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An Interview: Winfried Benz of Licon mt

Winfried Benz, Managing Director of Licon mt, has observed that the implementation time required in the industry is constantly decreasing. The company is responding to this with optimized processes and an expanded range of products.

Q: Mr Benz, Licon mt has announced that it intends to focus on new markets and target groups. What are the motivations for this shift?

A: This goes hand-in-hand with our product development. In terms of the size of workpieces to be machined, we have moved from large to smaller parts in the area of twin-spindle machining centers. With our latest development, the twin spindle machining center LiFLEX II 444, the machine is optimum for parts with dimensions less than 450 mm per side. We discovered that there was also interest in the non-automotive sectors for 5-axis machining on five sides. The automotive segment, in which we currently generate 95% of our business, continues to be the main pillar of our portfolio.

How did this develop?

In the 1990s, we predominantly built special machines. We initially focused on adapting the single-purpose dial machines, which have evolved into the fully-flexible 5-axis rotary transfer machines of today. These were the mainstay of our business for quite some time, until machining centers were added. In comparison to our competitors, we were relatively late in joining this market, but we did so by introducing very large applications immediately: B-axis with 1,000 mm rotation diameters, A-axis of  1,700 mm swing diameters, as well as 900 kg load per palette. Our twin-spindle machining centers are available with X travels of up to 1,000 mm. The heavy duty HSK 100 machines used for great cutting forces came first, the medium platform with 700 mm spindle distance came next, and now we have the 450 mm machine.

It was clearly a decisive step to introduce lower volume machines into the portfolio. Do you agree?

Yes, that is correct. Rotary transfer machines are optimal for highly precise, complex workpieces with six-figure annual production volumes. Machining centers however complemented our product portfolio and also allow us to be a supplier to our existing customers if they required lower production volumes.

Is the overall trend headed towards machining centers?

That is not necessarily the case for us. In general, machines that  incorporate the ability to adapt to workpiece modifications are of course required, which is why our flexible rotary transfer machines continue to be in demand, but then we also need machines for lower production volumes.

Of your customers, 95% are from the automotive sector. Has this always been a positive?

Yes, but at the same time it has also been hard work, above all with respect to the continuous optimization of processes. Working as closely and directly with automotive manufacturers in the OEM business as we do, the benefit is that you are always immediately involved in new product lines. We can produce the latest components and encounter trends from the very start, which allows us to adapt accordingly. The effects of general economic cycles are not as strongly evident because new products always have to be manufactured.

The automotive sector is constantly evolving. Which changes have a particular impact on you?

The demands on quality and precision have been increasing significantly, particularly in Germany and especially by the high volume manufacturers. This of course drives us to strive for even greater perfection. And not only do we need to account for the constant evolution you speak of but development times are also decreasing further. We are a mid-sized company of 200 employees and although we feel that we have taken the appropriate steps, we need to continually strive for more. But we have to be careful that the pace does not increase too dramatically. Optimizing our processes is an ongoing course of action so that we can manage the impact of market changes on the company, which can be quite sudden at times.

What does this increase in pace entail exactly?

Allow me to give a specific example. A machine was ready to deliver to our customer, who then informed us that their raw materials supplier had become insolvent and a new one had not yet been found, but that they would like us to adapt the machine to the new raw work-piece. Despite this change, the original delivery date was to remain the same.

Surely this is an exceptional case?

Actually, that is almost the norm today, particularly when work-piece prototypes are required for vehicle tests. For our turnkey processes we not only supply the machine, but also fixtures and tools. We guarantee our customers will receive machines that  produce within dimensional specifications and reliable cycle times, and consequently the net output. This means we are actually involved in the process of optimizing the work-piece.

How do you manage to supply quality at competitive prices?

The strength of our development means we are able to do a great deal ourselves. We therefore constantly optimize our processes. To ensure all the final parts, such as fixtures, spindles and rotary axes, are of top quality, they are developed and manufactured in house. As a result, we have control over the technical and technological relationship between all parts of the machine tool. This means, for example, that we can optimize the required specific harmonic frequencies according to the purpose for which they are being used in every single machine. To achieve this, comprehensive machine-specific calculations and simulations are necessary, which we are now skilled in and able to verify with calculations appropriate to the actual machine. Theoretical and practical knowledge, combined with the courage to tread new paths, allows us to deliver optimal solutions to our customers on competitive terms. This also applies to the Chinese market, where it is an uphill battle at times, but we are certain this serves to strengthen our market position in the long term.

What role does the modular construction of the machines play?

This is extremely important to us in the development of our machines, but we are also very much aware of its limitations. Modules cannot be exchanged randomly and at will. The knowledge we procure from the further development of individual modules subsequently advances our entire machine tool kit. In a technological sense, this knowledge is a common thread in our module development and it is above all our customers who benefit.

Aside from the automotive sector, which other industries do you have your sights set on?

Although we are not yet actively entered in other markets, interest has been coming mainly from the construction industry and to some extent the aerospace sector. We are particularly seeing demand for twin-spindle 5-axis machines with small X strokes and high load cutting capacity. This is a niche market. For our larger twin-spindle machines, we can supply independent X, Y and Z axes, which are absolutely essential for narrow tolerances on large work-pieces.

Are you also considering production outside Germany?

Not at the moment. Our customers choose us because they trust that we will complete the entire order as a turnkey solution. In recent years, our machines have become more cost-effective through ongoing performance improvements, while Chinese machines have in fact become considerably more expensive at the same time. We will almost certainly never be able to supply a machine to China if a work-piece tolerance is the only consideration. For this reason, we will only operate in the high-end sector in the future.

How do you structure the company in such a turbulent environment?

Lean management has been implemented throughout the entire company. We have been operating under this management principle for many years and have further intensified it over the last two years. This year we want to expand our service capabilities.

How do lean management and improved service fit together?

One example is the topic of speed of response. It is not easy to have the proper worldwide service in terms of expertise required as well as quick response, because providing the right global service whilst also being fast is not always easy.

What exactly does lean management consist of at Licon mt?

A key element is that we operate according to clearly defined standard processes, even when designing customer-specific solutions. We set great store in regular communications as well as visualizing processes and process results. Our employees therefore have the opportunity to learn about workflows and processes in a general context, whether in the development or production of our products. This is an advantage when compared with larger companies where this is only possible to a limited extent given their overall size.

Is it difficult to find skilled personnel here in the region?

If very specific qualifications are required, then yes it is. Highly specialist employees have to be trained by the company itself, which we do. Aside from this, we have not had any problems finding employees with the right commercial and academic skills. I personally think that inexpensive is not an option in Germany anymore. Being capable is the way forward. Given the required response speed I mentioned, we need our employees to also be highly flexible and driven. There is a price to pay for that.

What is next for Licon mt?

We intend to offer a wide range of spin-offs from our small LiFLEX 444 twin-spindle machine featuring different spindle distances and different configurations, in both HSK 63 and HSK 100.

Are these product variations not encroaching on the territory of special machines?

Yes, they are. In the machine tool market, everyone talks about their standard machines, but for project business, which is what our forte is, it is always necessary to address and respond to customer needs.

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Swarf: Nielsen’s Bakery

I had a hankering for a croissant and decided to drive over to Nielsen’s Bakery, a local bakery I don’t go to often, but they made nice croissants. All I found was a letter on the window saying they had closed after 21 years. The letter read like a note to a few insider friends and I could not really understand what it said, except that they were closing.

The letter confirmed to me why I had not patronized them for years. I always felt I was an outsider there, a tolerated visitor interrupting a local Kaffeeklatsch (an informal gathering) at the local clubhouse.

Nielson’s was in downtown Homewood, Illinois, next to the commuter train stop. A Starbucks with a drive-through now operates on the other side of the parking lot. The Starbucks does $20,000 a week in business and there are two other Starbucks in the area that do a similar amount of business. My guess is that Nielsen’s was lucky to do $5000 a week. Nielsen’s was a daytime operation while Starbucks is open 5:30 a.m. to 10 p.m.

Another local bakery, Sweet Annie’s, opened three years ago, and in my opinion that was the final blow that killed Nielsen’s. Not only were Annie’s baked goods superior, the ambience of the shop was warm and welcoming.

Another element most likely came into play in the demise of this small business. Homewood, like the rest of the south Chicago suburbs where I live, is becoming a predominantly African American community. Nielsen’s was clearly an old school Homewood institution, patronized mainly by Caucasians—and proud of it. If I felt like an outsider when I walked in, I’m sure a black person would have felt uncomfortable there.

The restaurants and stores in my neighborhood need to feel like they are connected to their customers. Most businesses, even those that do business online or on the phone, need to have a welcoming feel. Airlines with call centers in India lose tons of business because the people who finally answer the phone have no personal touch, are unable to connect with the customer, and are often hard to understand. Cold callers who read from a script rarely get more than a sentence out before I hang upon them.

A machining company owner that thinks he or she is just selling parts with no need for a personal connection with their customers does not understand how business works.

Nielsen’s Bakery didn’t fail because of the recession, though it didn’t help. They failed for many reasons, but the primary one was that they just wanted their little neighborhood bakery to stay the same while the world around them was changing by the day.

Today’s Machining World Archives April 2011 Volume 07 Issue 03

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Swarf: The La Brea Tar Pits of Machines

Today’s Machining World Archives June 2011 Volume 07 Issue 05

By Lloyd Graff

I haven’t gone to an old-fashioned open outcry auction at an automotive factory in quite awhile. For sheer drama and boredom the Hilco Industrial four day 7000 lot sale this week was a throwback to the days when men were men and spark plugs were made on screw machines.

Lloyd Graff with auctioneer Robert Levy

The sale was at GM’s old Willow Run transmission plant—6 million square feet under one roof—that used to be a farm owned by Henry Ford in Ypsilanti, Michigan, near Ann Arbor. Today the biggest non-government, non-university employer in the area is Domino’s Pizza, which is currently spending millions to advertise its fried chicken.

