Foundry Management & Technology

Taking another whack at productivity

REB — Tue, 09 Mar 2010 15:07:00 GMT

“For a quarter-century,” write Alan Tonelson and Kevin L. Kearns in an op-ed published over the weekend in the New York Times, “American economic policy has assumed that the keys to durable national prosperity are deregulation, free trade and a swift transition to a post-industrial, services-dominated future.” I don’t know if that’s all true.

It seems to me that economic policy since the Reagan Administration has been a tug-of-war between idealists who propose agreements to open up trade with as many other nations as possible — NAFTA being the most obvious and controversial example; and idealists who portray the viability of a self-sustaining domestic market, in which domestic products always get tax and regulatory benefits to ensure the viability of the organizations that produce them, regardless of the value of that enterprise, or of the cost to the consumer.

But, that’s not the point of the column, which is illuminating. It should be read and understood, because Tonelson and Kearns are sharp observers of manufacturing and global economy. As representatives of the U.S. Business and Industry Council, an association of small manufacturers, they have influence in the debates over national economic policy.

The writers’ point is to highlight what they see as a deception in economic analyses, specifically those measuring growth in terms of “productivity.” They observe that the U.S. Dept. of Labor measures an organization’s productivity by counting hours worked by domestic workers, even if the organization includes workers overseas. For example (my example, not the writers), an organization that imports semi-finished products for final assembly in the U.S. would be credited for the total value of the finished product but only the labor of the domestic workers would be factored into the production cost.

“The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change,” Tonelson and Kearns write.

They contend that this method leads economists and analysts “to assume that recorded productivity gains always signify greater efficiency, rather than simple offshoring-generated cost cuts — leaving the rest of us scratching our heads over stagnating wages.”

I trust they’re facts are correct, but it seems to me they overlook the enormous influence of technology. For metalcasters, the productivity-enhancing effect of automation and process control has been tremendous. Adding an automated pouring line, for example, allows a foundry to produce castings for hours at a time without interruption, reducing total labor costs obviously but also increasing the total output of high-quality finished goods.

Understood this way, it’s clearer that “productivity” has been the reason that the domestic metalcasting industry has endured significant declines in the total number of operations (and, of course, total employment) without a parallel decline in output.

It’s also illustrates why “stimulus” spending in many industries has not and will not reverse chronic unemployment in manufacturing. Manufacturers don’t have to hire lots of workers to achieve productivity. Discounting the impact of "productivty," or reevaluting the cost of achieving it, will not change the way manufacturers conduct their businesses.

The federal stimulus is not the target for Tonelson and Kearns in their column, but it is another dimension in the broad discussion of how manufacturing is understood, and misunderstood, in federal economic policymaking.

Out in public

REB — Thu, 04 Mar 2010 15:44:00 GMT

Today's Wall Street Journal report on private-equity investment in metalcasting companies treats the subject as though it were a new development, a trend. I don't know about that. It seems to me that I've written about private equity several times in the past four or five years, or more: it's simply not possible to follow the changes in ownership, the bankruptcies and reorganizations in metalcasting over the past decade, without recognizing the role of private-equity investment.

So, the general thesis is deceiving. But, the report is well worth your time because it sketches the logic and challenges of the consolidation now ongoing in the metalcasting industry. It's a consolidation that almost everyone recognized would happen, but no one could accurately time. The private-equity investors are confident they are timing it right.

The money has to come from some place; if past owners or investors could have made the investments in new equipment and technology, surely they would have done so. And, their expectation of return on their investment may have been more lenient than private-equity investors are alleged to be — but perhaps that eagerness for a return is why they have the money now to make these investments.

Where the money comes from is not important. How it's invested is critical to everyone.

Forced labor

REB — Tue, 02 Mar 2010 16:41:00 GMT

About two weeks ago the word came from General Motors that an investment program will begin soon to prepare three plants to produce the newest version of the Ecotec engines.

It’s a $494-million project, and among the plants to be favored with that investment is GM’s big metalcasting complex in Defiance, OH … so, a big salute to the automaker for recognizing the importance of its basic operations.

On the other hand, the GM hasn’t told us much about how the money will be spent — which it might have been smart to do, considering who owns the company now.

Rather, the release used various adaptations of the phrase “fuel efficiency” to make us believe the money is being well spent. The real point of the release was to tell the world that GM is hiring about 550 workers.

The first and most prominent quote in the release was offered by automaker’s vice president for labor relations Denise Johnson:

“GM is transforming its product portfolio to reduce fuel consumption and emissions, and the next generation Ecotec engine is an integral part of that transformation,” Johnson stated. “The investment in state-of-the-art four-cylinder engines is another example of GM’s commitment to replace larger-displacement engines with more compact, advanced four-cylinder engines that optimize fuel savings and performance. We look forward to working with our union partners at these three plants to make this investment a success.”

Another quote in General Motors release about General Motors investment plans to manufacture new General Motors products was offered by UAW International Union v.p. and director Cal Rapson: “This investment is important because it supports manufacturing in the United States. All three plants have a strong reputation for building quality and focusing on the needs of our customers.”

Customers. Right. Sure.

Not long ago, a capital-improvement project, even at a fraction of this value, would bring forth pages of detail about the products to be produced, the technology to be deployed, and the timing of the project. There was good word-of-mouth publicity to be gained by exciting car enthusiasts, investors, and the public about the insight and capability of the company.

Now, we’re in a deep manufacturing rut and changes have been wrought that have bothered and disappointed almost everyone at some point. I’m not rapping GM for how it got into this position. And, to be clear, I am very glad they the automaker is hiring workers.

