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.
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.