Challenge for US Machine Tools
Exports at peak, but imports remain high
BROWN & Sharpe Manufacturing Company announced last week that it would abandon its machine tool operations and focus on its larger measuring-device business. For the Rhode Island company, the step is a logical way to try to stay on its feet after a $14.5 million loss in 1990. But for the machine tool industry, the move is more evidence that foreign companies are grinding away at the United States market.
The situation is not as bleak as it was in the mid-1980s, when the foreign share of the US market soared to nearly 50 percent as the last recession ended. The US dropped from first to fourth in world market share. In 1990, imports actually fell 4 percent, and US-based companies exported an all-time record $1.6 billion. Also, several large US producers, such as Cincinnati Milacron and Cross & Trecker, have substantial overseas operations.
At home, US companies have been helped by so-called "voluntary restraint agreements" (VRAs), reached with Taiwan and Japan, and the lower value of the US dollar. Many manufacturers have also helped themselves with vigorous restructuring programs.
But the VRAs are scheduled to wind up at the end of the year. The dollar has headed upward in recent weeks. Some machine tool makers are burdened with higher debt as they struggle to adjust to foreign competition. Also, a growing share of the US output is made by transplants from Japan and Germany.
"It's more than important, it's critical" that the US maintain a strong machine tool industry, says Donald Walukas of the National Center for Manufacturing Sciences in Ann Arbor, Mich. Of key technologies, those related to manufacturing processes are among those where the US is faring worst against foreign competition, according to a recent report by the Council on Competitiveness, a nonprofit Washington business group.
"If you've got a second-rate machine tool business, ... your manufacturing is going to follow," says George Graen, director of the University of Cincinnati's Center for the Enhancement of International Competitiveness. Japan targeted machine tools as a strategic industry, and its companies have gained supremacy in the lower end of the world market. Some observers worry that if US companies don't watch out, their high-end niches may erode.
"There'll just be continual improvement" by the Japanese, "pushing those niche markets into the commodity realm," Mr. Walukas says.
The industry's balance sheet "is not the healthiest-looking thing around," says Charles Pollock, spokesman for the Association for Manufacturing Technology. The industry organization refers to itself as NMTBA, drawing on the name it had until 1988: the National Machine Tool Builders Association.
The name change is one indication of the way the industry is changing. Traditionally, machine tools are designed to cut and form large metal parts used in durable goods. Automakers are the largest customers for machine tool builders.
With the development of new technologies for using plastics and composite materials where metal used to be, the industry is no longer so simple to define. Customers no longer buy a tool to use in isolation, but integrate them into manufacturing cells. The software that drives the machines and coordinates their activities now accounts for half the cost of a typical manufacturing installation, Mr. Pollock says.
In the race to develop these new technologies, US firms face several key problems:
The industry is fragmented, with about 500 companies. A typical firm has 60 employees, though large firms dominate.
The cost of capital is high in the US - twice that of Japan. Compounding the problem is the cyclical nature of industry sales, which can make Wall Street wary. A company might have a strong balance sheet one year, and a heavy loss the next.
Research and development expenditures are low. To fight back against the higher R&D levels in Japan and Germany, the US machine tool builders and their clients formed the National Center for Manufacturing Sciences to collaborate in critical research projects. "We have seen just a tremendous increase ... since last May in the collaborative" activities there, Walukas says.
Despite increased collaboration, antitrust laws are still overly restrictive, industry sources say.
Product liability lawsuits cost manufacturers more than R&D.
There is a chronic shortage of highly skilled workers.