Foundry Management & Technology

The bigger picture

REB — Mon, 05 Jan 2009 15:00:00 GMT

This column today offers a useful perspective to the standard anxiety about the auto industry — which is that for all the serious problems plaguing Chrysler, Ford, and General Motors, there is also a worldwide economic crisis underway, which has snuffed out consumer demand. No automaker is doing well, not even the estimable Toyota.

I would add that this dimension of the problem ought to shape our understanding of the domestic industry's dilemma. In the end, this may not matter: after all, the capacity excess, the labor cost disparity, the customer loyalty, and all the other details that have separated Chrysler/Ford/GM from Toyota (and Honda, Mercedes, and BMW) over the past decade or so, remain. But, as the columnist writes:

The auto industry is in a classic shakeout. Even if whole companies don't disappear because of government bailouts, the weakest companies will be forced to make major cutbacks, a process that's already under way in Detroit and elsewhere. Estimates of excess global production capacity in the car business run as high as 20 million vehicles annually, which would equal the capacity of 80 assembly plants. Not that many will close, of course, but a good number will.

The domestic automakers need to be reorganized to be competitive in the future, not simply to address past mistakes. If you want to continue this line of argument, to say that government involvement in the reorganization process (environmental regulations, domestic content rules, work rules) will not help make the domestic companies more competitive … well, I won't argue otherwise.

Honesty is the best policy

REB — Wed, 31 Dec 2008 20:37:00 GMT

Tomorrow we get a fresh start, or at least a large-scale reminder of the fresh start that presents itself every day. The economic problems facing the U.S. and the world — credit shortages, weak industrial and consumer demand, and so many more — are significant. The scale and severity of these problems does not justify the myths that are being promoted about the causes of the problems, and the best solutions to them.

Rather than building myths, we must insist on honesty in ourselves, in our dealings with others, and from our representatives. We must acknowledge failures in order to restore clarity, and reward success properly in order to restore trust.

A few weeks ago I posted an item linking to a photo series about decaying conditions in Detroit. My point then was that, as tempting as it is blame all the social and economic problems relating to the auto industry on poor corporate management, there are a lot more causes and individuals at fault.

As a follow-up to that photo series, I recommend this article, which details the human role in accelerating and prolonging that decay, as well as the human implications of what has happened there: “Somewhere along the way, Detroit became our national ashtray, a safe place for everyone to stub out the butt of their jokes,” the author observes. That's part of the problem. If we value honesty as a virtue we have to apply it universally. Not just when it serves us, and not just when it's convenient but not an obstacle. We have to be honest about identifying the causes of problems like social decay in Detroit.

But it’s not just Detroit, as I stated in that earlier post. Pretending that this decay is solely the result of “the decline in manufacturing,” as many “fair trade” advocates argue, or that it will be solved by massive infrastructure investments, which is Washington’s ascendant economic message, ignores the role of human nature in social and economic policies, and of personal responsibility in addressing such failures.

What this article also makes clear is that economic decline and decay are not the result of singular decisions or policies. They are the result of widespread corruption and irresponsibility. It also makes clear that sensible people can avert catastrophe by acting as responsible individuals and citizens. Yes, it’s important to set aside agendas (as elected representatives frequently urge), but it would be even more effective to restore in us the core principles — honesty, of course, but also personal responsibility — that make it possible for people to live together in peace, and to prosper.

Detroit, and Michigan, no doubt, have had federal money available over the past several decades when this decay set in: how much more infrastructure spending is likely to convert the corrupt political leadership in that city and state, and reverse the dire trends now prevailing there? Is money really the problem, when the leaders there ignore the horrifying results of their failure to carry out their responsibilities dutifully? And, if the people of Detroit and Michigan have endured and endorsed this catastrophe for so long, what else but a complete failure is going to restore peace and prosperity there?

Things may be different in 2009. I honestly hope they will be, for everyone.

Bush bails

REB — Mon, 22 Dec 2008 19:30:00 GMT

All the news reports characterize the President’s decision late last week as a rescue plan, a “lifeline” to the auto industry, but it’s really a bailout for the United Autoworkers union. The $17 billion is meant to keep GM and Chrysler viable until the incoming Administration takes charge, but it charges them to wring financial concessions from the union, suppliers, and dealers in order to gain further government support.

Don’t worry. GM and Chrysler will get whatever they need, or rather, whatever the next Administration and Congress tells them they need. Democrats' predilection with “green” vehicles suggests a lot of government money will be delivered for designing and building electric-power vehicles and similar projects, but they will be in business, for a while.

Suppliers are likely to get shafted and the dealers will be made to take whatever settlement they can get.

The union, however, has been spared, and left to deal with the new President, to whom they contributed a reported $400 million. Because the Bush Administration decided not to oblige the UAW in any way for this lifeline, everyone else (including taxpayers) will pay the price.

That’s politics, and we had an election that made this dynamic pretty obvious, so there’s no reason to cry foul. Besides, President Bush is playing politics, too. Allegedly, he wants to avoid being held responsible for the collapse of the domestic auto industry.

He ought to have learned that this sort of politics only works if you hold the last card. In 2002 the domestic steel industry had collapsed, essentially, with several of the leading producers in bankruptcy or liquidation. The President instituted a series of restrictions on steel imports, to stabilize the domestic industry. He was scolded and mocked by consumers and free-trade devotees, but his calculation at the time was that the move would recruit to his side voters in states that depend on steelmaking.

Not a chance. Even though the U.S. steel industry survived the catastrophe, and thrived, labor voters blamed the President because they had to give up some of their advantages. In the 2004 election, the President lost in Pennsylvania and barely won in Ohio.

The steel industry thrived not because of the import restrictions, but because that created the conditions that allowed them to reorganize and consolidate. They were able to break free from their impossible obligations to thousands of workers, retirees, and dependents — obligations in some cases to seven times as many former workers as to current employees. Just as important, the steel companies rewrote the work rules for their continuing operations.

In 2002, Bush held onto a card: he could remove the steel-import restrictions, and as a result the union negotiated. Now, he's passed the negotiating advantage to the next President. The automakers will make every concession, because they must do so in order to survive. The UAW has already been spared.

However, labor might finally consider sparing some gratitude to the current President: he isn’t requiring them to do anything, and as a result neither will anyone else.

Merry and bright

REB — Thu, 18 Dec 2008 22:25:00 GMT

Anyone who cares to scan my inbox will find several dozen “holiday” greetings from companies and agencies that regularly correspond with me. This is the 2008 evocation of what used be reams of cards, or (now going back several years) complimentary gifts of candy, CDs, clocks, pen sets, small works of art, calendars, ties, toys, and other novelties. All of it was unnecessary, and while it was appreciated I knew it was never heartfelt generosity.

This year, I was gladdened when a single e-mail message announced “Merry Christmas.” What a hopeful sign!