And, GM is not the only one pushing the notion that hiring = success.

But, an investment like this deserves some context — for the sake of GM's image and for the understanding of the public that cares, or ought to care, about how General Motors is improving.

Hiring workers on this scale when the U.S. economy has a chronic level of unemployment deceives readers and interested parties about the current state of affairs at GM. And, the prominence of this message in an announcement of this sort disappoints those of us seeking to reestablish confidence in a critically important company — and a critically important segment of the economy.

Still waiting

REB — Mon, 22 Feb 2010 19:06:00 GMT

There will be a metalcasting revival someday, soon, perhaps, but until it’s clear that the industry is reborn it’s going to endure a series of sad demises. We reported two of these closings within the past week, both of them in Indiana. Neither one represents the end of a particular company, but rather the twists and turns necessary to sustain them in a manufacturing economy that’s struggling to come back to life.

Indiana has been notably hard-hit in this ordeal, and this report from there compares the ongoing business cycle to past recessions and recoveries. It also offers some examples and insights that demonstrate why recovery may take longer than forecast, and some of the incongruities of productivity and prosperity that I’ve referred to in the past.

The recession, not incidentally, is over. There have been indicators of economic growth for about six months now, the latest being that the U.S. Producer Price Index rose 1.4% in January, following a 0.4% increase in December. This is explained as the effects of factories increasing their levels of production, and that’s unquestionably a good thing.

But, assembling economic data points into a coherent and sustainable message is hard, because there are always so many points to reconcile. Everyone is welcome to his opinions, but the truth is made up of lots of facts – and not every fact is easily dismissed.

This is one reason that we’ll never know the real effects of last year’s $787-billion federal stimulus package. (The cost, by the way, has been estimated upward by another $75 billion, according to the Congressional Budget Office.)

The stated purpose of the stimuls was to restart economic activity, and to rescue failing companies, especially in manufacturing. As we can see in Indiana and most other places, the only clear result has been to delay and distort market economics, mostly in favor of large employers at the expense of their smaller competitors and many of their suppliers.

Unfortunately there are more foundries and diecasters in the latter categories than in the former. There will be a reborn metalcasting industry, someday, but it might have emerged a bit sooner, without any hint of favoritism, and at less cost, without the effort to delay it from happening at all.

Technology catches up

REB — Tue, 16 Feb 2010 15:13:00 GMT

About two years ago I did some research into radio-frequency identification technology — RFIDs, as they are commonly called. The suppliers of the technology and equipment that I spoke to then were very glad to explain how it worked, its advantages, etc.

They detailed how RFID systems work for parcel delivery companies and retail operations, which use the systems to manage inventory. In industrial settings, RFIDs direct AGVs or other robotic devices, which is a logistics application that has cost saving implications. Some integrated steelmakers then were using RFID technology to track finished coils. But, though I pressed two or three different RFID suppliers, they were unable to point me to any applications in metalcasting.

We published a report last month about an RFID application for tracking molds. Now, I’m glad to learn that the same application has been adopted for commercial use, tracking cores for a brass and bronze foundry.

This is exactly the sort of example I was looking for two years ago: a manufacturer that uses available technology to monitor mass production. It doesn’t sound revolutionary in that description, but it’s a big advance for quality and cost control. The foundry managers should be congratulated for their foresight.

It’s also a hopeful sign for all metalcasters that their operations have been “identified” by developers of emerging technologies. They’re being tracked – which shows they are valuable.

Employment prospects

REB — Tue, 09 Feb 2010 02:15:00 GMT

It seems that high unemployment rates will been around for a long time. That’s bad for everyone, but if you’re among the unfortunate many who are looking for a new job, it’s worse. And, while there will be no escaping the long discussions about jobs programs and manufacturing policies, if you need work you need it now.

According to a Kiplinger.com columnist, these are the 13 professions “that promise income growth, work-life balance, and social impact”:

Higher-Education Administrator
Program Evaluator
Corporate Executive in Global Business Development or Managing Global Workforces
Cognitive-Behavioral Therapist
Immigration Expert
Researcher (in energy, genomics, neurophysics, diagnostic imaging, pollution control)
Health-Informatics Specialist
Optometrist
Genetic Counselor
Patient Advocate
Physical Therapist
Veterinarian

Apparently — even for all the discussion and incentives to encourage the expansion of domestic manufacturing — no manufacturing sector promises income growth or any of the other rewards of employment. I’m sure there’s a lot of good to be done in the fields listed here, but if Kiplinger’s research is reliable then we have an even more serious problem than high unemployment.

The problem is that these jobs require training and specialization, which often costs a lot up front, and each one is essentially a service to someone or something else. The work done by individuals in those fields is not creating new, valuable products.

Remember a year or so ago some of us were wondering whether economic panic was going to rush us into socialism? It was a concern about economic liberty, and the importance of liberty to capitalism. I don’t want to revive that debate, but we ought to remember another critical element of capitalism: capital.

Using liberty and capital we find the means to take things of a certain (or even of no) value to create new value, or even prosperity. That’s our reward. That is growth, and and policies or initiatives that will speed more of it will ensure a more secure future for everyone.

Supply chain snags

REB — Tue, 02 Feb 2010 03:43:00 GMT

Last week ended with some cheering economic news: the total U.S. economy grew by 5.7% in the fourth quarter of 2009 versus the third quarter. It was the fastest rate of quarterly growth since 2003, and indicators show it was largely the effect of inventory restocking. This is an additional hopeful sign, as it means manufacturers see a need maintain a higher level of readiness for business improvement.