During World War II, Willow Run turned out a B-24 bomber every 45 minutes. GM used to employ six guys full-time to fix the roof, the electric bill was $500,000 a month, and the parking lot could fit a dozen U of M Big Houses. This joint was BIG. It took 10 minutes to travel end to end by electric golf cart. By the end of September when the last Knaack toolbox is gone, this mammoth structure will no longer bleed Lava Soap.

For me it was a kick to hear Robert Levy, the Alex Trebek of the auction stand, warble his “do I hear” doo-wap, selling everything from surface plates to Vidmar cabinets. Robert is 53 now with almost 30 years away from his jewelry making days in London when he indulged in his artistic side more than his deal making acumen. Robert is a virtuoso on the stand, which became apparent when the pretenders stumbled trying to sell grinders with a “privilege.” The “privilege” is a clever ploy to extract more money from the bidders by offering to sell the option to buy multiples of similar items to the high bidder—capitalizing on the fear that the successful bidder might take every piece.

I love the animal instinct that bubbles up in an open outcry sale. The silence of the Web gives way to the belligerence of testosterone bulging egotists who like to posture at sales. The auctioneer plays on the competitive juices, weighing the facial tells of each bidder, with the added excitement of Internet bidders who are waiting anxiously online.

An auction event like Willow Run has been a year in the making. It was actually the last of three sales to finally quiet the machines that once turned out the components of those Chevy Impala transmissions that used to fall apart after 40,000 miles. That was when cars were cars and Chevrolet was apple pie.

My brother Jim and I schlepped to Ypsilanti because it was sort of the La Brea Tar Pits of screw machines. GM had amassed almost 200 multi-spindle automatics, mostly Acmes, from 9/16” capacity to 6” RB6 and everything in the middle. Oh, the heavy metal music they must have made. The floor must have rocked when those spindles were turning.

On the two days Jim and I attended, there were more bidders online (about 300) than there were in the audience, though most of the items were bought by attendees. There were many attendees from what we used to call “Third World countries,” who now have more money to spend than Americans. A large number of Indians were present, but they seemed to be mostly chatting and playing cards amongst themselves. India is developing a serious automotive business these days with Tata Motors buying Jaguar for some unfathomable reason, self-flagellation I suppose.

Auctions like this bring out odd valuations, like a Ridged pipe threader selling for more than a 1-1/4” RA6 Acme screw machine, or an EA Cincinnati Centerless fetching $10,000 while the perennial stalwart 220-8 went for $6,000. A 1000-ton press didn’t get a bid because the rigging costs surpassed the value of the machine. Ultimately, the real “vulture” capitalists, the scrappies, will hack away at it and tote it in pieces to the furnaces.

I found the whole thing a scene. It was Schumpeter’s creative destruction in action. Old Detroit is dismantled. New Detroit rises in Saltillo and San Antonio. Detroit—it’s the home of Little Caesars and Domino’s. Add a little extra sauce.

On May 12th, an interesting auction took place at Smart Parts near Pittsburgh. Smart Parts used to make paintball guns, until the recession and a big miscalculation about a Wal-Mart order for its equipment put them on the road to bankruptcy. The management of Smart Parts had been on top of the world as paintball caught fire. Wal-Mart wanted to get in on the fun and Smart Parts ordered two (CNC) Hydromat Epic machines in 2007 to meet the forecast demand.

They paid well over $2 million for the two machines—then the bottom fell out and sayonara. At the sale the two machines brought $920,000 and $550,000, including buyer’s premium.

Hilco Industrial auctioned off the machinery. They sold seven Star Ecas 32mm machines, as new as 2006, for prices ranging from $255,000 for the newest to $145,000 for a 2003 machine. The one Star SR20II brought $140,000 including buyer’s premium.

The sale highlighted the rising cost and scarcity of 32mm Swiss-type lathes. An E32 Citizen from the ‘90s brought $80,000 and another brought $40,000, very high for older style machines. The Smart Parts sale was the right machinery at the right time. On the same day, multi-spindle screw machines were auctioned off at Whirlpool in Benton Harbor, Michigan. RAN6 and 2 RB6 Acmes fetched under $5000 each, and New Britain Model 62 machines in the 1980s with pickoff attachments sold for $15,000 each. Two Hydromat Inline machines, of which very few were ever made, sold for $120,000 each, and a 10-station Pro20 brought $50,000.

Answers to the seven questions I asked before PMTS
1. Is there a slowdown?
My impression is that business for the builders is generally good and getting better. High gas prices do not seem to be deterring the high level of buying. The Swiss lathe importers—Citizen, Star and Tsugami—are crazy busy. For equipment like Hydromats and multi-spindles, which are heavily focused on automotive, there is a bit of hesitancy.

2. Can the Japanese companies get inventory?
Not enough. Toyota is hurting along with the others. Hyundai is out to claim 10 points of market share. In machinery, the importers tend to order far ahead. Certain sizes are scarce, like 32mm machines. Tsugami claims to be unaffected. If it is a 1200 machine year for Swisses here, deliveries will be strung-out in some models.

3. Are high prices because of the weak dollar hurting sales?
Yes. I talked to the Tajariols, Andrea and Michi, who own ZPS. The $1.45 euro is hurting North American sales. The 32mm 8-spindle Euroturn, the crown prince of the mechanical screw machine line, used to sell for $450,000 in 2003. Today it’s $750,000 with bar loader and attachments. It causes sticker shock.

4. Does anybody go to shows except exhibitors and kids in flat brim hats?
Yes, the locals. PMTS this year was a Midwestern—especially Ohio—crowd. Most people drove from a 250-mile radius. But there are a lot of good buyers left in the Big Ten. The kids in flat brims were there and I regret the pejorative tone to the original question. The hats may look stupid to the old guys but the kids aren’t dumb. I think the tide is turning about “everybody needing to go to college.” College is starting to look like a bad economic buy for a lot of kids and parents now, so we may be getting a more serious group of flat brims into the machining community. Unfortunately, virtually no people of color or women showed up at the show.

5. Is the Swiss market headed more toward the fewer-frill machines like the “A” Citizen?
Yes. The price differential between an “A” model Citizen and an “L” model is $100k. Because of the weak dollar, an “A” costs what an “L” used to cost, and it is a very capable machine.

6. Will the Big Three Swiss companies dominate the Swiss market without a real challenge by an outlier?
Yes. There was not much buzz about the smaller brands. Tornos is now an afterthought here. Index wants medical, ZPS left the Manurhin in France, Hanwha needs to spend more money on marketing. Eurotech has an entry but they are using stealth marketing. Nomura no mas.

7. Are the automotive suppliers starting to buy?
Yes, but hesitantly. Business is good now, but 2010 was the year to repair the finances and 2011 is the year to begin buying. Hydromat, Schutte, Index and the Swisses are starting to see the serious inquiries, so the orders should come. But the earthquake and $4 gas seem to be slowing the actual POs.

A brilliant quarter for Ford. The company is coining money. Mike Jackson CEO of AutoNation, predicts the firm will sell 100,000 cars this year. Domestic car production is running at 13 million units. But autoland is still running scared.

Jackson says the mix he is selling is shifting gradually away from SUVs and minivans to cars.

Toyota, Honda and Nissan say they will not be back to normal production until November, though the situation is worst in Japan.

Suppliers are busy but skittish about buying more equipment because of the earthquake/gasoline combination reducing production. The fear is that by the time the earthquake issues stabilize, $5 gas could be biting.

Personally, I expect gas prices to go the other way. Jackson sees us ramping up to 16 million units. Let’s hope he’s right. Pickup trucks for business are still selling despite the continuing construction depression. Meanwhile, Buick sold 3 million units since 1999 in China.

It strikes me that Americans are still trying to recover from Post Traumatic Stress Disorder from the 2008-2009 deep recession. Banks are still looking backward at the housing shock and are afraid to loan to good risks, even based on 2001 values. A large percentage of buyers today are cash buyers, often from foreign countries, or first-time buyers who don’t have to sell a house to buy one. Banks are also being closely scrutinized by examiners who have the usual government employee bias—avoid mistakes so everybody covers their behind twice, thus gumming up the lending process.

The press has a strong negative bias. I monitor the editorial choices of several newspapers and Yahoo! Finance almost daily, and the choice of material disseminated is stridently negative. I’m in the news business and I know the choices of articles printed vary enormously. By emphasizing construction’s misery or commodity speculation or Wall Street corruption every day, the press confirms lingering post traumatic stress.

The negative effects of the Japan earthquake will continue from a worldwide economic perspective for much of 2011, but the macro effect of disasters flip over to the positive of rebuilding at some point. Yet I am beginning to see automotive suppliers flinch because assembly is momentarily curtailed by parts shortages. Demand continues to be robust, but some people still get stuck in the nine million-car syndrome of 2009 instead of the probable 14-16 million unit domestic demand likely by 2013. Call it the Michigan strain of PTSD.

I am no stranger to the phenomenon of Post Traumatic Stress Disorder—I still suffer déjà vu every time I go to the doctor. But the people who always profit from shifting market conditions are those who can be comfortable with being uncomfortable from bad memories.

Reflections on my time at TMW
By Noah Graff

I started at Today’s Machining World back in 2005 when Lloyd Graff, dad/editor/owner, offered me a job as the magazine’s videographer. I was a film major in college and it seemed like a cool idea—make videos that correlated with the magazine’s editorial content and stream them online. Unfortunately, the TMW Web site at the time had the look and functionality of something out of 1997, and the broadband Web video craze was still about two years away.

I needed to find more to do with my time at work so I started several new features in the magazine; “One on One,” “Shop Doc,” and “Next.” I also started copyediting, even though I had grown up with a mild language learning disability and from first grade though college I had been scared to turn in a composition unless someone else proofread it. But to my pleasant surprise, I was pretty good at ripping apart the work of other people. During the last three or four years I helped overhaul the TMW Web site twice, and started blogging and doing email blasts. In 2009, when the magazine got lean and let our entire sales staff go, I got involved in sales.