I understand why “Happy Holidays” displaced “Merry Christmas,” but I doubt anyone was ever touched by such a message. It’s a “safe” statement, but an empty one. While I would not wish “Merry Christmas” to anyone whom I know celebrates Hanukkah or another holiday, neither do I worry that I’m offending anyone with my greetings. Such worries would indict my sincerity.

On the other hand, if the folks who send “Happy Holidays” greetings are actually wishing me “Happy Thanksgiving” or “Happy New Year,” why don’t they say so? Why should there be any offense — suspected, or detected — in such a message?

Irving Berlin (it’s reported) did not celebrate Christmas, but that didn’t mean he could not appreciate, and express, what is so beautiful and comforting about it. No doubt it was expressed and shared with him.

In this current age we aim (in order to maximize our social and commercial advantages) to be accepting of all differences and choices, and yet we deny each other and ourselves the simple truths that are conveyed by a sincere greeting. Even people who will not celebrate Christmas in the coming week no doubt will enjoy an unexpected gift or a warm greeting. Even more may find some relief and comfort in the peace that settles over much of the world on that day.

The warm, welcoming atmosphere we associate with Christmas is denied to us if we pretend it’s just a “holiday.” In an age when we congratulate ourselves on our diversity, it shouldn’t be necessary to sublimate messages meant to draw us closer together.

The anxiety that grips the news and has filled our pages and my writing for the past several months will not last, because the human spirit cannot survive on fear. If the past decade has demonstrated anything it is that the human spirit is indomitable. Laws, tyrants, and terrorists cannot suppress human creativity. We’ll see that widespread anxiety has even less staying power.

Turmoil in business and government institutions is the effect of organizational malfunction. Organizations that do not reaffirm their purpose will falter, but those that do so will thrive. And, such successes will be the work of individuals, people acting with creativity and sincerity.

So, while this Christmas season may be less exuberant, less celebratory than many in the past, I believe it’s also hopeful in a way that’s been missing for several years. We’re on the verge of a new era of sincerity.

Not a pretty picture

REB — Mon, 15 Dec 2008 18:24:00 GMT

Wouldn't it have been just as easy, or relevant, for Time to post a photo essay of one of GM's (or Ford's or Chrysler's) present-day manufacturing plants as it was to post this series.

Now, I'm a little bit off message here, because I think these photos are interesting. I'm also an admirer of architectural styles from the 19th and early 20th centuries, so the series holds that interest for me, too.

But, am I just crazy to conclude that images like this one, particularly in the current atmosphere, are trying to evoke something other than appreciation for the photographer's skill, or dismay at urban decay, or admiration for past industrial achievements?

Who's responsible for this pitiable scene? The greedy company, of course. Not the city that allowed this blight to spread. Not the union that failed to cooperate in such a way that might preserve their members' jobs. Not the governments that use private employers to promote social policies they want, regardless of their viability.

The truth is that lots of old industrial sites in lots of cities could offer views like the ones seen here from Detroit. No doubt there are old textile mills in the Carolinas, or garment factories in the Northeast, that could make great exhibits. I could take an interested photographer to vacant steel mills in Cleveland or Youngstown that would be "artistic," too.

Furthermore, I don't believe these photos reveal much that's new. Abandoned factories? Who knew?

My point — which I think Time ought to put into perspective in their selection of photos — is that manufacturing has changed a lot in the past 40 years, and that as a consequence manufacturing companies must change, too. If cities, or states, or unions, don't adapt themselvs to these changes, the manufacturers will find the next alternative that will allow them to continue doing what they're intended to do. It may not be pretty, but it's a fact.

Just a few more questions

REB — Fri, 12 Dec 2008 05:59:00 GMT

So, the “inevitable” automotive industry “bailout” isn’t going to happen quite so quickly, giving me a little bit more time to wonder: Do the leaders of Chrysler, Ford, and GM really want a bailout? It’s a question that ought to be considered before they enter into the sort of open-ended support that — with a Democratic hold on the executive and legislative branches of government — would almost certainly lead to a miserable cycle of labor, environmental, and consumerist prescriptions that they’d be compelled to carry out, with little concern by their federal patrons for returning these companies to the autonomy that private companies are expected to maintain?

As bad as it may be, the deal that’s slipping away now, agreed to by the Republican White House and Democratic Congressional leaders, and involving short-term financing with a government administrator to coordinate some sort of federally endorsed reorganization plan, is probably more conducive to their long-term autonomy than anything likely to come together in the next Administration. Still, this deal would mean a continued role for the UAW, the continuation of CAFÉ regulations and domestic-content provisions, and continuation of who know's what other organizational impediments that have helped ossify the auto industry in recent decades.

Do the leaders of the Big Three really want to preserve those conditions? That is, do they want to continue competing against nimbler transplant automakers and foreign competitors, who do not have the super-sized workforces, the surplus capacity, the redundant brands and models, the overextended dealer networks, and the skeptical consumers that now plague the domestic automakers?

Do they want to take taxpayers’ money, while keeping in place much of what now accounts for their miserable circumstances, and then ask U.S. consumers to buy their products?

Why would the leaders of Chrysler, Ford, and GM not prefer to undergo a bankruptcy reorganization, which would allow them to suspend their credit obligations, rewrite contracts, reshape their organizations with bold creativity, and redefine themselves in the most favorable way to their stakeholders and customers?

And, if they really would prefer a bankruptcy reorganization, don’t you suppose the UAW and their supporters in Washington would try to stop that from happening, because of the possibility that the bankruptcy court will toss out their current labor contract? And, wouldn’t the representatives of lenders and creditors be just as fired-up to impede a Chapter 11 reorganization procedure?

Is it possible that these automakers are just going through the motions of needing a bailout — which will outrage most Americans — in order to be “forced” to go through reorganization? That way, the United Autoworkers union, their lenders, and their creditors won’t be able to blame the management of Chrysler, Ford, and GM for seeking bankruptcy-court protection. They will have had no choice.

Am I being too cynical?

Hostage situation

REB — Wed, 10 Dec 2008 16:23:00 GMT

To my mind, this column in today's Wall Street Journal is the most comprehensive analysis of the federal bailout being mounted for GM and Chrysler.

… To become "viable," as Congress chooses crazily to understand the term, the Big Three are setting out to squander billions on products that will have to be dumped on consumers at a loss.

Things may change as time passes, but the effort now underway to "rescue" these companies is a living example of the way that smart (but not always honest) individuals use crisis and fear to get what they want.

Myth busting

REB — Tue, 09 Dec 2008 02:56:00 GMT

It’s way too soon to comment on the evolving bailout of the Big Three automakers, but it’s right to hope it will work. Those of us who oppose, on principle, such a vast rescue don’t want any of these companies to fail, but rather think it would be far more effective for investors to wager their own money on this project than for the whole domestic industry to be put under the authority of whomever happens to have earned seats on the relevant Congressional committees.