But, there is trouble in the supply chain: MFG.com, an online marketplace for the manufacturing industry, reports that over one third of North American manufacturers it surveyed have experienced “significant supply chain disruption” over the past three months. It’s the second straight quarter for such a response.

Also worrisome: the respondents’ expectations for capacity and employment growth have not materialized. In October 2009, the MFGWatch survey found 62% of respondents expected to maintain operating capacity in the fourth quarter, but in the more recent survey only 34% said they had done so.

As for employment, 13% of manufacturers stated in October that they anticipated staff reductions, but 38% actually reduced their employment levels.

MFG.com conducted its latest two-part survey in early January 2010, targeting North American supply-side manufacturers and buy-side OEMs: 334 manufacturers, purchasing pros, and engineers in automotive, aerospace, medical, industrial equipment, consumer products and textiles responded.

“Manufacturing continues to lag behind other sectors in the American economy -- and of all the challenges we face, employment appears to be the most serious at the moment,” said Mitch Free, founder and CEO of MFG.com. “While there are opportunities, and the national debate is focusing more on manufacturing’s role in our economy, it will be difficult to take full advantage until we revitalize manufacturing investment and stimulate growth.”

High-concept manufacturing

REB — Tue, 26 Jan 2010 15:34:00 GMT

Lots of smart people have been pondering the future of manufacturing lately, bringing forth big ideas about how to overcome its weaknesses and restore its dynamism. Generally, this is a good thing. Human nature needs inspiration, and aspiration. But, we need organization, too. After a year or so of promoting “green” and “clean” manufacturing, the Obama administration shifted to emphasizing a new “manufacturing framework,” which at least brings more recognizable objectives to the discussion. The policy is still filled with a lot of vague objectives, but it’s closer to reality than we’ve seen in the past year.

But, the big-ideas crowd still have plans for the future of manufacturing, and another vision headlines the current issue of Wired magazine. There, techie theorists are encouraged to believe that everything that can be manufactured can be dreamed up and executed in a garage — presumably with the same horizon-stretching impact of Microsoft, famously founded in similar fashion in the recession of 1974-75.

I suspect this is a concept that investors and consultants will pick up eagerly. It’s low-cost, high-concept. It’s lean. It’s green. It’s pleasant. It’s even got some validity in terms of the potential for design of manufactured products, and the opportunities for small-scale production. But, to suppose that a manufacturing sector can be built around such concepts almost completely avoids two very big ideas that actually define manufacturing: supply and demand. Entrepreneurs are welcome to hatch concepts, but there is no promise anyone will ever buy them.

Redefining manufacturing as something other than a series of interdependent decisions and actions along a complex supply chain is interesting, and often necessary. But, there’s more to vision than a big concept. There has to be a realistic plan for getting from the present to the future.

Doing less with more

REB — Wed, 13 Jan 2010 19:21:00 GMT

Officially, the recession of 2008-2009 is over. Stock prices are rising, as is the overall level of industrial production. But, if the policymakers in the federal government and the Federal Reserve Bank think they’ve succeeded they are wrong: lingering unemployment will mean that economic growth will be tepid, and may not be lasting.

Last week the December U.S. Dept. of Labor jobs report revealed where some of the problems are: Small and midsized companies are showing particular weakness, continuing a pattern that has been in place for almost two full years. Only the fact that more than 660,000 out-of-work people gave up their efforts to find a job has kept the rate of unemployment from rising above 10% of the workforce.

Without work, people cannot spend as they wish or as manufacturers and retailers expect them to do. Thus, stock prices may rise, but revenues (especially for non-financial institutions) do not.

This dependence on consumer spending was supposed to be reversed with last year’s $780-billion federal stimulus program. Foundries and other manufacturers were supposed to benefit from the federal capital that would finance “shovel ready” projects.

Now, the Associated Press reports that stimulus spending has had no discernible effect on unemployment.

“It’s too soon to judge,” proponents of the stimulus plan may say – with some justification. But, note that the unemployment rate has risen in the months since the stimulus was authorized, and that it now lingers around 10% Waiting a year or more for a strategy to take hold, even while other financial indicators suggest a recovery is progress, confirms there is a more complex relationship between private-sector economic activity and companies’ hiring plans than is anticipated by the federal stimulus strategy.

One of the most consistent arguments against the stimulus— and against the expanding government role in financial markets in general — has been that it inhibits private businesses from making its choices about their futures. Between the federal grip on banks (which makes it difficult for companies to borrow) and government plans to revise energy and health-care policies (which makes it difficult for them to forecast their operating costs), small and midsized companies are keeping their heads down, hoping that the storm will pass. (This column details their resistance better than me.)

But there’s something more, and the notion that government planners seem not to have anticipated it is telling. Even if their prospects improve and their inhibitions are calmed, small and midsized companies will be slow to start hiring new workers because they are precisely the sort of organizations that are committed to “doing more with less.”

A culture of “productivity” infiltrated U.S. business during the last decade and a half, and it has not been eliminated by the recession: rather, the devotion to saving costs while improving results may become more intense. For managers and operators seeking to enhance their business’ performance, improving revenues will only confirm for them that it’s possible to succeed with fewer workers than before. That federal strategists overlook this point tells more about their lack of understanding of private business than that they believed heavy stimulus spending would jump start business in the first place.

The clock is ticking

REB — Tue, 29 Dec 2009 15:44:00 GMT

The end of a year brings a certain degree of gloom. That’s certainly warranted in the various cases of foundries and diecasting plants that will not be around in 2010: happily, there are some of revivals to come in the near future, and there remains some admirable fortitude about the future prospects.