My job has become more interesting and fulfilling over the years, and I have become indispensable to the magazine’s survival. But sitting at a desk and staring at a screen all-day has taken its toll, and although the job has plenty of perks, the pay at an unprofitable magazine is just so-so.

Circumstances seem to be working out well lately, as my desire for a big change in my professional life has coincided with my boss’s urge to stop publishing TMW. Soon I’ll be selling used machine tools in the other family business, which until recently I never thought I’d do. I’m getting more and more psyched for the new job every day. I’ll get to make deals, travel, meet lots of people, and just do something different with my time. And, I still get to self-indulgently share my thoughts with thousands of people on todaysmachiningworld.com and work with my dad, one of the most likable and interesting people I know. Since I started at TMW I’ve been very self-conscious, even embarrassed about working for my dad. It took years, but eventually I stopped working for my dad and started working with my dad.

It’s the beginning of a new chapter in my life and in the life of Today’s Machining World. We plan on our articles getting even better, and if you have an iPad, you can still read our stuff in the bathroom. So keep reading my friends.

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Swarf: Nielsen’s Bakery

by Lloyd Graff

I had a hankering for a croissant and decided to drive over to Nielsen’s Bakery, a local bakery I don’t go to often, but they made nice croissants. All I found was a letter on the window saying they had closed after 21 years. The letter read like a note to a few insider friends and I could not really understand what it said, except that they were closing.

The letter confirmed to me why I had not patronized them for years. I always felt I was an outsider there, a tolerated visitor interrupting a local Kaffeeklatsch (an informal gathering) at the local clubhouse.

Nielson’s was in downtown Homewood, Illinois, next to the commuter train stop. A Starbucks with a drive-through now operates on the other side of the parking lot. The Starbucks does $20,000 a week in business and there are two other Starbucks in the area that do a similar amount of business. My guess is that Nielsen’s was lucky to do $5000 a week. Nielsen’s was a daytime operation while Starbucks is open 5:30 a.m. to 10 p.m.

Another local bakery, Sweet Annie’s, opened three years ago, and in my opinion that was the final blow that killed Nielsen’s. Not only were Annie’s baked goods superior, the ambience of the shop was warm and welcoming.

Another element most likely came into play in the demise of this small business. Homewood, like the rest of the south Chicago suburbs where I live, is becoming a predominantly African American community. Nielsen’s was clearly an old school Homewood institution, patronized mainly by Caucasians—and proud of it. If I felt like an outsider when I walked in, I’m sure a black person would have felt uncomfortable there.

The restaurants and stores in my neighborhood need to feel like they are connected to their customers. Most businesses, even those that do business online or on the phone, need to have a welcoming feel. Airlines with call centers in India lose tons of business because the people who finally answer the phone have no personal touch, are unable to connect with the customer, and are often hard to understand. Cold callers who read from a script rarely get more than a sentence out before I hang upon them.

A machining company owner that thinks he or she is just selling parts with no need for a personal connection with their customers does not understand how business works.

Nielsen’s Bakery didn’t fail because of the recession, though it didn’t help. They failed for many reasons, but the primary one was that they just wanted their little neighborhood bakery to stay the same while the world around them was changing by the day.

There was an interesting juxtaposition of auction sales recently. Corporate Assets sold Die-Matic in Hamilton, Ontario. Gorgeous machinery including a 2004 L-20 Citizen and a 2003 M-20 Citizen. With buyers premium the L-20 brought $115,000 and the M-20 brought $127,000.

Two weeks later TCL Auctions, also in Ontario, sold a 2004 Star ECAS 20 for $175,000 and a 2006 Star SR-20II, for $180,000. A 2007 Willeman CNC Swiss fetched $275,000.

In late January, J.L. Spear sold off Alessandro Co., an old Acme shop in Los Angeles. Acme-Gridley 1 1/4” RA6 machines in fair condition of 1970 vintage brought $2-3,000. A little 2007 Okuma ECLII lathe, sold for $23,500.

I can add that though the prices on Acmes were dirt cheap at Alessandro, the auction was hastily put together and not extensively advertised. My screw machine dealership, Graff-Pinkert, is seeing a renewed interest in National Acmes, but buyers are looking for tight machines at 2009 prices, of which there are virtually none left in dealer inventories.

Just a couple of years ago the skeptics saw General Motors as a hopeless joke run by bumbling fools. Today, General motors is a public company that’s making money, almost debt free, with the Volt adding another shift to production. Equally remarkable, the incredibly complex job of sorting out the $275 billion in claims—750,000 contracts and 70,000 claims, has been 85 percent completed.

One of the remaining vestiges of the old GM, known as Motors Liquidations Company in the legal documents, is the Willow Run Transmission Plant in Ypsilanti, Michigan. This gigantic albatross, five million square feet in one building, is on a land site that used to be a Henry Ford-owned farm. It was built in 1942 to make the B24 Liberator bomber. At one point they produced 650 bombers a month.

The assembly plant was passed to Kaiser Motors and then to General Motors, where they made the Chevy truck, the Nova and the Caprice. They also made parts for the doomed subcompact, the Vega, and the illustrious Corvair during the 1960s. During the Vietnam War the plant made M-16 rifles and a 20 mm auto-cannon.

In recent years, the immense facility was devoted to making General Motors transmissions.

Maynards and Hilco Auctioneers have been selling off the machinery over the past year as production tapered off. In six months Willow Run will be a gigantic barn. Already one of the GM plants near Detroit is being converted to a movie studio. Another factory will be used to assemble hybrid vehicles for Fisker Automotive of Irvine, Cal.

Willow Run is interesting because of its sheer size, about 5 million square feet. I can imagine putting a dozen soccer fields laid out end to end, or the world’s largest mushroom farm in it. How about America’s biggest indoor zoo?

Caltech has had 32 Nobel Prize winners on its faculty, but in sports they are just a bunch of losers. The college basketball team had lost every conference game for 26 straight years; 310 games of futility against local colleges in southern California like Whittier and Cal Lutheran.

In baseball they have lost 412 conference games in a row. Why do kids even go out for teams that never win? This is the The Bad News Bears to the 10th power.

Caltech finally won a Conference game on January 29th against Occidental (Barack Obama’s alma mater). Should we applaud their fortitude and perseverance, or castigate them for stinking up their league with such pathetic teams?

I do have some sympathy for the Caltechers, being a lifelong Chicago Cubs fan. The Cubs were last in the World Series in 1945 and have not won the Championship since 1908, the days of Tinkers to Evers to Chance.

To fail is human. To fail and fail and fail and keep on trying is heroic—or is it just mad?

Perhaps college conferences and even pro sports should adopt the incentive system employed in European soccer in which teams that consistently fail to be competitive are dropped to lower quality leagues and replaced by aspiring minor league teams. If the New Jersey Nets or LA Clippers were to finish last three years in a row maybe they could be replaced by a D-League team like the Idaho Stampede or Bakersfield Jam.

In baseball it could be an incentive for a team like Pittsburgh or Kansas City to stop living off the luxury tax money from the Yankees and Red Sox and actually develop a team.

As for the Caltech Beavers, hooray for winning a basketball game. If I were them, I’d stick to Intramurals.

Dear Michael Bloomberg (Mayor of New York City),

Just wanted to alert you that I am available, if the hours are right, to join the stable of writers of your new “Bloomberg View” enterprise. Our views on free trade (pro), taxes (don’t like ‘em) and tobacco (tax it like hell) are congruent. The $500 grand a year you are offering to prominent journalists is a nice round number I could live with.

I could add knowledge about the manufacturing world, which your provincial New York Wall Street-focused crowd could certainly use.

As a fellow magazine publisher I can relate to your comment recounted in the March 1st New York Times concerning your purchase of Business Week. When a bevy of consultants recommended that you pass on buying the money hemorrhaging publication because they said in a good year it would lose $25 million you said, “Do I look like a guy worried about losing $25 million?”

With your net worth pushing $20 billion, according to Forbes, and your age (late 60s) we have at least one thing in common. I was hoping you would run for President in 2012, but it is looking more like you are leaving the Iowa Primary to Romney and Pawlenty and other assorted losers. Apparently you have looked at the Ross Perot approach and figured it was a waste of time for 2012.

Mike, I think I understand where you are coming from. Better to be King than President. Considered it myself.

I’ll FedEx my resumé. Keep reading my blog. You are one of the few billionaires who know what Swarf is.

Lloyd Graff
Owner/Editor

Today’s Machining World

Today’s Machining World Archives April 2011 Volume 07 Issue 03

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Swarf: Taking the Plunge

By Lloyd Graff

Today’s Machining World Archives January/February 2011 Volume 7 Issue 1

The key question facing American manufacturers, especially contract machining shops in the next two years is, how do you expand? Or, the interesting corollary question, is this the time to cash in?

Let’s be real, American manufacturing has always been cyclical and still is. We are a little past a year into the current upturn. With low interest rates, the 2012 presidential election run-up beginning, the depletion of domestic players and the competitiveness of North American industry, these should be two excellent years.

There is always a strong tendency to fight the last war, so a lot of folks are going to be reluctant to expand for fear of the next bubble burst, a la 2001 and 2008. The dilemma so many of us are faced with is that we cut back so deeply to weather the recession that it is hard both financially and psychologically to put it all on the line again. But some people will make the big bets and a portion of that group will win big.

This is the moment to ask yourself which camp you are in. Visibility of the future is always iffy, but I think the odds are strong that we have at least two fat years ahead. If you consider yourself a player who is in the game for the long term this is the time to plunge. If you can’t take the volatility of the manufacturing game, sell out in 12 to 18 months.

The train from Beijing to Shanghai goes 200 miles per hour. Amtrak’s Acela Express train from Washington D.C. to New York goes half that on a good day. But our erstwhile stimulus package of 2009 has a lot of money designated to make us slightly better than mediocre in rail.

