Category Archives: Auto Industry

Machining Industry Scuttlebutt

By Lloyd Graff

Tesla Motors went public this week. The company’s all electric roadster has not been a resounding success financially or mechanically, but has been a publicity magnet. Elon Musk, one of the company’s founders has an amazing track record as an entrepreneur. He has Toyota money behind him now and the modern Nummi factory in the Bay Area to make the new versions of Tesla cars. Tesla chose not to participate in the X Prize competition to produce a production-capable 100-mile-per-gallon car, but the company could still be a big big winner over the next 10 years.

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Prices for nice CNC machinery at auction show some firmness in the market. On June 29, James Murphy Auctioneers sold a 2007 NV5000 A1B40, 20” x 50” table for $135,000. The machine had a Lyndex Nikken 5th axis trunnion. A 2005 NV5000A140 Mori 23 x 30 table brought $102,000. The sale of New Concepts in Redmond, Washington, also had a Mori DuraCenter 2005, which sold for $67,000 and a Doosan 3016, 2006 which fetched $25,000. A Zeiss CMM Contoura G2 2006 fetched $61,000.

On the same day Thompson Auction Co. sold Sherman Tool near Dayton. Two Hurco VMX 30 machines new in 2004 sold for $40,000 each, while a little Okuma ES-6 new in 2007 brought $35,000 and a 1998 Okuma Cadet with a 16” chuck brought $45,000.

Last week at a Winternitz sale near Duluth, Minnesota, a 2008 240-C Doosan 3-axis lathe sold for $49,000.

I would describe these prices as reasonably strong, particularly for the Hurcos. On the other hand a couple sales in Michigan, MetaVision in Traverse City and a Hilco and Maynards Auction in Detroit, were softer for machines that ran mostly automotive related stuff. Dealers bought the bulk of the equipment, and at Metavision a lot of older cam equipment went straight to the scrap yards.

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Statistics from the Precision Machined Products Association indicate that business amongst its member companies has made a full V–shaped recovery over the last 18 months. After business dropped by a third during the worst of the recession in the spring of 2009, it regained the base level of sales in May of 2010. The ascent of automotive business to the still not so lofty level of 11.5 million units and the rebuilding of paltry inventories everywhere have fueled the resurgence. Weak home sales, tepid employment growth and a depressing stock market have eroded confidence in June, but as the BP mess slips from the news and the stats show the world wasn’t coming to an end confidence will come back.

Question: Do you believe Wall Street insiders are manipulating the market to make President Obama look bad?

Telsa Roadster charging (Photo from Treehugger)

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Is Overtime “Lean Manufacturing”?

By Lloyd Graff

Is paying overtime rather than bringing in new employees lean manufacturing practice?

For adherents to lean concepts, the question of how to handle a  “bullwhip” effect where companies need to rebuild inventories is a challenge for suppliers. (All this “bullwhip” talk is making me hum the theme song from “Rawhide.” See clip below.) People who were laid off may be unavailable for a call back or may be happily pruned. Overtime is expensive, and eventually core workers get burned out working six or seven days a week or 12 hour shifts.

Temps are often an imperfect answer because they require significant training and may be poorly integrated into a group of standoffish employees who are offended that old employees are not being rehired.

As contract shops reach the “bullwhip” phase of inventory rebuild, how do you think workforce additions should be handled?

Question: Would the Obama $5000 tax credit proposal for new employees be enough to tip you into hiring new people?

Theme Song from the TV Show “Rawhide”

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Is Lean Manufacturing to Blame for Toyota’s Woes?

Toyota's Faulty Floor Mat Retention System

By Lloyd Graff

Toyota, the icon of lean manufacturing, now has a big fat problem that could devalue the brands which vaulted it to the top selling car company in the world.

The sticky gas pedal that has prompted the recall of Toyotas and Lexus going back to 2005 has been traced back to a bad design in a component made by CTS, an Indiana auto parts supplier. Because Toyota was so committed to lean manufacturing, which translated into common components across platforms and models, the company has to callback the RAV4 SUV, Avalon, Corolla, the top of the line Lexus and the ubiquitous Camry.

Besides being a tort lawyer’s buffet, this debacle besmirches the reputation of Toyota, because the problem must have been recognized in the field years ago, yet was never fully acknowledged until now by the corporation.

