer, etc.

I feel somewhat ambivalent about the new trend. I see an erosion of middle-class America, which is regrettable, but I also see the beginning of the cleansing of government excess that has been gumming up the engine of American capitalism for 50 years.

Question: Are public school teachers overpaid?

www.gruntledemployees.com

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An interview with James P. Hoffa

By Lloyd and Noah Graff


LG: I’m curious about growing up in Detroit in a union family and what memories you have about dinner table conversations.

JH: I had a wonderful childhood. I had a wonderful father, a wonderful mother, great sister. My sister is a circuit judge in St. Louis. My early memories are talking union over the table, but also I remember in the ‘50s the whole family getting in the car, going to eat dinner somewhere and then going for a Sunday drive. UAW used to have a radio program, and we’d listen to it in the car. Invariably we’d end up on a picket line where my dad would say, “How’s the picket line going?” We’d end up pulling our car up and visiting with the pickets. I’d get out at 8 or 9 years old and be walking a picket line. I remember going to union meetings at an early age, sitting in these smoke filled meetings back in the late ‘40s, ‘50s and ‘60s. I remember at 18 years old my father swearing me into the union.

LG: Our readers are people in the machining business and people on machining floors, small and large manufacturers of the precision parts industry. I’m interested in how you see the intersection between the interests of the Teamsters and manufacturing.
JH: I think there’s tremendous intersection, because the Teamsters Union is one of the most outspoken unions with regard to the unfair trade practices going on. The fact is that American manufacturing is being eliminated by unfair trade deals where you have exports from China and Japan, South Korea, the Far East, India – driving the American manufacturers out of this market. That’s because of the trade policies being pursued by this administration and the Clinton administration. Both have one thing in common – basically unfair trade. Open the markets to everybody in the world and let them have trade barriers where they can create export economies that basically attack American industry with unfair exports into this country.

NG: We certainly see it.
JH: You see it every day, whether it was NAFTA or whether it was WTO, which Clinton did. To ship auto parts into China you face a 30 percent tariff. You can’t ship auto parts into South Korea. They have completely protected economies, but they have complete access to our economy. They ship stuff over by boatloads. Hyundai ships from South Korea, they put ramps down and drive thousands of cars off a ship in Baltimore. Now there’s no ship of Ford Focuses going over to Seoul, Korea, because they won’t allow it. Because of the trade bills they’ve been able to sucker us into, and we’ve been stupid enough to do, these companies have created an atmosphere where American manufacturing is at a disadvantage.

Read full article here

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