They are upgrading the service between Chicago and St. Louis, Los Angeles and San Francisco, Miami to Orlando and Tampa, and that hot rail market between Albuquerque and Santa Fe, New Mexico.

Train travel is fun. Security is not as annoying as at airports and fares are pretty reasonable. My question is whether we can afford the cost of upgrading a third rate passenger rail system to a second rate one. Our interstate highway system is excellent and air transportation is still high caliber, so do we need to spend billions on passenger rail?

Anyone for buses?

Mike Jackson, the CEO of AutoNation, the big publicly held consortium of car dealers, says pickup trucks are flying out of his stores. He sees this activity as a reflection of the confidence of small business around the U.S.

Jackson is predicting a two or three year ramp-up to the 16 million car build rate, which has traditionally been the standard of automotive well-being. With GM and Ford solidly in the black at 11.5 million units they will be coining money at 16. My question is whether the auto infrastructure can quickly accommodate 16 million. From a precision machining standpoint we are beginning to push the comfortable limits of production now in place. A 40 to 50 percent increase in build rate will strain everybody to meet requirements.

I talked to Kevin Meehan of Hydromat recently about the ability of his clients to expand production. He’s seeing some activity, but he thinks the big Tier Ones in Europe, particularly those in Germany, will be in the catbird seat to provide the sophisticated assemblies that will be in short supply. The Germans maintained their automotive infrastructure, while in North America we allowed the market to gut part of the supply chain.

The opportunity to get fat and happy during the impending U.S. car up tick may be more a bonanza for the Germans than for companies in the New World.

There are at least three cable series currently chronicling the business life of pawn shops. What is then fascination with people borrowing against baubles or selling their junk to professional peddlers for rent money?

I get a kick out of these shows and their genteel predecessor, Antiques Road Show, because the used machine tool racket that I practice is a bastard cousin of the pawn shop. I’m dealing in esoteric machinery which could be fodder for the furnace, or somebody’s stake to a fortune in Turkey or Topeka.

But I’m not only a purveyor of oily, wreaking junktiques from the basements of defunct car making mausoleums. I have my own collections of metal skeletons that have no logical home. Who wants a stock reel for a 4-spindle Conomatic? Who covets orphan bearings for random spindles for who-knows-what machine that used to be made in a now demolished factory in Vermont?
Somebody may want my crusty flotsam and Jetsam, but who buys the pawnbrokers’ crap? If I’m the supposed authority on machine tool dinosaur bones, who’s my pawnbroker?

Once I almost traded an Acme for a yellow Mercedes convertible. Should have done it. Dumb iron is just dumb iron, unless it’s got a Fanuc control.

Goldman Sachs is valuing Facebook at $50 billon and I am still calling my kids on the phone and texting only if I’ve got a magnifying glass available.

Frankly, I don’t care what my third cousin’s niece had for breakfast or if a high school acquaintance just had a prostate biopsy. I’m not particularly social, but I do love media. I know Facebook CEO Mark Zuckerberg is Time’s Man of the Year and his success is legendary, but for a 60-something guy like me, Facebook seems like an Internet tinker toy.

What am I missing here? Are any of you machining brethren, machinery mavens, media types, etc. actually using Facebook either personally or professionally? Or is it just the province of children, teenagers, and Generation X, Y, Zers?

The growth of Facebook has been stunning, and Zuckerberg vows to connect the world. Every Bolivian lithium miner, vodka stained Finnish reindeer rancher, and Polynesian pearl diver supposedly will be clutching their iPhone waiting to connect with a sopping lobsterman from Maine. Six degrees of separation between Osama Bin Laden and General Stanley McChrystal.
Readers, bloggers, actual friends, please tell me about your Facebook divorces, your Facebook reunions, or better yet, your Facebook sales.

With the New Year beginning I wanted to see what the Sunday New York Times, the reflection of the Easternliberal elites, would be writing about. The front section was a montage of pessimism and orneriness about public workers’ pensions under attack, New York state’s financial woes as Andrew Cuomo takes over in Albany, and the inability of young workers to find liveable wage work in southern Europe.

The pieces were well done, but the editorial judgment of The Times was indicative of what I see as the disconnect of the public and business environment at this moment.

The politicians and elites (journalistic, academic and financial) are fixated on a problematic world economy while the people who have weathered the past three years are rearing to make money. You see this in the stock market, where the Gotham hedge funds and mutual funds have generally fought the tape expecting a double dip recession, deflation and more recently stagflation with commodities rising rapidly in price.

Meanwhile the Dow is up 80 percent from the 2009 low and Christmas sales were up twice as much as the consensus predicted.

The recent Purchasing Managers’ Chicago survey showed a stunning burst of industrial activity and almost everybody I talk to in manufacturing is bullish.

A few straws in the wind—I recently heard of two companies that flew heavy machine tools to the U.S. from Europe to get them on the floor in 2010. Also, with demand strong in China, machine tool firms in Japan are rationing supply because they do not want to shut out customers from around the world.

As I look at my Graff-Pinkert used machinery business I am wondering where we are going to find the skills we may well be needing in 2011.
The N.Y. Times is still looking at a 2009 world. Fortunately, we are living in 2011.

As Charles Barkley so eloquently stated in his first memoir, “I may be wrong, but I doubt it.”

Today I’ll put on my Carnac turban and peer into 2011.

I predict—the economy will grow much faster than most economists are forecasting. My number is 5.2 percent for the year. The manufacturing economy is taking off. Auto sales could reach the 14 million rate. Employment will improve with the tax issue settled for the moment and Congress writing the rules on Obamacare. Housing will still be tough, but the big problem children of housing—Florida and California—have both stabilized. Deflation will be off the table as will the dreaded double dip recession. Congress will actually start to seriously discuss the deficit because the Tea Party folk will balk at raising the debt ceiling in April.

I predict—Hilary Clinton will discuss running against Barack in 2012 but decide against it. Sarah Palin will travel to Iowa and decide to run. Mike Bloomberg of New York will look at the field on both sides and decide whether to run for President. I predict—he will decide to run as a Republican and will win the nomination and the Presidency in 2012. Bloomberg never loses. If he wants it bad enough and opts to run, he will become the first Jewish President.

I predict—The Boston Celtics will win the NBA Championship and Philadelphia will win the World Series. The surprise team in baseball will be Washington, but they are two years away from a pennant. The Cubs will finish a close second behind Cincinnati in their division.

Here’s hoping you don’t agree entirely and contribute your own fearless forecasts.

Maybe if you are living under a rock you haven’t heard of GROUPON™. But this two-year-old company allegedly had the chutzpa to reject Google’s $6 billion offer to acquire it.
So what do they do?

They sell coupons for goods and services on the Internet with good writing, a sense of humor, and a cool concept—the deals have a limited time frame and a minimum number of people need to take them before they kick in.

Noah Graff and I heard Andrew Mason, the 29-year-old founder of GROUPON™, at a Wall Street Journal forum on growing your business. We were fascinated by his story and self-effacing demeanor. As he told it, the GROUPON™ idea was not his brainstorm. He was interested in social media and had developed a Web site to attract young people to political meetings. A venture capitalist liked what he was doing and invited him to use the concept of attracting a minimum threshold group for a commercial purpose—i.e. selling discounted goods and services. As Mason recounted it, “he didn’t have anything better to do,” and “somebody was dangling a lot of cash in front of him.” So he went to work on the site with gusto. It caught on like wildfire, and he and his founders realized they had a monster by the tail. Mason started hiring salesmen and building infrastructure immediately, because as great an idea as GROUPON™ was, it was eminently copyable.

Since Noah and I heard Mason speak we have been working on our own version of GROUPON™ for the industrial world, which we call “The Real Deal.” The folks at Trusty-Cook Inc., a manufacturer of wonderful and unique non-marring hammers that replace the primitive lead and bronze hammers, immediately loved the idea and did their first Real Deal email blast in December. They have been very happy with the results and are signed up to do two more in the coming months.

If you think you don’t do discounts, think again. The possibilities are tremendous. If you want to do one give our Sales Manager, Dan Hummell, a call at (630) 715-4318, send him an email at dan@todaysmachiningworld.com, or email Noah Graff at noah@ todaysmachiningworld.com.

See how the Real Deal can grow your business.

I’ve been asked many times over the last 2.5 years since I almost died of congestive heart failure, if I am a changed man because of the experience.

The answer is yes and no.

I got back into my magazine work within days of getting home from the hospital. I was more passionate than ever to write my stories. The machinery business was harder to get into because in 2008 and 2009 business was so awful it seemed like anything I tried failed. I probably would have given it up if I could have financially, but after fighting so hard to live, I didn’t want to give in to financial duress.

Recently, I read a piece in Spirit Magazine, the publication of Southwest Airlines, about happiness. The thrust of the article was that we are programmed for happiness by our upbringing and biology, but on the margins we can decide to be happier if we commit to it.

This has been the case with me.

Since my heart surgery and a laundry list of ailments I actually feel happier and more content that at any other time in my life. At least partially, being happy is an exercise. I have made it a habit to make a mental note of things I’m grateful for every day. This is a regimen and I do it more regularly than walking on the treadmill. I believe it has made a difference in my personal happiness quotient.

I can honestly say I feel happier and more content today, 2.5 years after my Armageddon. Not that I would recommend it.

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Swarf: The Gorbachev of GM

By Lloyd Graff

Today’s Machining World Archives November/December 2010 Volume 06 Issue 09

With GM going public and bringing back billions to the taxpayers, we are seeing a batch of revisionist opinion pieces about Rick Wagoner, former head of the auto giant.

Malcolm Gladwell, a favorite writer of mine, wrote a fascinating review of Steven Rattner’s new book, Overhaul, about the restructuring of GM for the Obama Administration. Rattner is a Wall Street mover and shaker who headed the restructuring in Detroit. Rattner saw Wagoner as a bureaucratic company guy and ultimately fired him, bringing in crusty Ed Whitacre to oversee the saving of a big part of the American auto industry.