This is a tremendous opportunity for Ford, GM and Honda to attack Toyota. Toyota is suffering because of the dark side of lean manufacturing which corrupted virtually every one of its major models from the last five years. Toyota’s reputation will also take a blow just for the fact that it refused to come clean about the problem for years in a marketplace that increasingly demands transparency.

Question: Do you think Toyota’s commitment to lean manufacturing was a significant contributor to its current crisis?

Imagine, this goof is from a company that can develop a thought-controlled wheelchair.

Toyota’s Thought-controlled Wheelchair

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The Next Automotive Boom

Nissan Electric Car BatteryThe default position for many in the machining world has been to flee the automotive business like it was an ominous cloud of swine flu.

I admit to lapsing into that mindset, but after reading a provocative article in Inc. Magazine by Bernard Avishai I am becoming a believer in a new golden age of car technology.

Avishai used to sell car parts in college in the 1960s and is now a part-time professor at Hebrew University Jerusalem. He is convinced the electric car (plug-in) is coming soon in a big way and will present fabulous opportunities for entrepreneurs, including people who make stuff.

The core of the new electric vehicles will be the battery. The first generation batteries may come from LG in Korea but the much maligned Obama stimulus package is tossing a ton of taxpayer money at jump starting American competitors.

The cynics mock the $40,000 Chevrolet Volt coming in 2010, but what if it’s the prototype for an important new class of vehicles?

GM does not have Delphi anymore, but may have something much more valuable for the next decade of car making—OnStar.

According to the Inc. piece, OnStar gives GM the first mover position in car connectivity. We will see the connectivity of all of the car’s systems—charging data, mechanical components, GPS—as well as responding to collisions and malfunctions. If OnStar becomes the defacto standard for car connectivity it becomes the Windows of the new smart electric vehicles.

I think I have been so focused on the question of whether we are going to have a 10 or 12 million car year in America that I have missed the forest for the trees. The next several years will probably transform this gigantic business. With major change will come huge opportunities for entrepreneurs who are not wedded to making gas guzzlers.

Question: Are you looking to do more or less automotive work in the next several years?

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Feeling Groovy

Productivity in manufacturing rose an unprecedented 13. 5 percent in the third quarter. It means business is rising but the number of employees isn’t. The inflation vigilantes do not accept these numbers. But I’m feeling groovy about productivity gains which will give a big chill to the dollar killers and gold hoarders. Sell your bullion unless you’re going to make soup.

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After discussing murder in the workplace, Tuesday, how about some good news?
Chrysler is breaking even now despite its third grade styling. Costs have been pared to the femur. Fiat’sMarchionne is a serious guy and he has brought in a young, aggressive team to turn the joint upside down. With money in the bank (taxpayer’s) and minimal cash burn, Chrysler has a fighting chance to make it when its Chef Boyardee Italian-American line hits the market in two or three years.

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Ford made a billion dollars last quarter and gained market share. They have 23 billion in cash. GM gained market share in the quarter. Toyota made money in the quarter after predicting a loss. Automotiveland is producing at the rate of 10.5 million units per year and making some money. At 12 million they will feel good. The emasculated supply base will need to rebuild capacity.

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Ninety yen to the dollar, and a 1.45 Euro will make American suppliers tasty dollops for acquirers. The Canadian dollar has risen .80 to .93 to the U.S. dollar. We are seeing Canadians in Ontario stepping up for CNC lathes here because they look like bargains with the almost 20 percent swing in the relative value of the respective currencies and because of the upswing in automotive.

Question: Are you feeling happy today?

533-fiat

Jerry Seinfeld’s 1967 (Summer of Love) Fiat 500 that he crashed in 2008

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Gas Attack!

By Lloyd Graff

It seems today that the conventional wisdom in business is wrong at least half the time. A few years ago the banking industry was built on the tenet that the price of single-family homes would never go down in price. Missed that one.
Then there was the cardinal principle that the world was quickly running out of oil and the price was headed upwards forever. Missed that one too.

And now it appears that the long-held popular theology that the United States is going to be held hostage by Middle Eastern sheiks for a century is soon to be toppled too.

