Machining 2025?

By Lloyd Graff

If mighty General Electric is in such bad shape that its Board is considering breaking the company apart, it makes one consider how our best assumptions about the future may be wrong.

A few years ago, the consensus in the marketplace was that we would be running out of electricity generating capacity in less than a decade. With the slow approval process for utility plants, the overriding opinion was that a shortage would drive up the cost of electricity.

It has not played out that way. Natural gas has taken an increasing share of generating capacity. It is now up to 33%. Coal, even the cheap good stuff from Montana, is losing out. Nuclear is dying because of the expense of guarding the plants. Wind and solar, with the help of government subsidies, are growing. Shale drilling has defied the skeptics by expanding American fossil fuel production.

The consensus 10 years ago was wrong about just about everything electrical.

It gives one pause no matter what business you are in.

What about automotive? The internal combustion engine has been the mainstay for 100 years, but do you want to bet on it for 2025? Tesla can’t get out of its own way trying to build its mid-priced car, but the Japanese, Germans and Americans all know how to build cars in volume. They will master the electric car. They might have to buy batteries from Elon Musk for a few years, but electric vehicles seem to be coming in the millions. What will that do to all the machining firms who are so good at building combustion engines and linkages?

Then there is the question of how many cars will be bought if autonomous cars take over the market. Presumably a lot fewer after the big changeover takes place.

As a used machine tool dealer, my bread and butter is the 10- or 15-year-old machine. Companies can now depreciate equipment quickly and can expect a significant residual value 10 to 15 years down the road. But that assumption could be wrong if the demand for machined parts in the marketplace deteriorates significantly in five years with a decreasing auto market. Additive manufacturing could also take a piece.

For example, just look at the challenge faced by Coca Cola, Gillette and Target. Did they see the decline of soft drink popularity, the Dollar Shave Club competition or Amazon’s domination of retail?

The medical implant business has thrived for 20 years, but it has been dependent on third party payment. Can we be confident insurance firms and Medicare will be as generous in 10 years?

I know I have been painting an ugly picture, but I just gave away 40,000 pounds of screw machine bones of the machines that were our mainstays just 10 years ago.

Today most people are optimistic. Private equity firms love machining companies because they are often great five-year investments. Lenders are happy financing machinery for 3 to 5 years today. Manufacturing in America is a good gig today. Hallelujah.

But remember GE’s electricity generation, a business that seemed like it would always be a dynamo.

Change comes fast.

Question: Will the machining business in North America be a good place to be in 2025?

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6 thoughts on “Machining 2025?

  1. Misterchipster

    Sorry Lloyd, Target’s woes are due to poor and unpopular choices regarding access to their dressing rooms and bathrooms. In an effort to be PC they have embraced a wildly unpopular policy that puts women at risk – then Target’s management can’t figure out why that segment of the population shuns them and their sales figures are in the toilet. Like comedian Jeff Foxworthy would say “Here’s your sign……..!”

     
    1. Terry

      Agree , but Jeff Foxworthy isn’t the ” sign “guy he’s the ” you could be a Redneck if ” his friend Bill Engvall is that guy.

       
  2. Dave Bradley

    I would not base any expectations from GE’s business model. It has been wrong for over 40 years. Their demise was result of bad business decisions and inability to manage their business. They kept looking for labor that would work harder, build better products, build products faster, and work for less and less money. Sounds like a plan?? right??? GE’s philosophy of treating the American workers badly, keeping their wages low, would make them angry and consequently make them willing to work longer hours, produce better products faster and be better employees. It didn’t work and by the time they figured this out, it was too late. They also bailed out of manufacturing as it was told to us employees, “the Japanese are coming and going to put us out of business.” So they sold off too much of their skill base that could have put them into new markets. Bad decision. But selling off everything including the kitchen sink, was the only way Jack Welch could ever show a profit to the stock holders, even though it was not an earned profit. All those business units he auctioned off were sold at a loss for pennies on the dollar. I could go on and on, but the bottom line is, don’t ever base your judgement off what GE has done. They are great sales people…they can sell a bad deal to anyone.

     
  3. Rod Brower

    My Grandfather worked at Boeing in the building models for wind tunnel testing the 707 many years ago, and upon retirement had a small shop in his garage that my Brothers and I purchased from Him and have run for the last 40 years.
    He told me something that I believe to still be true.
    Everything has in one way or another a dependency on Machine Shops.
    The molds, dies, components for the robots that where going to put us all out of work.
    The computers and keyboards that the Teck industry develops there software on and the chip making equipment that produces all of the microchips that power all the devices,
    The Electric Cars! Amazons fulfillment centers, Spaceships, Guns, Weapons, Anti Ballistic Missile Missile’s to shoot down Korea’s Ballistic Missiles.
    The list will never end.
    It will change in ways like 3-D Printing parts, but most of them will need post machining of some sort. You will still need to make the printing machines.
    We just need to see the opportunities that are coming our way and adjust our capabilities to capitalize on them.
    Machining will be around as long as society exists.

     
  4. allen

    In answer to your question, sure it will. But before I get into that I’m going to belabor you a bit.

    The slow approval process for coal plant was a political issue. A particular constituency had achieved enough influence to impede the process and did. It didn’t take one minute more to build a coal plant, and it probably took a few minutes less, but people with nothing to lose were in a position to impede the process and did.

    It is true that natural gas use has increased substantially and that’s due to the price drop as a result of fracking. Alert the media. Coal is still perfectly viable even if saying, or writing, so will get you banned from genteel society. How it fares going forward, once the grip of enviro-fanaticism further diminishes isn’t entirely clear.

    A not-insignificant part of the cost of coal is in the materials handling process. With natural gas materials handling consists of a valve.

    Wind and solar are – pardon my vulgarity – bullshit.

    Neither would exist but for massive, across the board subsidies and mandating artificially high prices for their electricity. Both will collapse as the numerous supports are withdrawn. Not “when” but “as”. The political wave that allowed these impractical sources of electricity to thrive is receding which is good. As some poorer nations have already demonstrated wind and solar are much more expensive than they’re advertised to be.

    Germany, with a significantly higher percentage of wind and solar power than the U.S. also has electricity rates three times higher than the U.S.

    Denmark, with the highest percentage of wind power has electricity rates three and a half times higher than the U.S., is highly-dependent on Sweden for throttle-able hydro-power and is notorious for brownouts and blackouts.

    To expand on my answer with a question, will the need to flexibly produce products from tough materials to close tolerances increase or decrease?

    Obviously it’ll increase as the cost of producing those products continues to decline. The increase in productivity, which is why the price declines, is due to machine tool technology. So yeah, the machining business will be a good place to be in 2025.

     

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