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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