The metalcasting story is an important one, but the bigger picture — of global economics and manufacturers’ confidence about the future — is increasingly relevant because the U.S. or North American market does not appear to have enough of its own momentum to lift domestic industrial activity. If there is to be a revival of domestic manufacturing in 2010, it seems that it is going to depend on global demand.

Alan Tonelson, the researcher and author whose expertise in global economics is well regarded and well earned, has a timely column today, casting a long-term perspective on the past year’s manufacturing decline. He and I disagree over policies for dealing with these issues (he’s a stronger proponent of tariffs than I am), but his insight to this problem is worth more serious consideration by those responsible for our national economic policies. His column makes it clear that decades of cost cutting and productivity enhancements have accomplished most of the improvements that can be expected for U.S. manufacturers until sustained industrial and consumer demand restore some vitality to the overall economy.

Stay clear

REB — Tue, 22 Dec 2009 15:46:00 GMT

A few weeks ago I listened to a presentation by a smart fellow from the Federal Reserve Bank, commenting on economic conditions and offering a few predictions. As an expert in industrial economics, he was confident that federal stimulus spending is working the way it is intended to work, encouraging new industrial activity. Nor was he concerned (as I am) about inflation resulting from federal overspending, nor about low interest rates inhibiting banks’ willingness to lend.

This official maintained that the Fed’s monetary policies are in step with government policies to revitalize the private sector, and to make U.S. manufacturers’ globally competitive. He referenced manufacturers like Boeing, Caterpillar, General Motors, and General Electric as companies that need support now in order to keep their organizations globally competitive so that they’ll be anchors for the domestic economy.

I’m not buying it. I don’t have any disregard for companies like those; I wish them well. But, no policy is going to encourage them to treat their domestic suppliers with the same sort of deference they are earning from the Fed and the Treasury. They meet their own goals, and they continue on. If a supplier falls by the wayside, they find a new supplier.

Over the past year there have been some confused and frustrated accusations that the federal government is rushing toward Socialism. I’ve pondered it. It’s not hard to understand why this has happened: federal officials have willingly taken ownership of financial and manufacturing firms, they have endorsed or threatened to implement aggressive plans to re-regulate labor and environmental policies, and at this moment they are working to expand the federal government’s authority over individuals’ health. It may not be classical Socialism, but it’s something.

But, that’s all so 2009. Getting a jump on next week’s inevitable In/Out Lists, I anticipate that next year’s anxious accusations will be about “Corporatism.”

Relying on the sometimes-reliable Wikipedia, I’ll insert here that corporatism “is a system of economic, political, and social organization where corporate groups such as business, ethnic, farmer, labor, military, patronage, scientific, or religious groups are joined together into a single governing body in which the different groups are mandated to negotiate with each other to establish policies in the interest of the multiple groups within the body.”

For the sake of my argument, what I mean is that we’re devolving to a point in our business and political activities where big, cash-rich interests are able to negotiate the terms of their survival and prosperity with a government that is willing to extend or withhold rights and privileges, according to its own whims. Smaller businesses and individuals are marginalized.

Large global companies and large labor organizations like to be able to control their variables, which includes their competitors. They will manage costs any way they can. Thus, large global manufacturers are surprisingly indifferent to the possibility of Cap-and-Trade, EFCA, and they may even welcome a federal health-insurance program. They'll just budget for it after they negotiate the terms. Smaller manufacturing companies have to be concerned about these prospects.

The solution is not for the federal government to institute programs (like tariffs, or tax-breaks for selecting domestic suppliers) to balance things for smaller companies; that would merely extend its influence over our economic decisions.

The solution is for the government and business to stay clear of each other as much as possible.

Encouraging discouragement

REB — Tue, 15 Dec 2009 15:52:00 GMT

There is a very encouraging report from the Institute for Supply Management, anticipating a strong 2010 rebound in revenues for domestic manufacturers. Their survey of purchasing and supply-chain managers, conducted for the ISM’s December 2009 Semiannual Economic Forecast, anticipates a 5.7% increase next year. There’s nowhere to go but up, presumably, especially considering that the same source calculates manufacturing revenues decreased -10.7% from in 2009 from 2008.

Note that they are not forecasting a complete recovery, about halfway to “break even,” but it would enough to allow everyone to agree that the recession of 2008-2009 has ended.

Consider how valuable that consensus would be: It would generate the confidence that businesses need to expand and invest in new equipment, products and services; to rebuild inventory; and to rehire workers. It would lift the national and global economies, which would improve everyone’s circumstances because it would propagate opportunities for prosperity.

Most people in business appreciate the value of confidence and contentment in their workers and customers. But, as business has been displaced so widely by government in the past year, apparently the government officials now making business their business have not picked up this bit of understanding.

In short, why would anyone with responsibility for economic progress not encourage more such forward-thinking, but rather allow their representatives, in this case the U.S. EPA, to threaten to impose suffocating carbon restrictions on the economy — manufacturers, distributors, and consumers, alike? Don’t they realize how that would not only snuff out confidence, but actual economic growth?

It almost makes one wonder if they want an economic recovery, or a continuation of the past year’s anxiety.

The human element

REB — Tue, 08 Dec 2009 13:39:00 GMT

Earlier this year it seemed to me that every time I turned on TV I saw the same annoying, manipulative commercial: a very large industrial company wanted viewers to know that making all sorts of chemicals, plastics, and who knows what, is just a bunch of regular hard-working geniuses who care about you and me. (I don't want to disparage the company for something its ad agency put together, but you can watch the commercial yourself, if you wish.)

