Man plans. God laughs.
A client of ours just had a huge fire that wiped out much of his capacity. He is scrambling to pull things together overnight to service his customer base. The insurance adjusters dither while he awaits the settlement.
Another client jumped into the machinery market because he landed a big new account that wants parts in September. He’s buying a $100,000 machine and new secondary equipment. It had not been in the budget finalized in April, but a million dollar job was not going to be missed for want of a machine to run it properly.
In Washington, the bonus depreciation law is up for debate again, behind and in front of closed doors. Code name – Section 179. The trade associations I belong to, the Precision Machined Products Association (PMPA) and the Machinery Dealers National Association (MDNA), have their law firms and lobbyists out buying drinks and advocating hard for the resuscitation of the expired law. It’s why we hire lobbyists and pay them $500 per hour to schmooze staffers and channel money to campaigns. But I have to wonder, in the end, how much do the incentives really change behavior?
In our machinery business we expected a rush of business before Section 179 expired last year. But I can attribute to it only one sale, a ridiculously cheap 1-1/4″ RB-8 National Acme, that a client (who happened to have an accounting background) rushed through because of the tax incentive.
I know this dissing of the catechism of tax benefits for business is Obamaesque blasphemy, but I really think it is true. People buy capital equipment generally only when they have a pressing need for it. Without a pressing need, they may buy a smaller item like a hardness tester, or a cleaning tank. At Graff-Pinkert we rushed to buy a Graymills cleaning machine last year and a backup generator the year before to get the convenient write-offs. They were purchases we could have lived without, but the ability to write them off against income did play a role in our timing and was an impetus to pull the trigger. If you multiplied our cleaning tank and generator buys through the whole economy it would be significant.
Section 179 is not part of the backbone of capital spending in the United States. It will not have a pivotal effect on our machine tool business. For big companies it will barely ripple the water. On the margins, the last-second buys of a clutch, a repair part, a set of bearings, or a generator, magnified by thousands of little buyers, is significant. It’s worth fighting for in Washington, but if we don’t get it, there’s still next year for another schmooze at it.
Question: Do feel like your congressman cares about you?
Lloyd Graff is Owner of both Today’s Machining World and Graff-Pinkert & Co.