However, the economic atmosphere is so filled with tension and confusion that people seem to be reassured by interventionism. In fact, there seems to be a widespread belief that the forthcoming New New Deal is what’s needed to jump start the economy.

The notion that, as a nation, we need more “infrastructure” spending is a sort of myth that defies examination. You see, "infrastructure” is defined as whatever you think needs more investor support, so government money is needed because the free market hasn't got behind it (yet!) If roads and bridges need to be maintained better or rebuilt, that’s infrastructure. But, then, why haven't these projects been properly funded all along?

If you’re a believer in wind farms as a replacement for oil and natural gas, that’s an infrastructure project, too. Never mind if it's feasible or sensible. All sorts of “green” technologies that need backing are infrastructure, naturally. And, if you think your Web or wireless service isn't good enough, that's infrastructure, too.

The standard comparisons for all sorts of “infrastructure” dreams is the interstate highway system begun in the 1950s, or the public buildings and hydroelectric projects started in the 1930s. Few people ever mention the federal funding debacles, like Boston's Central Artery/Tunnel project (the so-called Big Dig.)

The first fallacy is found in the fact that the federal government spends huge amounts of money all the time, so it’s hard to understand how scaling up the amount of federal disbursements is going to reignite the vast U.S. economy. In one bill alone, the 2005 federal transportation bill, the government laid out $286.4 billion. "What's left to fund?" you might wonder. Moreover, the past year has seen repeated examples of federal stimulus efforts and interventions, to "jump start" the economy, or to "calm the markets." We're still waiting for that, even though we're hundreds of billions of dollars poorer while we wait.

Another aspect of the myth is that it will be very simple for the feds to greenlight thousands of worthy projects, which will open the door to prosperity for all. More realistically, it ought to be obvious that all those monies could take years to become fully available. And, projects will start, and stop, and go back to the drawing board throughout these efforts.

On the other hand, it should be obvious that those federal dollars will quickly find their way to many of the same approved companies and organizations who have long ago established themselves as federal contractors and suppliers. And, that the pay-offs will happen before the “investments.”

Another aspect of the myth that ought to be reasonably obvious is that any new federal funds will be tied up with new thickets of regulatory and legal burdens. If this is the same approach that will be used to revive the domestic auto industry, the notion of an auto-industry reorganization is the next myth that needs to be debunked.

We operate with a lot of effective myths in this country, and in this world. But, the notion that a more federal spending can alone guide or inspire financial growth is a dangerous delusion.

No Depression

REB — Wed, 26 Nov 2008 17:10:00 GMT

Be careful what you read this week. Newspapers and magazines are presenting lots of gratuitous reflections on Thanksgiving, trying to make some relevant comparison to the Great Depression.

Aside from the fact I can’t improve on my comments from last November, its important to remember that Thanksgiving comes every year — of which everyone ought to be mindful and, yes, thankful. It wasn't placed on the calendar in order for us to have some new insight to our problems. Our regard for a holiday oughtn’t to be shaped by current events. Holidays stand apart from the times in order to reconnect us to our social and cultural foundations.

None of this should be read as any denial of the serious issues of our times, but in that regard our task is to see our way past these times, to better times.

To be blunt, comparisons to the Great Depression are a) self-serving, b) deceptive, and c) wrong. Whatever bad things have happened lately or may yet happen, the Great Depression was a specific circumstance that cannot and will not be repeated. People who endured those times didn’t do so vicariously (as some analysts and politicians are doing.) Most people then suffered terribly, and we don’t become greater now by likening our experience to theirs.

I strongly recommend reading The Forgotten Man, a fascinating social and economic history of those years. The author, Amity Schlaes, makes much of the point that the Depression was an unprecedented economic development, and that one of the reasons it was so calamitous was that no one understood well why it had happened, or how to address it. So, they improvised (often disastrously) from their own ideological convictions. Vulnerable people were made to give up more than prosperity. Demagogues and dictators flourished.

That’s one of the most compelling reasons not to conjure the Great Depression. Another is that it’s not practical to disregard lessons about human potential that we’ve learned in the past 80 years in order to fulfill some idealistic vision of a “better world.”

We're endowed with a wonderful world right now. It’s not perfect, but it’s value and possibilities are reconfirmed every day. So, too, should be our values. We have freedom, information, and technology to work with, and they are already helping us to overcome our mistakes and obstacles.

It may be that many of us will be forced into some different careers or circumstances before next Thanksgiving. But, we have so many current blessings and opportunities to improve and grow because of the sacrifices of our forefathers, our grandparents, and our parents that comparing our times to theirs is a bit obscene.

The time to reflect on dire circumstances (like the Great Depression) is when we are prosperous and content. Now, at Thanksgiving, is a time to reflect on the values and advantages we have, and to use them well to grow and prosper.

Let's see the money

REB — Mon, 24 Nov 2008 03:51:00 GMT

We’ve got a poll running on our homepage asking visitors (unscientifically, of course) what should be the solution to the “Detroit problem”:

No bailout: Those of us who prefer the “no bailout” approach tend to do so for one or both of two reasons: it’s the most expedient resolution; and it’s the fairest, inasmuch as it does not expand the problem to those who currently have no stake in it.

Bailout: Supporters of a federal bailout have reasons, too. They emphasize the long-term value of maintaining a “domestic” auto industry. And, they offer numerous examples of the ways that the failure of Chrysler, Ford, and GM would rupture the domestic economy, and they believe that this disruption would be too great to endure.

Bankruptcy: The third option, a structured bankruptcy, would try to preserve some of the value of Chrysler, Ford, and GM, while addressing the problems that make them uncompetitive.

Only the no-bailout approach addresses the urgent questions about the cost of fixing the Detroit problem, and what becomes of the organizations in the aftermath. For example, if the federal government rescues them, what will that cost the taxpayers? Will the feds then own Chrysler, Ford, and GM? And, for how long?

The no-bailout approach gets a lot of attention, but it’s not realistic because the Detroit problem has become (at least for now) a Washington problem. This list of U.S. senators with assembly and/or parts plants in their states will demonstrate why there will be no no-bailout.

(As an aside, you can also interpret from that list why Michigan and Ohio are two states with such poor economies, and why those states prove to so many of us why further government involvement would be disastrous.)

Likewise, a straight-ahead federal takeover is unlikely to happen, though many in Congress believe that, one way or another, they can serve their constituents without concern for the most pressing issues in this debate — the cost to taxpayers, or consumers, and the competitiveness of the domestic industry.

So, with the structured bankruptcy approach there is a compromise, and a preview to the next problem. Specifically, after the federal money is exhausted in this effort, where will the new capital come from to charter the restructured entities? Here’s a hint: foreign governments and their holdings.