Gladwell sees Wagoner as the guy who did most of the heavy lifting—chopping people, making a historic deal with the UAW, building a Chinese business, developing the Cadillac CTS and Chevy Malibu, and initiating the Chevy Volt.

Holman Jenkins of the Wall Street Journal also wrote a laudatory ode to Big Rick, former bench warmer for Duke basketball.

I see Wagoner as the Gorbachev of General Motors. He was an important transitional figure who understood the company’s problems and tried his best to save the company without blowing it up.

Like Gorby, he had to go when everything imploded. Rattner is no Yeltsin, but the oligarchs of Wall Street will make billions like their counterparts in Russia did after the fall.

We are seeing an acceleration of year-end buying in machinery for both new and used equipment. One reason for this is the widespread business expectation that prices for new machine tool inventory ordered from Japan will reflect the 25 percent drop in the past year of the value of the U.S. dollar versus the Japanese yen.

The Japanese importers generally erred on the conservative side when 2010 orders were placed, which means the cupboards are now relatively bare. I’m hearing that 10 percent to 13 percent price increases are coming on Japanese built equipment, indicating that the builders hedged the yen or they just don’t think the American market will accept whopping increases in one gulp.

If we continue to see yen versus dollar in the current range of 80-85 it would not be surprising to see DMG/Mori Seiki USA bite the bullet and build a plant, probably in Davis, California. Other builders could follow suit if they see North America as a growth market.

Nevertheless, we Americans are so ethnocentric we still see ourselves as everybody else’s primary focus. As President Obama learned at the G-20 meeting; China, India, Brazil, Korea and Southeast Asia are where the growth is if you are a world player.

With Japanese machine tool builders still recovering from an almost catastrophic 2009 they may be reluctant to invest big in a North American market with slow growth, a weakening currency, and an old workforce that is not being renewed by well organized worker training nor liberal immigration policies.

So in the foreseeable future, swallow hard, and pay the price if you want to expand.

The mood has changed in the precision machining world. It became real to me as I talked to folks at the Asset Sales auction at Caire Medical in Indianapolis on November 4th. There was an 18 percent buyer’s premium tacked onto the bid prices. The equipment was superb and the bidding was spirited.

The hottest piece in the sale was a Citizen M32 Type V, new in 2007, with a FMB bar loader. The bid price was $262,500 plus 18 percent, taking it over $300,000. There were (2) M32 Type III machines (new in 2003) which fetched $160,000 and $140,000 plus BP. An A-16 VIP Citizen (new in 2006) sold for $50,000 plus BP.

Two Mori Seiki vertical machining centers (new in 2007) fetched $73,000 each. A similar machine in Seattle three months before brought 65K. A nine-year-old Tsugami 10 pallet vertical machining center brought $140,000. A Nakamura TW-20, (new in 1992) fetched $95,000, and a similar machine (new in 1995) brought $65,000—don’t know why the difference.

I talked to a lot of people at the sale and a recurring theme was “business is good and I want to get the year-end tax break.”

Citizen and Nakamura tooling and accessories were also keenly bid on. One Citizen lot of tooling fetched $9,000. This was particularly interesting because conventional CAT 40 machining center holders brought modest prices.

What I gleaned from this sale is that “cream” machinery is escalating rapidly in price because of strong demand and the desire of successful entrepreneurs to capitalize on the raised expensing tax break in 2010.

The people of the machining world seem happy again. They have a bit of visibility about orders. Washington has been neutered. Tax breaks are out there to shield income. Free cash flow is increasing. The dollar is weak and interest rates are low.

The banks may be Scroogy, but just about everything else looks good. I see people rushing to get the last of the 2009 bust bargains, and since there are very few left they are willing to push up the price of used machinery to get the expensing tax goodie if they buy before the end of the year.

I can’t back this conclusion up with statistics, but if you are slugging it out in the market everyday like I am you can feel it. The iron gets a life of its own. It morphs from cold casting to artistic sculpture and then into a gold and green life form. We are passing through one of those rare passages at the moment, and I am living in the present and loving it.

For used machinery dealers who are prepared to “detrashify” the ugly refugee machines emerging from the automotive flotsam being pushed into the market, 2011 stands to be a good year.

For example, Hilco and Maynards auctioneering firms are now selling off multiple GM, Ford, and Chrysler plants with thousands of motley machines. Machines like Twin Grip Cincinnati center less grinders and 8-spindle National Acme screw machines are being sold for near scrap prices.

These are rugged machines that have been abused by indifferent operators and mindless management, but they are so durable that they can be brought back to life by skilled rebuilders.

For buyers who have long running Jobs, often supplying the now healthy automotive companies, these machines have value if they are brought back to almost new condition. When compared to European or Japanese competition they are viable if the versatility of CNC is not a major factor, because they are running dedicated jobs.

Add in automation and robotics and the old “trash” machines become virtually equal to new.

The scarcity of skilled rebuilders means that those few players in the “detrashifying” game have a chance to make 2011 a big year.

I was talking to Greg Knight of AMT Machine Systems (ServoCam), whose company adapts old school cam Brown & Sharpes into 21st century CNC hybrids. He was lamenting the difficulty he has selling his product to job shop owners who have no visibility of work from one month to the next. The days of consistent long-running contracts seem to have vanished like untaxed cigarettes.

In the used machinery business and I’m guessing also in the new machinery business, we live with future blindness. Projections are difficult, which drives accountants and bankers mad, but they probably deserve it. Business people crave the myth of being in control. They think they deserve an accurate vision of the future. And now we must live with the blank order sheet and wait for the sketchy buyers to call or email their requests for parts in a week. “Sure,” you say obediently, and immediately order material for next day delivery. Welcome to the new normal.

Every time I proclaim that I do not pray at the “Temple of Lean” I am chastised as a manufacturing heretic. But in a sloppy, erratic, fog shrouded world, “lean” is a dream lived fully only in the predictable world of government contracts, lubricated by friendly politicians from “safe districts,” a rarity in our blindfolded world.

The Chinese want to sell the Europeans, Japanese, and us the coolest high-speed trains in the world, but the train makers in Paris and Tokyo, whose technology the Chinese have stolen, are not smiling. The technology being used on the new bullet trains connecting Shanghai and Beijing is the best that money can buy, and the Chinese paid retail for it by purchasing trains from the best train makers in the world and copying it.

Now they have tweaked it and want to sell the trains directly against the people who sold the technology to them.

The Chinese don’t really deny their disrespect for intellectual property. The idea does not really translate in Chinese culture. Recently Honda decided to make their most advanced battery cars in China in exchange for clear access to the biggest potential car market in the world. Toyota declined. The trade is clear—access to an enormous market in exchange for theft of intellectual capital.

It is easy to criticize the Chinese for their thinking, but I’m not sure it’s completely fair. Honda knows what it’s doing. The managers at Honda must be betting that by the time the Chinese carmakers figure out how to copy their battery technology they will have developed a better mousetrap at HQ.

The train makers who are proclaiming “they are shocked, just shocked” about the Chinese actions are crying wolf. If you sell your stuff to China, you better be working hard on your next generation product.

On the day Apple reported that 14 million iPhones and over 4.2 million iPads had been sold, economist Nicholas Colas was discussing more obscure but equally interesting data on CNBC.

First time gun sales have been rising over the last three months though ammunition sales are flat. People are buying guns, but not spending a lot of dough at the range. He found this info by monitoring FBI background checks.

Gold coin sales have leveled off over the past six months, but silver coin sales have been soaring. His guess is that gold’s high cost has pushed people’s fear of paper money debasement into the less expensive silver.

Food stamp usage is rising monthly as are the Google searches on how to apply for them.

Used car prices are steady, with demand growth stagnant and supply fairly constant.

These are all indicators, according to Colas, of weak consumer demand and a lot of fear in the population.

I am truly saddened that the 2010 political advertising season has ended. The light these poisoned snipings shed on the candidates really needs to spread to the dull world of products like cars, which still feature zoom, zoom, zoom, motherhood, and apple pie to sell vehicles.

If Ford and Toyota were political candidates they would probably try something like this:

Ford-

“My Japanese opponent makes shoddy products that kill people. Ten million cars were so defective they were forced into repair facilities to prevent further carnage. This company lied to you when they sold you cars. Its signature model, Prius, means “junk” in Navajo.”

Toyota–

My so-called American competitor, Ford, really makes its cars in foreign countries like Mexico and Canada and then pretends they are American. The founder of Ford, Henry Ford, great grandfather of the chairman, was a bigot and Hitler sympathizer.

The company is eliminating Mercury from its line, and sources indicate that the Focus and Fusion might be pulled in 2012.”

It’s a pity that the robocalls for politicians have been replaced by pleasant telemarketers for the symphony. Hopefully we can get down to the serious business of companies slandering their competition.

We just celebrated Thanksgiving, watched the NFL, sopped our dressing, and tried to sleep with reflux. But 10,000 miles away thousands of American men and women are trying to stay alive in Afghanistan.

Tell me, why?

We are propping up a corrupt Karzai government, playing ball with a Pakistan that harbors Al Qaeda, and inflating our monstrous budget deficit, to accomplish what?

I don’t care if you are a lefty or a righty, counting the caskets of young Americans dying in the hundred-year quagmire called Afghanistan is ridiculous. Thirty years ago the Russians lost a generation of kids while we supported the Mujahedin, which spawned a Bin Laden. Tell me why it makes sense for Americans to emulate the Russian experience.

Afghans do one thing brilliantly—kill each other. It’s their national sport or religion, or both.

If we have to indulge our own blood lust, buy 5,000 more Predator drones and play remote control war against the Taliban and Al Qaeda, but take the soldiers out of the field and away from the hideous roadside bombs.

I am grateful to our brave soldiers for their sacrifice to country, but I am sick of politicians sending kids out to be killed in another meaningless war we cannot win. Hell, we don’t even know who’s on our team.