What bothered me was my sense that the advertiser wanted me to set aside my own feelings and be concerned about it's "feelings," whatever they decided those might be. That particular detail is not made clear. I could be very wrong about this; I am often wrong about such things. I don't like cheap sentimentality and I resent when it's presented to me as a truthful insight.

There is a "human element" to business, as the commercial suggests, but it's not something to be found in marketing campaigns. It is discovered through our own hard efforts and our appreciation of others' efforts as we work to achieve something good together. Over the past 15 months or so it has become something that managers and executives have been unable to address: there just are no resources or alternatives to the decisions that they face now.

For as long as I've been involved in the metalcasting industry, the human element has been well maintained and well respected. I can't properly express how much admiration I've developed for many, many of the people I have encountered over this time.

That's why this story affected me: it might move you, too. I've never met the man described here, but I feel I know him. His circumstance is touching, and entirely believable. Some readers may know him, but even if you don't it's important that we recognize how things have changed, and are changing, for the people who share our interests, concerns, and experiences.

"Business" is not antipathetic to humanity, as some marketing messages suggest, and some politicians and policymakers insist. There is a much human goodness in the work we do. But, when we can't work, when we've lost that opportunity, there is still a lot of good to be found and shared.

Encouraging signs

REB — Mon, 30 Nov 2009 03:21:00 GMT

There are fragments of information available for anyone seeking insights about the direction of metalcasting for 2010. The frequency of news reports about plant closings is slowing, and there is a greater frequency of reports hinting at revival plans. (Here's one that appeared two weeks ago.... I can't vouch for its reliability, but the proposal would be encouraging.)

I've been reviewing results of FM&T's Business Outlook survey; respondents are more positive and hopeful about the coming year than the past year would entitle them to be.

Perhaps one reason they're encouraged is that they can't imagine anything more daunting than the 2008-2009 meltdown, and realize now that they can survive. That's the lesson to be drawn from this excellent report about a respected aluminum foundry. They've proven their mettle. Let's hope that all of us have done as well.

Good for them

REB — Tue, 10 Nov 2009 17:45:00 GMT

Over two years ago I wrote a column scolding Ford Motor Co. for its decision then to close its metalcasting plants: it said they were not “core operations,” and my criticism was that Ford was being shortsighted.

Last week Ford reported a third-quarter income of $427 million — a $332-million increase over 2008 3Q earnings — and soon a reader reminded me of the June 2007 column, and suggested Ford deserves credit from me now. The logic, apparently, is that Ford is making money, so everything must be right again. My correspondent wrote:

“Decisions at times can be difficult and enigmatic to some, but they are made … Isn't it great when they turn out to be correct. Ford deserves, at least, an ‘atta boy’ from the foundry world. Looks like they are going to be around to create demand for our industry to serve …”

He’s right: I couldn’t understand Ford’s decision in 2007. I’m very glad Ford is making money now and hope they will continue to do that, but the company’s earnings do not indicate much that is positive for metalcasters (as he suggested.) In fact, if Ford’s example were to be followed it would be bad for domestic metalcasters. Note that the foundry that earned Ford’s latest business is in Brazil: it named Tupy to cast the CGI blocks for its new V-8 diesel engines.

There are larger issues and trends at work here, and Ford is not to blame for those. U.S. manufacturing costs are too high compared to global standards. The effort to help U.S. manufacturers compete globally is impeded, not supported, by federal government interventions and takeovers. Looming threats of stringent carbon taxes and higher labor costs (both resulting from more federal action) make the domestic market even less congenial to manufacturing.

Just before Ford reported its results, the Institute for Supply Management announced that October economic activity in the manufacturing sector expanded for the third consecutive month, and that the overall economy grew for the sixth consecutive month. Tim Hanley, Deloitte’s vice chairman and U.S. Process and Industrial Products industry leader, called that “an encouraging sign for manufacturers and the U.S. economy as a whole. The growth in the report this month mirrors the picture we are seeing with other manufacturing related economic indicators.”

But, Hanley added that “there are still significant questions and concerns regarding unemployment numbers, the rising dollar, and lagging consumer confidence. Overall this index report is a positive indicator of further economic growth, but it’s still too early and there too many unknowns remain to determine if this uptick will be sustained.”

Ford is making money in spite all of this, for which they deserve credit, but if we draw any conclusions from that we may not be so encouraged.

Too late to change?

REB — Wed, 21 Oct 2009 21:07:00 GMT

A short report in Business Week prompted a series of thoughts, most of which I'm sure the writer never intended. His simple, but vast, premise is that "the age of transportation" ended in 1969, and that ever since then we've just been tweaking the already established technologies. "… (W)e've traded innovation for stagnation," he writes. "We live in an era where few risks are being taken."

I agree with the summary comment, and I think the evidence he assembles is persuasive: cars are safe and reliable now; road systems are complete, except for the upkeep; jet travel has standardized long-distance travel; and so on.

I care about this because the businesses that support transportation — the operations that manufacture the vehicles and the machines that make transportation so convenient — is effectively the core of manufacturing. Marketing, finance, and retail segments also benefit massively from transport. You could name other segments that are similarly essential (housing, energy) but I think we'll look long and hard, and possibly futilely, before we find anything that supports so many different organizations and people as fully as the transportation sector.

But, I think the writer comes close to, and dodges, the obvious conclusion: It's no fun. There's no excitement. There's no individual reward. Worriers, do-gooders, and corporate guardians have sapped all the excitement out of transportation. We do what we must to comply with expectations, and no more.