It may not be the electric car that kills the oil ogre, but the abundance of natural gas, cheaply attainable in North America.
Almost overnight the U.S. and Canada have become the Saudi Arabia of natural gas, a clean fuel that can run power plants, heat homes and fuel cars without a revolution in technology. The natural gas pipeline from Alaska and the incredible gas finds in Pennsylvania, the Dakotas and many other places on the continent are changing the game on fuel.

The plug-in hybrid automobile is an elegant technology but still presents big hurdles in mass production of viable batteries and ultimately, in finding an efficient way to dispose of the spent ones. Developing the infrastructure for recharging batteries, like filling cars with gasoline, will be very expensive.

But if the politics become favorable for natural gas in Washington in the next few years the end of dependence on imported oil is within sight.

With coal and nuclear power doing the heavy lifting on electric power generation, at least until solar becomes readily available, the swing fuel is natural gas for cars. With massive, new supply in our midst the conventional wisdom about long-term dependence on expensive foreign oil may soon be as obsolete as the old axiom about a never-ending escalation of house prices.

Question: Do you think your next car will be powered by a fuel other than Gasoline?

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Machining Timeshare

By Lloyd Graff

The current Fortune Magazine’s cover story is about Zipcar, the car sharing rent-by-the- hour company that is changing the way people look at car ownership in urban areas.

Zipcar has outflanked Hertz and Enterprise in this fast growing segment of the rental business, though the biggies are now pushing to catch up.

The Zipcar approach is 10 years old with 325,000 members who pay $50 per year for the privilege of being a Zipster. Cars are available at unattended parking lots in big cities. People rent them to go to the store, move residence, visit friends, go for an interview etc. Average users claim they save $600 per month on car ownership and drive 44 percent less miles than before shedding their car.
Nice for the environment and all that good stuff. But the Zipcar idea excited me not just for what it means in automotive land, but for what it portends all through the economy.

As I look at my own buying habits today I am growing more and more in sync with the short-term rental—forget about owning—idea.
A week ago I decided on the spur of the moment to go to the Cubs—White Sox game which was the make up for a June rainout. I asked Noah to accompany me to Wrigley Field. I told him I was going to buy the best box seat available, because if I go to a game (which I rarely do) I want it to be the perfect ballgame experience. We sat in the second row behind the first base dugout and loved the game despite the Cubs losing.

My wife Risa and I did the same sort of thing on our 48-hour summer vacation in the city. We booked the cheapest room in the best hotel in Chicago and had a wonderful weekend getaway.

I see the value of ownership of depreciable things like cars and homes to be a less and less attractive concept today.
We may see the same view take over in the machine tool realm. With short-term jobs being the flavor of the day I can imagine machine rental by the hour. The same for attachments. A thread whirling attachment for a Swiss CNC might not be worth the money for a buy, but could make sense for a one-week rental. I can imagine an entrepreneur setting up a shop with big lathes and horizontal machining centers and renting the machine time and the operator by the hour.

Questions:

Have you used the Zipcar service? How was the experience?

Would you be interested in a machine sharing approach in your operation?

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Time to Leave Business Hibernation?

Mike Jackson, head of the publicly traded dealer group, AutoNation Inc., says the automotive economy has turned the corner. He sees a 13 million car year as early as 2011 or 2012. Ford is making money. GM may have an IPO as early as next year. Inventories of cars have been halved in the last few months. The green lights are illuminating the highways. Yet business in my world, the machining world, still stinks.

What do you do if you are making decisions now that could affect your business for the next three years?

From experience I know that the big money is made in the tiny window of a market turn. We have already seen that in the stock market’s 50 percent rebound since the March bottom. If we are at the pivot point in machining, particularly in automotive work, this may be the time to go into business if that’s what you’ve always wanted to do. If you are a business person still standing after 18 months of being pummeled, this is probably the time to gamble on the upside.

When a bear hibernates his bodily instincts tell him when to exit his cave. Rational humans tend to want to stay in the cave well after the thaw begins because a spring blizzard might hit and finish them off.

I must make the decision in the next few days about whether to increase the number of Today’s Machining World issues from the survival mode of every other month, to nine or even 12 issues for 2010. After I almost died a year ago I fear being reckless in case of an economic relapse. But because I survived near death in the hospital and on the economic playing field, I am much more inclined to say to myself and the world, “If not now, when?