The core of every global economic problem today is the absence of investment capital, and the scarcity of credit created by that absence. Unless the federal government is preparing to adopt a direct-ownership policy for the domestic automotive industry, sovereign wealth funds will be the only bailout available.

When it's time to relax …

REB — Wed, 19 Nov 2008 21:27:00 GMT

Many readers, I'll assume, will recognize the opening lines of an old Michelob commercial, which is my way trying to change the mood just a little bit. Let's take a break.

A microbrewery in Colorado — apparently a fun place, called New Belgium Brewing — has combined two fascinations, bicycling and beer, and local diecasters have helped make it happen. And, beautifully so.

The Fort Collins pub has replaced its tap handles with new designs based on bicycle rims, "complete with spoke holes and recessed edges," and crafted in aluminum by Denver's Heritage Die Casting and Arvada, CO's US Precision Mold.

It's not a big deal and it won't save anyone's future, but it's a nice example of the skill and creativity many metalcasters have, and of how they frequently use it to brighten and improve the lives of others.

There's enough misery and anxiety in the news and in people's lives. Take a break, and appreciate what's good.

Facing the inevitable

REB — Mon, 17 Nov 2008 03:13:00 GMT

An earlier quip about Wall Street and Washington staging a merger might have to be expanded now to address the likelihood of that conglomerate taking over Detroit, but it’s too late to complain. Something is going to happen, and the automakers are going to be restructured. The details of the restructuring will be determined by political interests, rather than organizational strengths and needs.

The automakers have not been shy about taking federal money, but every dollar they get has conditions attached. CAFE standards — by which federal regulators dictate product developments that hinder the automakers' competitiveness and technical progress — are just the most obvious example. The most recent example is a package of loan guarantees (as planned, $25 billion now, another $25 billion to come) that involves promises to modernize operations and develop more fuel-efficient vehicles. It has no provision for downsizing or streamlining the organizations.

Now, in an atmosphere of financial panic, forces working to uphold free-market principles have been pushed to the margins.

Less government regulation might have allowed the domestic automakers to restructure a long time ago, and the result might or might not have been a globally competitive industry. But, it certainly wouldn’t have created the impossibly dysfunctional organizations that — even accounting for some notable skills and strengths — are on the brink of dissolution.

The automakers chose government assistance over market principles. Because the automakers defied the market’s signals for so long, the market is now crushing them by starving them of cash — consumers’ cash and lenders’ cash.

How much taxpayers’ cash may be appropriated to try resolving this is unknowable, but it will not come with any clear objective of being competitive. The objectives will be political, not organizational, and not market-focused.

The role of the United Autoworkers union has been obvious. The union has worked to ensure that the automakers assume all the risk for its members’ security, and it continues to have federal help upholding that principle.

Months and years from now, we’ll wonder what might have happened if the 2007 labor agreement — by which the UAW agreed to take over its members benefits obligations — had been reached a few years sooner. Even within that agreement, the automakers were obliged to maintain employment totals and operations that were not (in 2007) viable.

The automakers long have realized the restrictions that unions put on their success, and yet with political considerations always in the forefront they have tried to work their way through it.

Can the forthcoming restructuring do any better to define viable, competitive organizations? GM, Ford, and Chrysler may know what it takes to compete in the global automotive market, but with no other cash available to do it right they’ll instead have to do it on the federal government's terms.

One vote against bankruptcy

REB — Wed, 12 Nov 2008 04:21:00 GMT

As GM's cash flow slows, the "bailout versus bankruptcy" debate is picking up speed. The outgoing Bush administration is opposed; Congressional Democrats, and apparently the incoming Obama administration, are for it.

I've argued against it, too, fwiw, but here's an alternative viewpoint that's worth considering. Obviously, bankruptcy leads to a lot of new problems.

For the record, it's not that I think bankruptcy is a good idea; it's just that a straight-up bailout under the Treasury Dept.'s TARP would do little to address GM's (and Chrysler's and Ford's) fundamental problems. (A "bailout" also presents ethical dilemmas for some of us, but that's a separate consideration.)

When everything else fails, try "deregulation"

REB — Wed, 05 Nov 2008 18:30:00 GMT

Lots of responders are ticked off at my last post, in which I argued that a GM and/or Chrysler bankruptcy would be better for everyone than a federal bailout of the automakers. (For what it's worth, the U.S. Treasury Dept. reportedly has denied them access to its $700-million bailout program, which may be why the GM-Chrysler merger is on hold, at least until a new administration takes charge.)

There's a new alternative available to save the domestic auto industry, one that some of those same responders might not like much better.

I still endorse bankruptcy, and I still support ending CAFE standards, but this idea — let GM, Ford, and Chrysler meet those fuel-economy standards without having to uphold domestic sourcing and content rules — would have the particular value of boosting the consumer appeal of their product lines. That, not incidentally, gets to the bottom of the domestic automakers' most pressing concern: cash flow.

But, my e-mailers should not worry. It's not going to happen. There's no one in power or rising to power in Washington who (even secretly) believes deregulation would work. In fact, they're so pumped up with confidence from their union and other anti-free trade supporters that they may even increase the domestic content requirements for manufactured goods. Remember "The Patriot Corporation of America Act"?

The anti-globalists that populate much of the domestic manufacturing scene are feeling vindicated by Tuesday's election results, believing that voters' endorsement of anti-free trade coalitions proves the validity of their arguments. The U.S. Business and Industry Council issued a statement in which the group's president Kevin L. Kearns says, “For too long, American leaders have insisted that borrowing, consuming, and importing could maintain our economic superpower status and a high standard of living for the average American.”

If "borrowing, consuming, and importing" has been a policy, it's been one that voters have wholeheartedly endorsed, until now. And if U.S. manufacturers want to compete in any sense, they ought to reacquaint themselves with the value of "consuming."

Among the demands Kearns and USBIC are making in a post-election policy statement: "Higher and tighter U.S.-content requirements on federal defense-related procurement … High U.S.-content requirements on non-defense federal procurement … U.S. content and technology transfer requirements on inward foreign direct investment … Detailed country-of-origin labeling on all imported foods, drugs and medicines and children’s products."

That's not the whole list. USBIC is piling on the widespread outrage about the no-end-in-sight federal bailout project. But bailouts come in different forms, including regulatory protections of the sort USBIC is demanding. They're demanding policies and entitlements that don't have dollar signs fixed to them, but this is merely an accounting detail. I'll quote a partial list:

A Transition Task Force on Manufacturing Revival – with manufacturers, not investment bankers, representing the business community.
An immediate freeze on passage of new trade agreements.
An Apollo-type program to support and expand current domestic manufacturing, as well as to restore a world-class domestic presence in critical industries devastated by predatory foreign trade practices.
Creation of a new tax system that rewards manufacturing here in the United States – both by retaining/upgrading existing facilities and investing in new plants and equipment.