For the last nine years I have bought the best dried apricots in the world from Gibson Farms of Hollister, California. I met one of the owners, Mr. Gilbert Gibson, at the Palo Alto Farmer’s Market and we have become business friends. He asks me about my family; I ask him about the crop. He suggests I buy some walnuts; I usually just want the sweetest dried apricots I’ve ever tasted.

I always seem to run out of this perfect treat before my trips to the Bay Area, so I order them. No Web site. Just call the house and some nice lady will say, “What can I get for you, hon?” She’ll take the order and say, “We’ll ship Wednesday, I know your address.” Credit cards are not taken. I once asked Gilbert Gibson how often he had been stiffed. He said,

“Never.”

When I get the Gibson apricots, and the enclosed bill I pay it immediately. He trusts me so I would never sit on the invoice like I might with Comcast or ComEd. How could I look him in the eye at the Market if I neglected his invoice?

I know piece parts aren’t apricots and Ford isn’t Snow White, but wouldn’t it be nice?

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Swarf: Post IMTS 2010

By Lloyd Graff

Today’s Machining World Archives October 2010 Volume 06 Issue 08

It’s fall of 2010 and IMTS is behind us. Baseball, football, basketball and hockey are all going on at the same time. Elections loom and the economy cha-chas along—three steps forward and three steps back, following its own rhythm.

The earthquake of 2008 is behind us, but we’re still jumpy because the shock was so violent. The landscape is still damaged, with big unemployment, bankers living in bunkers, and homes, offices and factories waiting for occupants or lookers. But the unemployment statistics don’t tell you that four million folks get new jobs and approximately the same number leave jobs, some voluntarily, every month. Stores and restaurants (fast food) are busy and zillions of smart phones are selling every month.

IMTS

The pundits will tell you that almost everybody is “angry and won’t take it anymore,” but I personally don’t feel that visceral anger that supposedly suffuses the American populous. Obama is unpopular because he is the President of a lackluster economy that he campaigned to lead. If we have gridlock after the elections Obama will stand to gain like Bill Clinton did in 1994, and might even be re-elected if the Republicans nominate a Palinesque candidate who scares America into four more years of Barack.

The impression I got at IMTS is that the machine tool builders and buyers have emerged from the cave, but still have six months of food cached away. The memory of 2009 still affects every major decision machinery buyers make, which means a lot of tooling and fraying before orders are placed. But people are buying—just what they perceive they must—because God forbid they should make a mistake.

The stock and bond markets reflect the post cataclysm mood. Cha-cha-cha, back and forth, small investors hiding under their beds, two year bonds paying .4 percent, and speculators buying gold bullion and sterling silver platters because—other people are. Excuse me, the stats show deflation yet the “smart money” likes jewelry? Something is goofy about that picture.

I see an economy that values skills and smarts. The success of educational institutions during the post catastrophe period tells me that investments in things like houses and cars will take a backseat to spending for knowledge and productivity. You may think you sell machines and machined components, but what you are really selling is your unique ability to help somebody else makes money. The message I got from IMTS was that “cool” machines are nice but customers want ideas, a comfort level of success, backup and exquisite hardware. Nice machines are just fancy iron without the ideas and the service. And the value of ideas does not depreciate. Service people still rent out for $150 per hour—plus travel.

Fall 2010—buy brains, sell gold.

The “Jobs Bill” that President Obama signed September 27, 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 expensing 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 too frightened to fund loans and credit lines, this major infusion of guarantees by the Feds should help 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?”

In September, Loeb Winternitz
Industrial Auctioneers auctioned off Roseland Metal Products of Dolton, Illinois. 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 auctioneer 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. That was 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 buyer’s 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 pay for 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 hustling 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.

Thoughts on IMTS 2010

  • The DMG/Mori Seiki combined exhibit space at IMTS was aircraft carrier big. They spent over $8 million on the show with the goal of selling 200 machines. They made a statement, even if they sold half that.
  • Doosan took Haas’s spot on the floor from 2008, while Haas took a smaller less strategic location. Both had a lot of action. This IMTS decision may reflect the big Haas push into China, India and Eastern Europe, and Doosan’s rising stature in North America.
  • IMTS’s crowd looked old, overweight, male and white—except for the Asians who were young, thin and wore ties. Amidst the thousands of people at the show there were very few smokers, even outside in the permitted area. McCormick Place never looked better and the food was significantly improved. Also, I didn’t hear one complaint from exhibitors about the notoriously difficult union workers at McCormick Place.
  • On the second day of the show, Today’s Machining World had a wonderful 10 year anniversary party at Harry Caray’s restaurant. Celebrating with friends, family, colleagues and machining folk was a great gift. Barack sent his regrets.

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 $81,000compared 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 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.

The lead story in the August 22nd New York Times discussed the “striking” drop in the investment in common stocks. The article went on to talk about the widespread disillusionment with equities since the dot-com crash and the subprime demolition. The Dow Jones average is actually down over 1000 points since 2001.

Personally, I think the widespread disgust with the stock market performance by individual investors derives from the “gaming” of the market by professional computer jockeys for whom long-term investing is holding a stock or an index for a week. The Quants, for whom the stock market is a video game, use huge leverage and a lightning fast computer thumb to play for pennies on a $50 stock.

I was thinking about this as I watched both the Little League World Series and Major League baseball games this past weekend. The kids are allowed to use metal and graphite bats but in Pro ball only wood bats are used, because it would be unsafe for the big boys to use metal sticks at the plate. Pitchers would literally get killed by batted balls.

We have speed limits on our highways and hold the maximum speed of showroom cars well below what is possible. But for trading stocks we have allowed the “gamers” to turn the markets for the most important business enterprises in the world into a casino.
This is nuts.

Major League baseball finally shut down the steroid tap, but stock trading is so out of control it is poisoning the public markets. Just because a Ford can theoretically go 200 mph on the interstate does not mean it should be legal.
Until the equities market or government regulators hold back the velocity of trading, long-term investors will take their marbles and go home.

The Honey Crisp apple season began with the Labor Day weekend. Honey Crisp is the apple that has overwhelmed the Golden Delicious, Macintosh, Pippin and Gala varieties in the hearts and palate of the applistas who frequent farmers’ markets in search of the perfect pomme.

Count me as an apple knocker with credentials.

I have traveled to the orchards of Wenatchee, Washington; Logan, Utah; Laporte, Indiana; and Honeoye Falls, New York, searching for apple succulence, but in the mountains of North Carolina I found my best Apple anecdote if not the tastiest fruit.

I stopped at a roadside stand near Asheville where a young woman was selling Winesaps—not my favorite variety but a presentable late season species. I always like to talk to apple sellers for tidbits about their growing approaches. The Winesap lady told me her story gladly. She said her husband was a minister and they knew they never would make a lot of money. When their children were born they planted apple trees on their homestead. They tended to trees with great care, and after five years began to get apples.

Their plan was to let God’s bounty pay for their children’s college education. She said they took a portion of the proceeds of each year’s crop to buy more trees, and the Apple reinvestment plan was working just as she had hoped.

I hope they planted Honey Crisps before they caught fire in the market. If they did they probably could afford Harvard.

Every column, article or “Swarf” piece I have written for Today’s Machining World over the last 10 years started as handwriting on a legal pad.

I may have graduated to an iPad for email and the New York Times, but to write creatively I find handwriting connects me to my juices more fluidly than keyboard stroking.

The virtues of handwriting are now clearly visible on an MRI, according to an article in the Wall Street Journal on October 5th. Brain activity is enhanced in young children who learn to connect letters into words on a page. For baby boomers, handwriting could be a useful exercise to keep us sharp as we age.

Virginia Berninger, Ph.D., a professor of educational psychology at the University of Washington showed that significant differences in brain function occurs with handwriting activating “massive regions involved in thinking, language and working memory—the system for temporarily storing and managing information.”

For me, writing material for TMW by hand connects me with language in a beautiful way. I hear the words in my mind as I write them. Handwriting allows me to get in the flow of the words. I can “hear” a discordant word when I write it by hand, which makes for an ugly page to transcribe because I do a lot of crossing-out and writing in the margins. But the process works for me.
I think there is an analogy to machining.

The artisans of the craft can take a drawing and transform it into a perfect part in their heads before it goes into a machine for machining, but the initial machined component is rarely perfect. The skilled machinist can feel the imperfections in the finish and takes that information to the toolmaker for adjustment.

Perhaps the more advanced we move in technology the more we can still value the building blocks of creativity housed in our hands and brains.

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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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Swarf: The Business Warrior

By Lloyd Graff

Today’s Machining World Archives August 2010 Volume 06 Issue 06

Tony Maglica, the owner, founder and embodiment of Maglite®, burns with the same intensity at 80 as he did when I met him at 40.I saw the flashlight king recently at his million square foot plant in Ontario, Cal. I could tell from the moment he greeted me at the reception center and we walked up the 20 stairs to his large but surprisingly austere office, that the factory was Toni’s home.

He immediately showed me a slide show on his Samsung 42” computer screen of his other home—the one he doesn’t live in… yet—his villa on his home island of Zlarin in the Adriatic off Croatia. He grew up poor as dirt there, endured the Nazi occupation and the life altering experience of staring at a German machine gun in the town square as the officer in charge threatened to kill everybody in sight in retaliation for the ambush of a Third Reich soldier.

Tony Maglica, a fabulously successful American entrepreneur, dreams of going back to Zlarin as the patron of the island, developing his property, and bringing back his extended family for visits. He wants to plant olive trees and shake the fruit off them with the most modern Italian harvesting machines. He considered buying 75 cement mixers in Florida recently, but decided it was more practical to make a deal with a cement form in Split, Croatia. He’s sunk $5 million into his land and buildings so far, freed his European architects, and hired an American one, but just can’t find the time to get to the island this summer. He’s too involved with a new flashlight rollout and the recent purchase of the German Eubama company out of bankruptcy.