As a result, buying a car forces you to examine your environmental conscience. Flying by plane amounts to submitting your body and time to a cruel bureaucracy. Road and bridge construction is just a headache for drivers and taxpayers, who feel punished rather than gratified that we live in a civilization capable of such achievements.

It's merely an extension of this theme to say that what is wrong with our economy, or even with our world, is that we've given up on optimism. We have too much too fix, too much to worry about, too much to regret, too much to guard against. It's too bad.

Bottom dollar

REB — Tue, 13 Oct 2009 16:20:00 GMT

More than two years ago the Federal Reserve Bank made a historic cut in interest rates, causing the value of the U.S. dollar to drop decisively. It was striking because that move pushed the dollar into parity with the Canadian dollar, reversing a smug joke many of us had occasionally made.

The message at the time was that the rate cut would help to boost U.S. exports, and thus was a reason for manufacturers to be encouraged. I was among those who thought that was a worthy trade-off for the inflationary effect of the lower interest rates.

There was some evidence of manufacturing export increases in the succeeding weeks, but as the global economy tipped into recession over the following year the general improvement in that regard was negligible.

On the other hand, the value of the U.S. dollar has continued to bob and weave, in a generally downward direction. Amid other economic crises, the dollar's decline has not had much attention.

It also has had very little focus from the Federal Reserve Bank and the U.S. Treasury Dept., which seem to believe that stabilizing financial institutions is a more important goal than stabilizing the currency.

In addition, it seems clear that the Treasury and the rest of the Administration are committed to structuring the economy on the foundation of an export-driven manufacturing sector: how else to understand their unwillingness to stabilize currency values, by slowing federal spending, or cutting taxes in order to encourage consumer spending?

There is no reason to object to this presumed goal, but structuring the economy that way puts the interests of the global market ahead of domestic consumers. The foreign buyers want low prices, but we want revenue. Wouldn't it be better, in the long-term, to build the domestic economy on a balanced foundation that uses the potential of domestic demand, too? Some effort — or just as easily, restraint — to spur domestic demand would help borrowers and buyers feel more confident about their long-term prospects.

Understanding the importance of currency valuation can be difficult, but this column gives a very helpful historical perspective, and an outline of the important global market trends that surround the issue.

Whether or not building export volumes is their goal, federal officials ought to recognize that while a weak currency makes U.S. goods cheaper, the revenue generated is also devalued. The manufacturers who earn that revenue feel very little benefit, nor do their employees, who continue to pay rising prices for products and services because the cash in their pockets has relatively less value.

In fact, the distinctions between the global economy and domestic economy are vanishing all the time, and it's for exactly this reason that we need to have a stable currency. In the wider world, it is the only control we have over our own fortunes and futures. To become a successful exporter of manufactured goods, the U.S. will have to increase the value of those goods, not cut the prices.

The end of an idea

REB — Mon, 05 Oct 2009 03:05:00 GMT

The demise of Saturn was a surprise to me, though it shouldn’t have been one: the auto industry is at rock bottom, so finding investors to stake any venture in that sector is probably impossible. But, for the past 25 years Saturn represented something refreshing. (This recap in the Wall Street Journal is a nice obituary for a manufacturing “experiment.”) It was intended to be more customer-focused and more accessible than its Detroit cousins, and it succeeded, at least by comparison.

What sticks in my mind is not merely the loss of Saturn, but the loss of a great idea: Roger Penske’s notion of establishing a great, consumer-oriented auto retailer is so contrary to the prevailing manufacturing notions that it would have had a hard time no matter what challenges it faced at its founding. When all the competitors are aiming for big, over-engineered concepts, Penske’s idea was to go straight to the market with his products — and let buyers decide if the company was a success. He would have built on Saturn’s past reputation, but focused its energies on the retail effort. Staying market-oriented would have been a novelty in this era.

Today, industrial activity is over-saturated with notions of planning, of coordination, and of government partnership. Everyone seems fixed on the idea that U.S. manufacturing, and the economy generally, can be “guided” to recovery.

Personally, I think the Automotive Task Force, the federal rescues of Chrysler and GM, and more generally the American Recovery and Reinvestment Act (the federal stimulus package), represent a reaction to the longstanding practice of Asian, European, and Latin American nations to partner with their manufacturing sectors, as well as China’s ongoing industrial build-up. Industrial and political interests in this country simply became exasperated with the “unfairness” of competing against all that, and decided that if they cannot beat them, we should join them. Economic panic created the opportunity to coordinate business and government to an unprecedented degree.

I don’t know if I’m right about the reasons: the result is the same.

But it will not matter either way: this country doesn’t have the right citizenry to participate in planning and execution on that scale. The dynamism of our domestic economy is in consumption: we need our millions of citizens buying and investing, and demanding results from the suppliers, in order to create profits and drive productivity. We can’t be guided to recovery, but we can grow to it, if the incentives are right.

The best incentive is revenue, which manufacturers earn by serving customers effectively. That’s why the Penske plan would have been such a refreshingly novel approach at this time. Its core concept was to deliver cars that buyers would want. How different that would be!

Skills, not labor

REB — Mon, 14 Sep 2009 03:33:00 GMT

Labor Day was about a week ago, and I resisted the impulse then to comment on the “state” of labor: it’s too hard to be sympathetic about the significant number of job losses over the past year, while remaining realistic about the circumstances that caused this and the prospects for reversing the situation.

(The decline in employment totals is especially bad in manufacturing industries, and notably grim in metalcasting; happily, some of the Grede Foundries sites that have been spared the worst of the ongoing reorganization there are starting to recall laid-off workers.)

In view of all that, a celebration of “labor” seems to me misplaced. It’s not that I discount the hard work of good people; it’s that the work itself has become so discounted.