The outraged voters that anti-free traders believe endorsed their positions on Tuesday will see through all this favoritism, too, because they're only voters once every few years. The rest of the time, they're consumers, and generally free to make different choices.

Too big to save

REB — Thu, 30 Oct 2008 21:11:00 GMT

In this atmosphere of economic, social, and political anxiety, certain ideas and terms seem to take hold very quickly. In politics, there are catchphrase we hear over and over again — “end of the day,” “double down,” “game-changer” — that are meant to push the listener into a conclusion that the facts don’t necessarily prove. “At the end of the day, this election is about …”; you get the idea.

One catchphrase rolling around concerns the idea of General Motors and Chrysler merging. They want to consolidate for several good reasons, but one bad reason is so that they can combine their joint interests in the GMAC credit organization into a bank holding company that will qualify for support from the U.S. Treasury’s bailout program. The rhetorical justification for this incredibly complex proposal is that a combination of GM and Chrysler would be “too big to fail.”

Just a month ago, General Motors alone (as well as Chrysler alone, and that other automaker, too, which I’m leaving out of this so as not to insult by association) was too big to fail — which was one reason the federal government was persuaded to extend loan guarantees that would help them catch up with their global competitors in alternative-fuel technology.

Now, the proposition is that without some move to consolidate their businesses, because of poor sales and weak credit, GM and Chrysler will run out of cash within the next year or so. I’m not an economist or a financial expert, so I won’t contest that point. I trust GM and Chrysler to know where they stand, financially.

I’m challenging this idea that such a combination would be “too big to fail.” It sounds persuasive, but it’s just words.

A few weeks ago I offered that bankruptcy would be the best route to recovery in the automotive industry, and I still believe it. A lot of people (correctly) point out that bankruptcy would punish Tier 2 and Tier 3 suppliers, as well as lots of communities and some states.

That may be true, though I think it’s probably overstated. Keep in mind that the only way for automakers to succeed is to keep investors and car buyers enthusiastically involved with their enterprise. If GM and/or Chrysler is not engaging these markets, some other automaker will do it.

The thing that bankruptcy would do is speed the restructuring of GM (and/or Chrysler) into an enterprise that will engage the market once again. Bankruptcy would revalue assets — which cannot happen amid the current chaos. It would attract new capital. It would identify viable projects and eliminate superfluous activities. It would clarify future obligations, eliminating what’s unnecessary, unfeasible, or impossible.

The reason bankruptcy is a better route to recovery is that the problems for GM and Chrysler are not simply their past mistakes but, much more serious, their future liabilities. A merger would take the best of what’s currently available, but it would still have to address future obligations: wages, pensions, franchise commitments, and many others, not to mention their technological and manufacturing issues.

Bankruptcy would not come without cost or impact, but a merger would have to bring the new organization to many of those same conclusions, and would do so less efficiently. And the outcry over those cuts would be worse, because at that point they will have ripped through more federal money. The government may be willing, but it’s unable to fix this problem.

The market will fix it. Not the financial market that’s trying cut its losses by concocting this “too big” merger. The consumer market will restore this industry: the market of savvy investors seeking a great deal, of creative designers and engineers proposing solutions, of clever managers offering new approaches, and of optimistic car buyers looking for something new.

Little pieces

REB — Thu, 23 Oct 2008 00:00:00 GMT

Earlier this week, at the World Conference on Investment Casting and equipment expo in Dallas, I had numerous conversations that seemed to get around to the same subject: how bad is it? The meaning, of course, was “how bad are our economic conditions,” or, even, “how bad is your/my financial situation”?

The notion that people seek my opinion on such matters surprises me. I’ve been contacted more frequently about my monthly column in the October issue of FM&T than about any other thing I can recollect over more than a decade. In Dallas, some folks seemed eager to know what I’m "hearing." Others seemed anxious to gauge my feeling on what they fear from coming election will mean for the metalcasting industry. Still, others — especially equipment suppliers — are trying to verify rumors about their customers and competitors.

All I offer are little pieces of anecdotal information. But here, in digest form, is a recap of the little pieces I’ve picked up:

Investment casters indicate they are getting along fairly well, though they’re not immune from the fact that credit has been harder to access … it affects them, their suppliers, and their customers;

Companies that have little or no involvement with the automotive market are feeling better about their situation than those who have that exposure;
Foundries that supply components for mining and excavating equipment, power-generation systems, and medical devices continue to feel confident about their prospects; and,
Companies that have long-established relationships with local or regional financial institutions are more assured of their standing than those who have accessed private equity, or that are financed with credit arrangements from larger banks and investment groups.

All of this is fairly obvious stuff you could conclude on your own, with only a little bit of patient thought. It doesn’t take me to say this; and hearing it from me doesn’t validate it more or less than if it came from almost anyone.

Patience, however, is one thing I detect very little of in my conversations and correspondence. People, in case you have not noticed, are tense, anxious, and in some cases desperate for reassurance that “normal” circumstances will return.

Seeking “normal” is always hard. How do you know it when you’ve found it? And, lately, our so-called leaders haven’t helped us in this effort. The financial community that always counsels confidence is panicking, and the political crowd is frantically pestering us with “change.” How can we be expected to show confidence?

One way is to seek assurance from others, as various inquirers have done to me. Another way is to exhibit confidence even when you’re not at all sure you have it. For an example of the opposite, I offer this: a foundry superintendent we contacted as part of our annual Business Outlook survey took the trouble to return the form in the envelope provided — scrupulously torn into little pieces.

The pieces were not so little that I couldn’t reassemble the address label. I won’t tell the name of this fellow, or the location of his foundry. But, I won’t be seeking his opinion any longer.

The confidence game

REB — Fri, 17 Oct 2008 19:44:00 GMT

Sometime earlier this week I noticed that reports and commentaries about ongoing financial issues had adopted a new catch-all term, “the global crisis.” It's accurate I guess: the financial reversal is global, in as much as anything is global. It certainly feels like a crisis to me. In most situations, however, this would be just about enough to convince me that all the serious concerns are over. Typically, once a general consensus descends on one subject, it’s time to embrace the alternative.

This seems to be Warren Buffet’s view, too.

Being an IRA/401K/CD/mutual-fund sort of person, I’m not really market “wise.” In truth, I’m no fan of Buffett; for my taste, he’s too free with advice about public polices that affect people who can’t afford to pay for the implications as easily as he can.

But, on market strategy he’s obviously informed. “A simple rule dictates my buying,” he writes. “Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

If I were more market-wise I would be an investor, because I believe that, too. And, the advice is sound even if “invest” is replaced with “spend” (a word-swap politicians seem fond of making), and this observation is directly relevant to the metalcasting industry. Castings are critical components of capital equipment and infrastructure, so any revival in economic activity is likely to spur demand for castings. Which is good news, of course, but also a reminder to foundries and diecasters that slow periods are the best times to make their own investments, in supplies and equipment.