Question: Are you ready to leave survival mode?

Leaving a Cave

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On the Way Up

By Lloyd Graff

June 3rd, and the world looks a lot different than just 30 days ago.
    GM finally did the dirty deed and filed, and the stock market reacted with relief. It appears suppliers are going to get paid from the Feds lending as the reorganization goes forward. BorgWarner stock is up 80 percent from its low and Johnson Controls has also bumped.
    All of the commodities are zooming with copper near $2.30 and ArcelorMittal stock more than double from its yearly low.
    Obviously, the markets are signaling a bottoming of the economy.
    One of the most encouraging aspects of what’s going on is the strength of the California home market. Sales have been improving for existing homes and the unsold overhang is shrinking. Home prices have actually been rising recently. California led us into the housing chaos and it appears to be leading us out. New homebuyers are appearing in Phoenix, Florida and Vegas where syndicates are coming in with speculative bids for cash on multiple units.
    In the real machining world we live in, the signs of a rebound are beginning to show. Hoff-Hilk’s Bystrom sale last week was a winner with Swiss CNC machines, and Gerry Mannion told me that his recent Bosch sale surprised big on the upside. On the other hand, Robert Levy of Hilco says that he remains very conservative after seeing the market for used twin grip Cincy centerless grinders grind to a halt. Presses and multi-spindle screw machines have no pulse right now, and gear equipment is languishing.
    Intrest rates are rising on 10 year U.S. government bonds, the dollar is weak, the big banks have floated $70 billion in stock and are begging to pay back the TARP. Huge money is leaving the sidelines for investments that appear to have upside. Put it all together and it smells like a recovery in the womb, if we can hang in there while inventories gradually rebuild.

Question: Do you feel more upbeat about business now that GM has finally filed?

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There is Life After Automotive

By Lloyd Graff   

    Over a dozen years ago I developed a wonderful business relationship with Ed LeClair, who used to be operations manager at Curtis Screw Company LLC., of Buffalo N.Y., one of the largest precision machining companies in the U.S.
    Among Ed’s many responsibilities at Curtis was buying used machinery, which put us on the opposite sides of the table, but we developed a great rapport even while we were negotiating like pit bulls on the price of Schüttes and Acmes.
    It came as a shock when Ed told me he was leaving Curtis in 2007 to buy a printing shop franchise in Raleigh, North Carolina, which he planned to run with his wife Carol.
    I knew that Ed had long had the dream of going into business for himself because he had queried me periodically about what job shops were on the market. But Ed and Carol were entrenched in Buffalo, and I doubted he would put it all on the nose to buy a screw shop in Detroit or L.A. But one day he and his wife, a long time teacher, found themselves rattling around in their big house, their youngest child now off at college, looking for one more big challenge before retirement. It was the right moment; the print shop opportunity popped out of the weeds and they grabbed it. Mild Raleigh winters sounded good, and the thought of absorbing the pressure of running an automotive supplier had lost some of its appeal. Ed regretted leaving his good friend and colleague Paul Hojnacki, the general manager of Curtis Screw, and the tremendous team of professionals he and Paul had shepherded in Buffalo, but as it turned out his timing was impeccable.
   The auto market tanked and the stock market imploded, but Ed managed to escape from both calamities with his move to Raleigh, a place where he found relative stability in job shop printing and a community heavy in colleges and drug companies.
    He and Carol have now been working together for more than 500 days, definitely an experiment, but Ed says they still love each other.
    Ed is a thorough and charismatic operations guy and he brought the rigor of automotive land to the AlphaGraphics franchise he bought. Business is prospering. He called me to ask if I knew of a good sales person in North Carolina he could hire. He told me he stays in touch with Paul Hojnacki at Curtis, but he is happy to have fled the misery of the car industry.
    Ed LeClair is living proof that there is life after automotive. He says he’s just a lucky guy. He bought Ford stock in February and it has tripled. Lucky, maybe, but smart enough to live out his dream before life runs away.

Ed LeClair, former operations manager of Curtis Screw Company LLC., Buffalo N.Y.

Ed LeClair, former operations manager of Curtis Screw Company LLC., Buffalo N.Y.

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