For a better understanding of what I mean, read this report on the prospects for a significant rebound of overall employment levels. You won’t need to take my word for it; the great economic guru of the 1990s, and now the director of the President's National Economic Council, Lawrence Summers reveals what people in manufacturing already know: almost no high-capital industry really needs “big labor.”

By contrast, they need intelligent, resourceful workers who can adapt to changing markets and fast-evolving technical standards.

Pressure to defer to the labor interests, pressure that comes from government authorities, company stockholders and directors, as well as from general social niceties, merely forestalls an inevitable realization. Companies that overpay for labor cannot compete globally, nationally, or regionally. Seeking labor peace does not bring security, and the lack of security ensures further unrest.

As I see it, the problem is the emphasis on “labor.” The word implies large forces of workers doing manual and menial tasks in cruelly unrewarding conditions. Even the workers who seek our empathy don’t want to be characterized that way.

We should refer instead to their “skills,” not their labor. That would emphasize the value those workers bring to their tasks, and direct our attention away from their struggle to earn the value created by their efforts. It would also put some substance behind the frequent (but increasingly empty) calls for training and retraining programs. If we’re going to make such efforts and investments, let’s at least change our expectations from the outcome.

No victims here

REB — Tue, 18 Aug 2009 04:30:00 GMT

Headlines don’t seem to command as much attention as they once did, but the top item in the Wall Street Journal a week ago was welcome news to me. “Distressed Takeovers Soar,” (link requires registration) was the lead item on Tuesday. “It’s about time,” I thought.

The story cataloged a number of examples of opportunistic investors willing to take on marked-down assets in the expectation that they will have a solid return. “In many of these cases,” the Journal wrote, “debtholders aren’t concerned about getting monthly payments, but rather using their debt positions to angle for ownership.”

It happens that several metalcasting firms are gaining new investors, which is even more good news. Foundries and diecasters have been especially hard hit, victimized if you will, by the global recession.

One of those firms on the brink of rescue is Intermet. It has been in bankruptcy reorganization for over a year, but an ongoing auction of its assets apparently guiding it into the hands of Cerion LLC. Cerion is the holding company owned by a private equity group, Revstone Industries, which earlier this summer consolidated ownership of the Contech nonferrous diecasting group. The investors obviously want to be in the metalcasting business, which is another good signal.

The Journal report studies the situation of distressed asset sales with a cynical tone, as though the firms taking the money are victims. Well, of course, they are “victims” of bad luck, bad decisions, poor management, poor market conditions, some unfair foreign competition, some unforgiving government regulations, and many other things.

But, they are not victims of their new investors. These investors are businessmen. They’re doing a service for the distressed companies, and for the economy generally. They’re helping to reestablish value in markets where worth has been impossible to determine. They’re providing the foundation for starting over.

Viability

REB — Tue, 21 Jul 2009 05:41:00 GMT

People who work in U.S. manufacturing worry almost constantly about the viability of domestic manufacturing. People who are not in manufacturing sense the anxiety, but they misunderstand the problem.

A regular correspondent, who owns a manufacturing company and cares deeply about this subject, sent me a link to a letter written to The Holland (MI) Sentinel.

“Today, manufacturing is high-tech, highly automated and in need of innovative, problem-solving workers,” writes a local SME chapter president, in a letter that opens a discussion about the types of jobs available in manufacturing and the types of people needed to fill them. People who understand this need no explication, but the meaning of it is lost on the rest.

In Michigan and so many other states, and at the federal level, too, “manufacturing” is given lip service with frequent references to “innovation,” or progress. But, manufacturing is not treated as a source of anything but revenue.

First, government officials want voters to be productive, so they want to "create jobs," and they see aiding manufacturing companies as a way to accomplish this.

More generally, these government officials view manufacturing companies as just one more constituent that they can “fix,” with policies and programs, in order to create a reliable source of tax revenue: income taxes, payroll taxes, sales taxes — and now, in the minds of certain federal officials, carbon taxes. Manufacturing companies are tools for them to use to execute their own agendas, but it ought to be treated as a resource: something viable that needs to be nurtured and tended.

The letter writer references recent remarks by General Electric chairman Jeffrey Immelt that the U.S. should aim to have 20% of all employment based in manufacturing companies. This is a fine goal, but it’s unlikely to be achieved by any initiative of the sort that conglomerates like GE tend to coordinate with governments — unless GE and the like can convince the governments to step out of the way entirely, so that going concerns can plan for the future, so that start-ups will be encouraged, so that investors will have incentives to stake new projects and equipment, and so that businesses and those who rely on them can thrive.

Manufacturers know all this, but they need to recognize how they are viewed, and treated, by federal, state, and local governments who they may look to for help or direction. Making and keeping manufacturing viable is not a priority for elected officials: for them, it is an opportunity to help themselves.

Out of their hands

REB — Mon, 13 Jul 2009 02:56:00 GMT

General Motors is out of bankruptcy, which is certainly good. If, and how soon, it will achieve anything resembling normal operations is doubtful. Finding a successful routine is going to be a difficult — note that GM’s Saginaw Metal Casting Operations will not resume production until July 20 — and they’re going to have to do it under close scrutiny, with lots of overseers making demands, and in a brutal economy.

There are numerous reports assessing the overall state of and outlook for GM; I think this one gives a solid recap of the circumstances prevailing as the automaker returns to “solvency.”