It's big, like Texas

REB — Fri, 10 Oct 2008 14:06:00 GMT

Readers expecting some deep thoughts or clever commentary may have to check in later. Partly out of a desire to relieve the gloom in the daily news, and to give a new perspective on hard work and ingenuity, I'm taking a little break from observations and analysis.

This post is about one thing:

Where I live and work, we don’t often see this sort of thing. I recall a series of Hulett machines used to unload iron ore from lake carrier holds, and I’ve seen some unusual mechanical bridges that are designed lift, or rotate, or cantilever out of the way to make way for river traffic. I watch Modern Marvels pretty frequently, and I've visited deep underground mines and open-pit operations, and I've never seen anything like this.

This “crawler bucket-wheel excavator” is quite simply the most astounding machine I’ve ever seen. (No doubt it was built with a lot of cast parts.) Notice how small the two guys in hard hats near the track appear by contrast.

And, it’s for sale. Richie Bros. Auctioneers are offering this Demag HD800 “to the highest bidder, regardless of price,” at an upcoming unreserved public auction in Fort Worth, TX. Alan McVicker, Ritchie Bros. regional manager, says, "I've never seen such an impressive - or enormous - piece of equipment."

The excavator is taller than a six-storey building and capable of moving 5,940 cubic yards/hour of coal and dirt. The auction house calculates it can move as much material in one day as would fill 44 Olympic-size pools.

The auction will take place December 3-5; the bucket wheel assembly will be sold on Dec. 4. (If you could cut it all up, it would make some good ferrous scrap. I can't comment on the comparative cost.)

Care to inspect the goods? Visit the excavator at the Jewett Coal Mine in Jewett, TX, between Dallas and Houston. (I know, that doesn't really pin it down, but it's Texas. It's BIG!)

The point I was making

REB — Mon, 06 Oct 2008 03:27:00 GMT

A few weeks ago I wrote a column about what I see as the inevitable ratification of the Employee Free Choice Act, a legislative effort that has already been approved by the U.S. House of Representatives, and is pending approval in the U.S. Senate. Depending on the outcome of the presidential election, it will be enacted.

EFCA will “amend the National Labor Relations Act to establish an efficient system to enable employees to form, join, or assist labor organizations, to provide for mandatory injunctions for unfair labor practices during organizing efforts, and for other purposes.” Clearly stated, it will eliminate the rule that mandates secret-ballot voting for union affiliation. Unions will need only to present signed cards representing a simple majority of workers to force unionization of a plant or company.

Many opponents of EFCA have argued that it contradicts democratic principles because it exposes employees to intimidation from union organizers.

My argument in the column, and even still, is that this objection is insufficient: it’s true that EFCA upends democratic principles, but it’s not necessary for unions to operate according to democratic principles. Unions have no obligation to be democratic. They don’t exist to uphold or promote democracy; they exist to coalesce interests and to exert influence.

That exertion of influence is what has brought EFCA to the brink of ratification. And, exerting influence is exactly how unions intend to reverse many of the circumstances they object to most strenuously. In the column, I sought to describe how the unions’ expanded influence would change manufacturing once EFCA is enacted.

I got a few e-mails in response, most of which rapped me for writing too vaguely. That’s fair.

Then, more recently, I got a call from a retired foundry executive who wanted to change my mind. I must oppose EFCA, he stressed, and I must strenuously encourage readers to oppose it, because it will strip non-union foundries from the ability to work amicably with their workers. He offered as an example the company from which he’s now retired, where labor relations have been satisfactory for decades, contributing to long-term success for the foundry, and its workers, and a cooperative spirit all around.

Our conversation was entirely friendly. I rushed to point out that I agreed that enacting EFCA would be bad news for small manufacturers: I’d tried to make that clear in my column. But, apparently he missed my point, or I didn’t describe the bad effects in terms dire enough for his point of view.

It will be a death sentence for many non-union employers, he insisted. There will be no way for these employers to compete versus the organizing latitude and financial might of unions; and once their plants are unionized there will be no way for employers to keep up with the demands and strategies of unions.

He urged me to write again about all this, but I offered instead to print his letter if he’d put his arguments in print. True to his promise, his letter arrived by Fed Ex within a day or two. (It will appear in FM&T’s November issue.)

Late last week my correspondent called again. He asked me to identify him as “retired foundryman,” rather than to list any affiliation with his former employer. “They’d come down hard, and make us miserable,” he said, referring to the labor unions … which was the point I was making all along.

For what it's worth

REB — Sun, 28 Sep 2008 18:37:00 GMT

Amid all the financial chaos of our age, the domestic auto industry will get the $50 billion in federal loan guarantees it has been seeking, to finance more rapid development of fuel-efficient vehicles. The U.S. House of Representatives approved the first $25 billion earlier this week, and the other half is expected to come through next year. (There’s a fairly even-handed examination of it all here.)

Some of us just can’t get used to the idea of the federal government handing money to private enterprises, whether or not those enterprises can be expected to manage it well. “It’s the principle,” we like to reiterate.

But, the case of the auto industry is said by some to be more crucial to our economic well-being than others, because of its role as an employer, a driver of economic activity, and a source of technological development. It may be no coincidence that GM and Chrysler this week made official their plans to build new engine plants.

Proponents of the auto-industry support in this case point to the federal government’s $1.5-billion “bailout” of Chrysler Corp. in 1980, and hasten to declare that to have been a good investment.

But, I’m less convinced that the 1980 bailout was wise. Chrysler stumbled along until its fortunes were revived by the minivan, a development that automotive “experts” and environmentalists now decry as bad for the domestic industry because it delayed their acceptance of new designs. And, Chrysler never achieved more than a third ranking in the domestic market, and it sold itself to Daimler in 1998. Now, that sale is undone, and Chrysler and the rest are back in line for federal assistance. Who’s to say where all this would stand if the federal government had just denied Chrysler in 1980?

That was then, this is now. And now, the money to be offered is considerably more than Chrysler got in 1980. (Adjusted for inflation, Chrysler’s 1980 bailout would be worth about $4 billion now.)

Whatever justification there may be for these loan guarantees, there is a new question worth asking: will it matter in the context of the larger financial mess we’re growing to understand? Automakers need auto buyers, and buyers need to be able to finance purchases of new cars, frequently. Domestic automakers have been coming to terms with their internal problems; we can only wonder what will help them overcome the problem of overtaxed, under-capitalized, malaise-ridden customers.

Update Sept. 30: Here's more detail that will add to the last sentence of the original post.