I think the island villa is Toni’s dream of going home triumphant, but his real enduring and consuming passion is still building his business in America. Tony Maglica at 80 is totally committed to making a brilliant and beautifully designed flashlight out of the best materials in America, the country that afforded him the opportunity to shine. He comes to the Mag plant at 6:00 a.m. every morning, stays ‘til 7:00 p.m., and never lets his business fame flicker. The Eubama purchase intrigues him because he gets the chance to refine a machine tool he respects by making the components in the U.S. He’ll make them more efficiently and better by applying his intellect and zeal to the process. Tony says he’ll be making money with Eubama by the end of the year. He’s shopping for a big gantry mill to machine the castings he’s having made here. Eubama is real and practical, and a potential moneymaker. Tony is into it.

Toni’s obsession is making things at his California plant more efficiently and less expensively than in China. He says he’s “a bad businessman” because he doesn’t take the easy way out and buy product from Asia. That would just not be him. His life’s work and daily passion is to continually improve his processes and products so he can successfully make them in California. Mag has a sophisticated new flashlight aimed at the camping and boating market. It is powered by three Triple a batteries housed in an elegantly designed plastic receptacle. Tony says he has a ridiculously inexpensive proposal to make the housing in China, but he won’t do it. He’ll invest heavily in injection molding and assembly equipment, and clean rooms. He’ll do almost anything to make it here.

Tony Maglica is a business warrior and truly loves his America. He hates a government that he believes stupidly makes doing business much harder than it should be. He’s politically incorrect, but doesn’t care because he’s absolutely sure he’s right. Tony is a business anachronism and delights in it. He wants to run his business forever, the way he wants to run it, but his practical side tells him he needs a successor. He asked me if I knew of a manager who he could train to succeed him. I told him I would think about it, but where do you find another brilliant, America-centric, machining entrepreneur like Tony, who would have a small enough ego to learn the job and a big enough ego to stand up to the magnificent Mr. Maglica?

I received an email announcement entitled “AMT and NAM Announce Historic Partnership.” I didn’t know whether to laugh or yawn because of my gut cynicism about Washington based organizations. But then I thought about the financial regulation bill—the current obsession of D.C. politicians. Apparently the massive compromise bill’s regulations are being written by a collaboration of Washington lobbyists and staffers.

Most of the lobbyists are former staffers, and many of the staffers are former lobbyists, so you need a scorecard to know the players.

American manufacturing certainly needs an all-star team to advocate and trade for the interests of metal cutters and benders around the country.

The disconnect between the alphabet lobbying groups on K Street in D.C. and the contract shops of Dayton and Duluth has become a gulf. But behind my cynicism I’m hoping that our Washington advocates actually know the difference between carbide and high-speed steel, and can cut through the red tape and blather in the Capitol. That would be historic.

The post 4th of July period is a good time to celebrate the value of passionate and precise political advocacy. The Declaration of Independence was written by Thomas Jefferson, but his pure prose was edited and rewritten before it made the final scroll.

The reporters and public relations flacks will Red Bull it through windy John Engler’s National Association of Manufacturers (NAM) speech at the International Manufacturing Technology Show (IMTS), but Bonnie Gurney of the Association for Manufacturing Technology (AMT) says they will stream IMTS interviews on the Web with real constituents to members of Congress, which may actually penetrate the Capitol Hill haze.

Tesla Motors went public at the end of June. 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.

Prices for nice CNC machinery at auction show some firmness in the market. On June 29, James Murphy Auctioneers sold a Mori Seiki 2007 NV5000/A1B40, 20” x 40” table for $135,000. The machine had a Lyndex Nikken 5th axis trunnion. A 2005 NV5000/A1A40 Mori 23” x 30” table brought $102,000. The sale at New Concepts in Redmond, Washington, also had a 2005 Mori DuraCenter, which sold for $67,000 and a 2006 Doosan 3016, which fetched $25,000. A 2006 Zeiss CMM Contoura G2 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.

In late June 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/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.

Statistics from the Precision Machined Products Association (PMPA) indicate that business among 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 an undulating stock market have eroded confidence, but as the BP mess slips from the news and the stats show the world isn’t coming to an end confidence will come back.

It’s August, the corn is high, and everybody in Machine-toolville is getting stressed out because IMTS is getting close.

If you are showing in Chicago the tension is building. Are you spending too much? Will enough people show to justify the Benjamins?

On the fop side, IMTS holds the promise of giving business a big bump for the end of 2010 going into 2011. It will connect you with the foot soldiers that can make a difference for your product. It can give you leads to drink from for a long winter. It will provide precious emails and cell phone numbers to bang away at.

IMTS is still important for showing off new machines and strutting your stuff. It establishes a pecking order in the key areas of metalworking. It’s part of playing in the Big Leagues, but still, I always agonize about whether IMTS is worth the sacrifice of tripping through the maze of McCormick Place. I have lived with this schizoid view of America’s machining festival for many years. When the holiday lasted 10 days it was an excruciating, foot killing, back cracking opportunity to press the flesh of the oil stained cognoscenti of Machinedom.

When there used to be tigers, contortionists and sexy German and Japanese models in the exhibits, IMTS was live theater. In 2010, the froth will be gone. It will be all “bidness” compressed into six days of hard selling.

God willing, I’ll be there, peddling and schmoozing and wearing a tie. Oh, what fun—I hope.

On June 8, Meg Whitman, former eBay CEO, won the Republican primary for governor in resounding fashion. The same day Rod Blagojevich, former governor of Illinois, watched while his lawyers grilled potential jurors for his corruption trial.

Blago’s father ran a numbers game in Chicago. Young Rod grew up in a world of payoffs and married the daughter of a rough local Democratic politician on his way up the political ladder.

Whitman used $71 million of her own dot-com fortune to pave her primary campaign, while Rod Blagojevich shook down the paving contractors to get his political seed money.

Is Whitman more pure than the driven snow because she was recruited by venture capitalists to run the fledgling eBay after the company’s founder realized he didn’t want to run the business?

Do we prefer the Rockefellers, Heinzes and Whitmans, or maybe celebrities like Arnold and Ronald Reagan to run our country because the earthy Rod Blagojeviches are too untrustworthy? Do we want only the elite who go to Harvard and Yale Law on the Supreme Court, which we now will have when Elena Kagan is confirmed?

Maybe we want a House of Lords because the raunchy Rods and the slick Willies get too dirtied up climbing to the top.

When I wrote the blog about Meg Whitman using her eBay wealth to win the Governorship of California while Rod Blagojevich defended his mastery of payoff culture in a Chicago courtroom, I was unconsciously touching a bigger theme—the rise of women in American life.

Hanna Rosin’s cover story in the July/August Atlantic—“The End of Men: How American Women are Taking Control of Everything”—tells the story of the decline of men in 2010. Economically, this trend is related to the decline of manufacturing and construction. Current unemployment is heavily weighted toward males but the long range trends are even stronger than recession related layoffs.

Testosterone, physical strength and a gambling spirit, the traits that tamed the Old West, are not as highly valued in today’s world. Women are earning 60 percent of the college degrees now. Statistically men struggle more in school, and school is the gateway to advancement.

I think that the shift towards female dominance is less apparent in the machining world we inhabit, but I find women taking more of the purchasing agent roles. Men may still be making most of the stuff, but women are often signing the checks.

When Pierre Omidyar, founder of eBay, realized his business was getting too complicated for him to manage, his venture capital investors found Meg Whitman in Boston biding time as a consultant and brought her to San Jose to grow the business by harnessing the entrepreneurial fervor of mom and pop companies everywhere.

Meanwhile, Rod Blagojevich, who still can’t use a computer, was wheeling and dealing in the backrooms of Chicago politics. His first big move was marrying a powerbroker’s daughter. He then joined the law form of Eddie Vrdolyak, a famous fixer and Chicago dealmaker. He used his smile and big hair to charm the voters all the way to the top of the State. Very competitive, very male, very Chicago, very corrupt, our Rod.

Meg goes to Sacramento if she beats the old liberal poll Jerry Brown, former governor of California from 1975-1983. Rod goes to prison if the wiretaps stick.

It’s getting tough to be a good ole boy.

I love the “Second Act” column which appears on Tuesdays in the Wall Street Journal. It recounts the stories of people who forsake their original career for one that promises more excitement, opportunity, fun or satisfaction than the career path they originally pursued.

On June 8, Journal writer Dennis Nishi told John Putnam’s story. Putnam was a successful bankruptcy lawyer in Boston with a form representing failed airlines and steel mills. While taking a deposition he had an epiphany. “Everyone there was very senior and making serious bucks. That’s when I looked around and [realized] I didn’t want to spend the best part of my life getting to where they are,” the Journal quoted him.

The rest of the story is about Putnam buying a farm in Vermont, taking a job with a Vermont law firm while developing the farm, and then chucking the law to make specialty cheese for a living.

He studied cheese making for four years and bought a custom made copper cheese vat to give his Alpine cheeses a unique favor. A French college student taught him some tricks of the trade in a work-study exchange while he wrote his graduate thesis.

Putnam started making cheese in 2002 and his business was profitable in 2003. Today his Thistle Hill Farm sells eight tons of cheese a year and is making decent if not great money. Doing Today’s Machining World is the second act for this used screw machine dealer.

I would like to hear from you about second acts you are now involved in, would like to be involved in, or have tried and given up

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Swarf: The Money Gravitates West

By Lloyd Graff

Today’s Machining World Archives June 2010 Volume 06 Issue 05

Let’s connect a few dots. The head of the Russian government, Dmitry Medvedev, is coming to visit Silicon Valley because he wants to build a competitive science center in his country. He hopes to learn something about what makes the Bay area so attractive to the Apples, Googles and Genentechs of the world. Toyota is putting a sizeable investment into electric carmaker, Tesla Motors, and is providing the closed Nummi factory in Fremont, Cal., to make Tesla cars. The DMG/Mori Seiki collaboration is probably going to manufacture machine tools in Davis, Cal., near Sacramento.