“The bottom line now is that GM gets a second chance, a rare and precious thing in life, as any survivor of a serious illness knows,” writes this reliable correspondent. “The company faces significant challenges. That's the nature of second chances. But with minimal debt, lower labor costs, fewer brands and dealers, and the shedding of health-care expenses for retired workers, the pieces are in place for the company to succeed."

But, after reading the whole column and absorbing the agenda he lays out for the new GM — delivering reliable and profitable products, maintaining the UAW’s cooperation, complying with the federal Auto Task Force’s agenda on corporate structure and fuel efficiency — you may ask, as I did, “what’s changed?” The previous management structure has been axed, but GM now has the oversight of federal bureaucrats and legislators. That’s not a change for the better, in my opinion.

The real burden for GM is its image. It was not good before the collapse, the bankruptcy did not fix it, and in some critical ways the rescue plan has made the image worse than before.

Seemingly, no one (at GM or on the Auto Task Force) appreciates that many of the most loyal customers are past buyers of larger cars and trucks that are not in their future plans. Add these customers to the outraged citizens who promise not to buy GM again, and you might conclude that the real challenge is identifying any likely cusomer.

There are practical concerns for all buyers, of course (eg., vehicle reliability, warranties, trade-in values) but what can GM possibly do to overcome the general public’s impression that automaker and its dependents did not deserve this extraordinarily careful handling — and with taxpayers’ carrying the cost?

Numerous other companies got no such consideration, and many of those are GM suppliers (including foundries) that have been substantially ruined by GM’s mismanagement.

Whatever other problems can be diagnosed for GM, it should be plain that its nearly impossible goal is to create an image that can win new customers and mollify the former ones.

Legend in the making

REB — Mon, 29 Jun 2009 02:09:00 GMT

Henry Ford is not remembered for being easy to work with, and Alfred Sloan has various biographers cataloging his failings. While each of them was famously philanthropic, neither one was necessarily likeable. Their legacy is that they turned their visions into a manufacturing empire that benefited millions.

Now waiting to be crowned the auto industry’s next legend is Elon Musk, who has a fortune already for having pioneered PayPal. He’s heading up Tesla Motors, a company started by others in 2003 to build high-performance, consumer-oriented battery-powered electric vehicles.

Unlike past automaking giants, though, Musk has a dim view of car buyers and a lack of confidence in his own products.

Gas should be taxed to push the price to about $10/gallon, Musk told an investors conference earlier this month. “I'm not paying for the true cost of gasoline at the pump,” he said, and “since nobody's explicitly paying for the CO₂ capacity of the oceans and atmospheres, it's getting consumed. We will pay for it down the road, but we are sort of ignoring it for now."

Gas taxes may help Tesla Motors justify its products according to some agenda, but the company is in line for a little federal help already. Tesla, along with Ford Motor Co. and Nissan of North America, is sharing $25 billion from the Dept. of Energy to further develop electric vehicles. Tesla has already said it wants to “buy” defunct domestic auto plants to build its cars. I won't be surprised if a federal fund already exists for that.

It’s better that we find out now, rather than later: If buyers won’t look at these vehicles until the feds jigger the market; and if Tesla needs federal money just to get its product to the assembly stage, is this an auto company or a shell game? And if government hand-holding is going to be the path to success, why aren't Tesla's plans being implemented at GM and Chrysler?

See you in court

REB — Thu, 18 Jun 2009 22:04:00 GMT

It was not any sort of clairvoyance that led me to warn about the supply-chain dissolution that is happening as a result of the automakers’ collapse. That this would happen was pretty obvious.

Watching it all come apart is discouraging, to be sure. Now, however, we can see that we won’t be able to close the book and move on: we’ll have to watch it all play out in court.

American Axle, which produces forged crankshafts and other drivetrain components for cars and trucks, is in court trying to force a steelmaker to continue supplying it with the raw materials they had contracted together.

Some readers may remember another case, in which Chrysler tried to get a Canadian court to force Transcast Precision Inc. to supply it with parts, whether or not a payment was made.

There are probably hundreds of these examples, and many more to come. I’m not suggesting it’s surprising, because modern life is so litigious that these developments are ordinary. And, I’m not suggesting that it’s outrageous, because the people pursuing these cases are trying to hold on to whatever assets and resources they have.

If there is something to be outraged over it is that the some of the biggest culprits in this debacle are the OEMs that have been roped off from liability by a convenient, custom-built bankruptcy program. The rest of the companies in the automotive supply chain are forced to draw blood and treasure from each other to save themselves.

For all the idealistic talk about remaking itself and developing new business models, the auto industry today is spending an unfortunate amount of effort and energy keeping alive bits and pieces of the past.

Save the apologies

REB — Mon, 08 Jun 2009 13:12:00 GMT

The coverage of General Motors and Chrysler Corp. in the past six months has been overwhelming, but it has not been too deep.

The justification for federal aid to rescue these organizations from defaulting has been that they are critical to the manufacturing supply chain (and to particular states and localities). Both are true, but rescuing the two OEMs is not having much of a pass-along effect for their suppliers.

And, as the story continues, there are likely to be further complications. Not only have many GM and Chrysler suppliers not been paid in the past year or so, bankruptcy now creates a basis for defaulting on debts entirely.

Still to come will be the fundamental adjustments to material supplies, like foundry-grade scrap. If it is not already clear, the entire supply chain is going to have to be reconceived.

Details like this are the substance of the argument that GM and Chrysler are too big to fail. And yet, it's plain that the impact on the automotive supply chain will be just as dire in spite of the "rescue." The rhetorical position that the OEMs need to be supported in order to support all the rest is now invalid.

Even so, we should continue to ask: who has been helped by the bailouts of GM and Chrysler?