Wall Street, Main Street

REB — Sun, 21 Sep 2008 16:10:00 GMT

For the past few weeks it’s been frustrating to hear politicians and opinionators (TV, radio, print, Web) make the rhetorical link between “Wall Street” and “Main Street.” The implicit message is that Wall Street is “them,” the greedy bad guys who are responsible for all the poor decisions that bring on economic anxiety. Main Street, of course, is “us,” the good, hardworking people who haven’t done anything to deserve all this anxiety.

First of all, anyone who thinks “Wall Street” is the New York Stock Exchange is wrong. It isn’t even the frenetic scene of equity trading we can watch on cable TV. It is the vast fourth dimension of finance that underlies most of modern civilization. Yes, it’s that enormous. Wall Street is anywhere a financial arrangement exists.

It is embodied in stock markets, to be sure, but it’s also alive in debts and mortgages, and contracts covering employment and service, and in wills and insurance policies. To be a bit rhetorical, it is “all the money in the world.”

There are some pitiable places where it doesn’t exist (Darfur) and some places where it manifests itself in hideous ways (Waziristan); in other places, authorities are trying to control it (Russia, China) or worse, to own it (Venezuela), for their own purposes.

“Main Street” isn’t a quiet, safe, ordinary place in some idyllic American town. Even if that were the meaning, what once happened on “Main Street” is now happening at a strip mall or highway exit outside of town. It’s happening at Home Depot and Wal-Mart — two places that opinionators frequently scourge when their moral compasses aren’t spinning about Wall Street.

Main Street is any financial activity that passes money from one party to another. It’s household purchases (food, clothing, goods) and its housing purchases (real estate.) It is paychecks, personal checks, ATM activity, sales taxes, and tips. Some of it is illegal: undocumented workers, for example, or dealing in narcotics.

The point that politicians and others fail to acknowledge is that Main Street needs Wall Street. We have to have cash (or cash equivalents) in order to proceed with our lives and to make our innumerable choices and transactions. Those choices are the ways we define our liberties, but if we don’t have businesses to employ us, to stock our retail operations, to provide regular services, who will do these things?

By supplying the structure and directing the capital, Wall Street makes Main Street work. There is a difference between Wall Street and Main Street, but it’s a matter or function, not value. What’s more significant is the continuity the two. The interaction of Wall Street and Main Street is what makes us free individuals.

We should expect public officials and commentators to be smart enough to understand this, and not to make simplistic equations about who's right, or wrong, or good, or bad. But if they’re not that smart they don’t deserve our attention. Moreover, they should be smart enough to know that their listeners know the difference between Wall Street and Main Street, but if they think we’re not that smart, they aren’t to be trusted.

Help wanted

REB — Thu, 11 Sep 2008 16:58:00 GMT

We run Classified ads in our magazine and on our website, proving (for any doubters) that there are jobs to be filled in metalcasting. But, there are essential “jobs” aren't being filled, jobs that fall outside the responsibilities of one individual — indeed outside the responsibilities of any single company. An industry that’s changing as quickly as metalcasting is changing needs qualified and capable people guiding and advising it through the development process.

One place where more of this type of manpower, and brainpower, is needed is the AFS 1-E Engineering Committee. The committee leaders tell me they need more active members in order to address the issues that characterize the different ways foundries and diecasters operate today.

Resources are tight everywhere, we know, and everyone is busy — too busy. It seems that active participation at the 1-E Committee is one casualty of that problem. (This is not the only AFS committee needing more active participation, I’m reliably told.) And the problem is more acute because the 1-E Committee’s agenda is so critical.

They recognize that engineers and operators in metalcasting need to recalibrate the nature of their specialties in order to match the demands of their jobs. So, Brian Mervau, of Dalton Corp. and Don O’Connell of Neenah Foundry Co. believe the 1-E Engineering Committee needs to be refocused so that it covers topics and problems that relate to “process management.”

"Principles of industrial engineering remain a fundamental requirement of successful manufacturing,” O’Connell emphasizes. “However, the application of these principles has evolved and the 1-E Committee must as well."

“We need to redefine our mission,” Mervau concludes. Undoubtedly lots of foundries could benefit from process management advice. Maybe they just don’t realize there’s a committee trying to address their problems, but waiting to be approached. Maybe the don't even realize some of their problems are the effects of this shift in emphasis.

Among the Committee’s recent initiatives have been a series of process-improvement seminars at various host foundries, at which students are given extensive tours so that they can gain insights to metalcasting in practice. And, in their observations these visitors can recommend improvements based on their own experience or studies, which may be helpful and/or constructive to the operators.

Another initiative involves the two-day ““Manufacturing Engineering” workshop that the Committee is developing. But, such programs demand willing volunteers to organize them, and active attendance in order to make the presentations valuable. Mervau emphasizes that the committee needs input from general managers and “production management types.”

That would not only make the programs more valuable, but would expand the range of ideas in discussion. O’Connell indicates an interest in scheduling more topics derived from Lean manufacturing theory and practices, i.e., process improvement strategies that can be implemented by small and midsized companies with reasonable expectation of success.

“With more skills and talent brought to the table,” Mervau explains, “we would be able to broaden our offering to host companies for training seminars and programs. The longer our laundry list of experience the better we could serve the unique challenges brought to us by anyone in the foundry industry. We don't want to limit our membership to just IE's. We need general management and top level managers from all areas also.”

Translation: the extra brainpower will be valuable, but the extra manpower is also critical. The committee needs better attendance, because while the six active members of the 1-E Engineering Committee are dedicated and committed to serving the AFS and industry generally, they don’t have the as much time available as the "job" requires.

There is no end to the examples of good ideas that go undeveloped because people are too distracted or too unfocused. And there are good ideas that get overlooked because there are no resources available to develop them. The problem for 1-E Engineering Committee seems like a hybrid of these: It’s a solution waiting for good people to discover it.

Too easy money

REB — Sun, 07 Sep 2008 14:30:00 GMT

We’ve arrived at the point where U.S. government bailouts hardly draw commentary. The announcement that there is a deal in place for U.S. taxpayers to cover the shortfall of two mortgage underwriting firms — firms that are failing because of bad business policies, bad management, and bad oversight — is just a weekend story that will be old news within a day. Just one more bailout.

Next in line for a bailout, apparently, is the domestic auto industry, which is hoping the feds will fund $50 billion of low-interest loans the carmakers promise to use in their efforts to modernize operations and develop more fuel-efficient vehicles. (The loan, by the way, has already been authorized by federal law, thanks to last December’s comprehensive energy bill.)

Calling it a “direct loan program,” GM North America president Troy Clarke wrote in the Wall Street Journal that it “is intended to lower borrowing costs for auto makers and suppliers to invest in designing and building more energy-efficient cars and trucks. The ultimate purpose is to accelerate existing product programs in order to get these vehicles on the road quicker. And yes, these loans must and will be paid back.”