While the California government may have to pay people with IOUs, the state is still a magnet for investment and young people looking for opportunity. With Wall Street’s reputation muddied up by financial scandal, the best and brightest are turning to the left coast again for opportunity. This is a good thing. In the mid 2000s it seemed like every smart kid wanted to trade derivatives on the Street. A lot of young people actually wanted to be the next Gordon Gekko.

Apple Inc. headquarters in Silicon Valley, Cal.

The pendulum has swung the other way today. Apple, Google and Genentech are hiring tons of people now. Soon Tesla and DMG/Mori Seiki will be in full swing. The momentum is moving west again. The economy is turning toward making things in the highest labor market in the country. Money gravitates to energy and creativity. The magnetism of northern California is strong right now.

After the Memorial Day weekend I posed the question, “Should we be economic patriots”?

When I wrote the car buying stories for the April and May issues, I took heat from readers who felt I was derelict in not coercing my sons to buy American cars rather than Hyundai Sonatas.

It turns out that the Sonatas are made in Montgomery, Alabama, and have more than 50 percent American content. Hyundai spent $1 billion to build a factory, and the workforce is almost entirely Alabaman, but ultimately my sons’ buying decisions were based entirely on the products and price. Economic patriotism had nothing to do with it.

Do you buy a Haas vertical machining center because it is American or because it is the best machine for the money? Do you pass on bananas because they come from Honduras? Do you shun an iPhone because it was made in China at a FoxComm plant that has had 10 suicides among its workers this year? Where does your economic patriotism start or end?

Personally, I am not an economic agnostic. I have never bought a German Mercedes or BMW because of the Nazi atrocities of 70 years ago. But considering most of the taxis in Israel are Mercedes, I know that particular economic discrimination is now ridiculous.

Many of my long time screw machine customers have shops in China now. Are they economic Benedict Arnolds?

I recently talked with Joe Arvin who owns a big aircraft gear company near Chicago. He considers himself an economic patriot because he will not put up a plant in China, even though his clients are pushing him to do it. Do you think our soldiers died for Ford or for the economic and political freedom to buy oil from Saudi Arabia to drive a BMW to the sushi restaurant?

Here’s the good news and bad news. Bad news—75 percent of Americans are overweight. We’re French frying ourselves to death. Good news—it’s going to be great for the precision machining business.

Dr. Uli Sutor, key account manager at DMG, gave an illuminating talk at the first day of DMG/Mori Seiki’s Innovation Days, May 24, at its national headquarters in Hoffman Estates, Illinois. The event was a combination sales and networking event for the collaboration between two of the biggest players in the world machine tool business.

Sutor’s presentation discussed the opportunities in the medical machining business. As he sees it, orthopedics, primarily knee hip and spine, are the biggest growth segment. The passage of Obama’s health care plan in the U.S. will expand the area even faster. According to the literature it takes 40 minutes to do a knee replacement—20 if there’s no insurance.

A person who is at least 30 pounds overweight is three times more likely to need a knee or hip replacement than a trim person. It’s easy to see that the obesity trend is the friend of orthopedic surgeons and hospitals.

Sutor mentioned the number of bone screws and plates produced in the world. His number astounded me—200 million orthopedic screws and plates last year.

Last year 1.1 million knees and hips were replaced in the U.S. The expectation is 4.6 million per year by 2030, partly because a joint replacement lasts 10-12 years, so many people will need redos if the obesity trend continues.

Dr. Sutor gave the presentation from the DMG point of view. He employed a lot of data from the European perspective. One piece of information I found valuable was that “turbo whirling” is now being made by DMG for bone screw threads. The process employs linear technology, which uses no gears or belts and provides a superior surface finish. This is particularly valuable if a doctor will eventually remove the screw from the repaired joint.

The $64 billion dollar question for the economy is, what will happen to employment? What happens to unemployment is related, but the two numbers do not always shift in tandem.

We are seeing a strengthening in manufacturing now and the overtime strategy seems to be waning. Productivity stats are still impressively bullish but they are starting to level off. You can only squeeze so much juice out of the lemon. The Labor Department acknowledges that people are being hired in manufacturing and my anecdotal evidence confirms this.

New construction is still pathetically soft in most markets, but we are seeing a weird anomaly in the most devastated markets of Nevada, Arizona and Florida. Builders are starting to build houses. According to a recent article in the New York Times, the most devastated housing markets are starting to get hot. It appears that some buyers just want a new home and hungry builders with low cost lots are providing value. Buying out of foreclosure or employing a short sale is such a hassle it is pushing buyers to new. According to the article, individual buyers are losing out to out of state buying syndicates who are picking up large collections of foreclosures at cheap prices and
paying cash. Perhaps the dreaded foreclosure overhang will prove to be similar to a mild flu season, which bodes well for employment—but not necessarily unemployment.

Juan Williams, the astute Fox and NPR commentator, recently did an interesting piece on the composition of today’s long term unemployed. The stubborn unemployment is in older, white, blue-collar workers. He compares this demographic slice with black factory workers laid off in the early 1980s downturn. That group was very slow to get new work, saw families dissolve and higher levels of drug abuse and births out of wedlock. According to Williams, we are seeing similar trends now from the bluecollar, white, male demographic.

When I talk to people in the machining world I often hear confirmation of this employment issue. Company owners do not necessarily want to retrace their steps on new hiring. They may be looking for different skills and younger workers who are willing to start at a cheaper wage and be less insistent on health insurance. Immigrant workers with a strong work ethic may look more appealing than a 50-year-old former union guy who has been out of work for nine months.

I think the recovery of 2010 will be a little different than past rebounds. Companies will be hiring, but not necessarily rehiring. Unemployment will be sticky, but millions of people will be finding jobs.

The hot movie at the Cannes Film festival was Wall Street: Money Never Sleeps, the sequel to Oliver Stone’s Wall Street (1987). Michael Douglas plays Gordon Gekko again, who returns to the Street after spending eight years in prison. Art imitates reality. Reality imitates art.

I just finished Michael Lewis’ brilliant new book, The Big Short: Inside the Doomsday Machine, about the appalling fraud among the big shooters on the Street during the subprime fiasco. He could have used the same title he used for his last best seller, The Blind Side: Evolution of a Game, because of the duplicity and stupidity of the bond packagers and the rating agencies who blind-sided the government regulators and most investors.

In my callow youth I thought Wall Street banks were conservative stewards of investor money. The Big Short exposed them as crooked, dumb, cynical casino operators who lacked the scrutiny of Las Vegas.

I think the civil suit against Goldman Sachs was a preliminary probe by the SEC. Goldman’s management probably saw it as a political stunt to help the Obama 2010 Congressional election effort. But Lloyd Blankfein’s poor showing in Washington seems to have emboldened the Feds and New York’s Attorney General, Andrew Cuomo, to keep the pressure on. I’m sure Obama and Cuomo have read Lewis’ book, which lays out the derivative conspiracy with dramatic clarity. The big players—Morgan Stanley, Bank of America (Merrill Lynch), Bear Stearns, UBS, Goldman, AIG—are the names under scrutiny.

I really think we are going to see criminal indictments and “show trials” down the road. Lewis’ number one bestseller lays out the trail like dropped breadcrumbs. There will be a few Gordon Gekko’s headed to the penitentiary this time around, but unless we shut down the taxpayer funded Wall Street casino, it will all happen again in a few years.

Industry Scuttlebutt

  • I understand that some Japanese machine tool builders are running painfully short of inventory in the United States. Sales in Japan are up 260 percent year to year. The American distributors under-ordered last year and the Japanese factories slowed production, while huge Chinese orders flooded in several months ago. Six hundred CNC Swiss lathes were sold by one builder and 285 machining centers went to another for cell phone dies, swamping the companies. Now American demand is perking up, and the cupboards are bare. It will be interesting to see if ¥92 to the dollar will justify higher prices at IMTS.
  • The liquidation of Fadal machines in California has surprised the doubters. The liquidator, Machinery Network Auctions, has sold over 100 machines and has about a dozen left.
  • We hear that companies like Caterpillar, Deere and Case are still starving for inventory. They are pressing their vendors hard and their projections for next year are even more bullish.
  • On June 28 Cy Zvonar of Industrial Machinery Corporation of Milwaukee turned 99 years old. He still comes to work every day wearing a suit and tie like he has since 1939. It’s an incredible coincidence that three generations of Zvonars, Joseph, Cy and Jim, were all born on the same day of the year.
  • The authorities that operate McCormick Place in Chicago, where IMTS will be held Sept. 13-18, have awakened to the threat posed to its convention business by Orlando and Las Vegas. Millions of dollars will soon be flowing into marketing, but unless the total expense of exhibiting and attending is addressed, I can see the day when IMTS leaves the Windy City.

Elena Kagan has impressive credentials to become a Supreme Court Justice, but her nomination brings up some interesting questions about the composition of the Court. If she is confirmed there’ll be three Jews and six Catholics on the High Court—no Protestants, Buddhists, Muslims or evangelical Christians.

Four of nine Justices will be from New York city if Kagan gets in, one from each borough except Staten Island.

With Kagan’s appointment all nine Justices will have gone to either Harvard or Yale Law School. There will then be three women on the High Court, which would be a record number.

Kagan has written about the confirmation process, criticizing the charade of candidates for the bench who dance around their beliefs about crucial cases which the Court will hear. Now that she’s the one in the hot seat we will see if she’s as candid herself.

Ms. Kagan clerked for Abner Mikva who was one of Barack Obama’s early mentors. She was brought to Harvard by Larry Summers, who is head of Obama’s National Economic Council. She also worked in Bill Clinton’s White House with Rahm Emanual. This woman has great connections.

The only drama I anticipate is that a senator will ask her about her sexual orientation. If Ms. Kagan is gay, as has been speculated, it may come up in testimony about cases of special interest to gays. Personally, I hope she addresses the whispers. I would like to see a gay woman on the Court—especially a Court that begs for diversity.

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