But that’s the auto industry’s side of the argument. What explanation do federal officials offer? So much federal money being thrown at problems as a way for federal officials to give the impression that “they care” is now giving the opposite message: “Who cares? It’s just money.” It also indicates they have forgotten how markets work. By overfunding bad risks, they are wasting taxpayers' money and prolonging economic decline.

In this year alone, we’ve witnessed a hasty distribution of government money to individuals; a bailout of the investment bank Bear Stearns; and now the Fannie Mae/Freddie Mac non-outrage.

The automakers' argument that their industry will in fact advance technically as a result of the federal loans should not be the interest of the federal government. As irresponsible as Detroit has been with investor’s money, you may nevertheless be sure that some private investors would be willing to make this bet, if they thought it worth the risk.

Everyone knows Chrysler, Ford, and GM are in financial trouble: need should not be a federal consideration either. The automakers are in their current positions for various reasons, many of them “excusable,” but that doesn’t make them good credit risks. Many of these problems have been apparent for more than a decade, and still the automakers have not demonstrated sufficient commitment to improvement to change the public’s or investors’ views. Nor have they shown enough vision to persuade us they’d be responsible with the loans.

Everyone, too, knows that the difficulties of the automakers put at risk lots of other companies, and millions of workers, retirees, and investors. But let’s be clear: the responsibility for the workers and the retirees is going to fall to the federal government in any case, if the automakers fail in their obligations to them, and investors are (presumably) advised of the risk of their investments.

The issue that ought to be considered in this discussion is neither need nor risk. It’s propriety. Federal law provides a solution for companies in trouble: it’s bankruptcy. Even federal bankruptcy laws are not entirely fair to creditors, but typically the companies that declare bankruptcy don’t do so in order to prolong their profligacy and mismanagement. Bankruptcy would demonstrate a better commitment and a faster route to an automotive turnaround than federal loans can achieve.

The job ahead

REB — Fri, 22 Aug 2008 18:00:00 GMT

Burgeoning demand for capital goods, especially in the heavy equipment market, has gone largely unnoticed in the past year, and that was one reason I was glad to be able to include this month’s FM&T feature story by the Steel Founders’ Society of America’s Raymond Monroe. Earlier this week the Wall Street Journal veered into this subject in a report about “manufacturers and construction contractors scrambling to find enough skilled workers to plug current and future holes.” There is a lot of money tied up in infrastructure and capital goods projects — and those investments need to be supported by reliable and productive workforces.

Labor and employee management are subjects that are never far from the minds of metalcasting executives and operators. The next issue of FM&T will have a report examining the looming threat of unionization if the Employee Free Choice Act becomes federal law during the next president’s administration.

But, in more general terms, the difficulty of recruiting good and talented people is a longstanding concern. The aging demographics of manufacturing workforces have been noted for more than a decade, as nearly as I can tell. The Journal report offers some clever examples of the ways some groups are working to catch the attention of good job candidates.

But, my own observation about this situation is that the “problem” isn’t merely a matter of recruiting good candidates: it’s also a matter of keeping them once they've been located and hired. As I wrote a few weeks back, I recently met a young man who’s rising fast in a good foundry organization, a talented individual who never considered his current career — but "lucked" into it. The foundry got lucky, too, I should say.

This young man, I suspect, would have succeeded in almost any career he chose to put his heart into, and in the coming years he will have that opportunity. Other foundries may offer him positions. Companies in other industries may see his potential for their own organizations, and woo him with attractive rewards and ideas.

Foundries and diecasters need to have viable and actionable organizational strategies in order to attract the best candidates, and to keep the good people they recruit. Even more important, they need to have that plan so that they know what they want to do, and to judge who they want to help them to do that.

I would be gravely mistaken if I didn’t use this subject to extol the good work done by the Foundry Educational Foundation over six decades to develop new generations of metalcasting leaders. FEF has an ambitious Endowment Campaign underway, which deserves support. As of August 1 the Campaign is more than 30% subscribed toward its $7.5 million goal, and they will succeed in reaching that goal because they have never failed in any important effort. But, your contribution would be a big help.

Safety in numbers?

REB — Fri, 15 Aug 2008 19:27:00 GMT

Chapter 11 may be the safest place for some metalcasters in the coming weeks or months. Intermet Corp., despite some resourceful management efforts over the past three years, checked itself into bankruptcy court this week. It’s the second stay there for Intermet – which filed for creditor protection just about four years ago under circumstances that were similar to what’s happening now.

Back in 2004, the issue that tripped up Intermet (and Citation Corp., too, by the way) was the steady rise in raw materials and energy prices. Those issues are still serious concerns, but now there is also the ominous situation of the automotive industry … the major customer for many metalcasters.

Intermet’s filing was the news of the day on Wednesday this week, but the word on this impending heartburn went out earlier with the release of the Summer 2008 Automotive Industry Review by the business think-tank Grant Thornton L.L.P.

The report speculates that about 30% of all North American auto parts suppliers may be on the brink of bankruptcy because of declining vehicle sales (especially trucks) and increasing commodity costs. Grant Thornton sees no relief in sight for suppliers who are heavily concentrated in the truck/SUV segment. And, it sees no potential for these manufacturers to pass on to customers the steadily rising costs of raw materials.

According to a statement by Grant Thornton’s Kimberly Rodriguez, "The decline in (automotive) industry volumes and the shift to more fuel-efficient vehicles is creating a massive ripple effect in the supply chain. The full impact of very low truck and SUV production in the second half of the year and any new production cutbacks this fall—something we believe is likely—will only make supplier cash flow problems more difficult to manage."

All this has been apparent in the metalcasting market for much of the past year. Diecaster Spartan Light Metal Products is not in bankruptcy, but it has started scaling down its operation in the hope of surviving “overall weakness in the U.S. economy.” Spartan reportedly has been particularly hard hit by Ford Motor Co.’s lower production volume (though, its own statements only refer to customers that have made “dramatic changes in their order patterns.”)

This is the effect of a U.S. economic pattern that has been developing for at least a year. Manufacturers were initially confident that the declining value of the U.S. currency would enhance their sale opportunities to global customers — and in various cases, it has done so. But, the declining dollar devalues everything it touches, and punishes everyone whose income is paid in dollars, whose purchases are made in dollars, and whose assets are valued in dollars. That means everyone.

It's always possible to find good news amid the gloom. The recent pattern for bankruptcies in the metalcasting market suggests success with a "pre-packaged" approach that will revamp the financial side of a business while the operations continue as usual. That would make sense for Intermet, where most of the past three years have been dedicated to organizational overhaul and a renewed customer focus. If so, it would be another sign that, as the researchers detect, the problem is with the market, not the manufacturer. And that may mean Intermet won't be alone in court.