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Life and times in the world of metalcasting, and in the rest of the world, too.
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No one should take investment advice from me. My interest in the stock market is mostly confined to manufacturing industries, but my real interest in the business world is in the way it influences or shapes human behavior. The once celebrated Alan Greenspan established the term "irrational exuberance" to characterize the people's attitudes about business of the late 1990s, and I often think that a little more exuberance would do us a lot of good now — if only we could find something about which to be upbeat. Well, let's try to be upbeat about General Motors as it works to break free of government control and re-establish itself as reliable, creative, manufacturing enterprise. The automaker is tentatively moving toward an initial public offering (IPO), and I can't think of a better way for GM to signal to its customers, its suppliers, as well as its investors, that its recent past is long gone. I doubt that the IPO will be the end of all GM's problems, but it should be a boost to what once was a vast and diversified chain of manufacturers supplying GM that it is moving with determination to get off the dole. Because of the increasingly dubious stimulative effects of last year's $862-million federal stimulus program, there should be more confidence in GM as a public company than as a government holding.
It seems to be particularly encouraging that GM has decided against re-establishing a financing arm; some investors may have been excited by the prospect a new capital services firm, but suppliers will appreciate that the organization they're working with is as focused on its manufactured goods as it expects its partners to be.
The manufacturing sector needs indicators that the future is brighter than the present, and a commitment from General Motors to assume the same risks and eye the same rewards can't come soon enough.
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We’ve been promoting the annual selection process for FOUNDRY Management & Technology's Hall of Honor program for about six weeks, and the period for nominations is open for another two weeks or so, ‘til July 15. If you know someone who has positively influenced the metalcasting industry, please consider nominating him or her for this honor. They deserve the recognition, and the industry deserves to gain by their example.
The FOUNDRY Management & Technology Hall of Honor recognizes men and women whose technical and process innovations; organizational leadership; professional and industrial standards; and personal contributions and achievements have improved and enhanced metalcasting as a science, as an industry, and as a community.
From time to time I think about the list of past honorees, most recently when I reviewed the life and work of the late and beloved Paul Carey. Knowing Paul, there was nothing in his manner that called out for attention, but his enthusiasm for his work and that of his metalcasting colleagues was palpable. It was for that he was deserving of recognition. Because I think that listing these honorees just once each year in our September issue is not enough, I’m republishing here the list of FM&T Hall of Honor inductees. There may be some you know or have known — and there may be someone you know who deserves recognition for their accomplishments and contributions to the industry. Remember that nominations are open until July 15.Hall of Honor Inductees
Bernard N. Ames †
* E. William Aylward Sr. †
Paul L. Barker, Jr.
Dwight J. Barnhard
* Xarifa Bean †
* George N. Booth
* W. Scott Brown
* Donald G. Brunner
* Paul Carey†
Samuel Clow †
* Edward H. Cooley †
* A. Stubbs Davis
* Herman H. Doehler †
* Robert W. Eck
* Murvin Enders
* William E. Gephardt Jr.
* William J. Grede †
* Joseph W. Harrison †
Daryl F. Hoyt
Louis Iannettoni
Burleigh E. Jacobs
* Earl W. Jahn †
Lyle R. Jenkins †
* Greg J. Kedrosky
Ezra L. Kotzin
Lawrence S. Krueger
* Max Kuniansky †
* Karl L. Landgrebe †
* Walter O. Larson, Jr. †
Carl R. Loper, Jr.
* George W. Mathews, Jr.
Paul H. Mikkola
* Keith D. Millis †
Jack R. Moore
Henry M. Rowan
* Francis Schumann †
David H. Shanks
Hugh M. Sims Jr. †
Bill Sorensen
* Glenn W. Stahl †
* Vickie Van Steenberge †
* Parker A. Stroom
Gary L. Thoe
John A. Wagner Sr. †
John F. Wallace †
R. Conner Warren
* Ray H. Witt
* Inaugural honoree, 1992;
† deceased
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After I posted the previous entry someone who read it sent over to me a column published earlier this week, and something snapped in me. I spent a few undergraduate semesters studying basic economics — macroeconomics, microeconomics — and I don’t claim to have any vast insights or critical perspective. But, … As the previous entry demonstrates, I have a lot of interest in understanding how economic problems develop, and how they can be avoided, and lately how they can be addressed effectively and quickly. We’ve been trying to solve the current economic problems for about two years, and — to be generous about it — it’s not working. “To rejuvenate the economic base, allow industry to compete successfully again and re-grow jobs, the U.S. should launch an ‘advanced manufacturing plan’” writes Andrew N. Liveris, chairman and CEO of The Dow Chemical Co., in the column I mentioned. I’m sure Liveris is smarter, more experienced, and more well connected than I am, but is there anything in his column that hasn’t been said for the past two years? Does he think we can all come to consensus on dreamy items like “new infrastructure that leverages private investment in plant and equipment, … R&D that's cutting edge … education that leads the world …” when all the misery of this period has not brought us to any clearer insight about the causes of our economic problems? I think it’s time for someone to argue that macroeconomics has failed. There may be numerous reasons for this, but to me it’s no more complicated than this: there is too much information spreading too quickly for individuals to be able to make rational, informed decisions. Risks are greater because facts change without our ability to incorporate them into our judgments. We rely instead on longstanding principles, which means that microeconomics is ascendant. For example, the federal government spends billions to stabilize banks so that they’ll lend to businesses. (Macroeconomics at work.) But they don’t lend to many small and medium-sized businesses, which then suffer or even fail, and the economic problems persist. Banks have standards for lending money. (Microeconomics at work.) They aren’t lending because in this chaotic economy they cannot achieve confidence in the companies seeking loans, and/or in the economic forecast for the period of the loan. As a counterpoint to the big ideas from Dow Chemical, take a new look at the continuing metalcasting melodrama that is Grede Holdings. There has been a lot of pain and sacrifice in that story, and there is no guarantee of success. But, the realistic, cash-flow focus described there is a tribute to microeconomics, and — to me — a lot less risky than another "advanced manufacturing plan."
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To the people who care about such news, the report this week that China may soon displace the U.S. as the world’s largest manufacturing nation must have been a little less than surprising. Domestic manufacturers, and those who value their contribution to prosperity, understand that the global trends have favored China’s manufacturing sector — and for that matter, India’s, Brazil’s, or any reasonably large country that can control the factors (like raw material and energy costs and availability; environmental regulations; labor costs) that define manufacturers’ performance, as well as the mechanisms (e.g. currency rates; investment incentives; trade policies) that help to support the manufacturers’ competitive standing in the global market. Chinese economic policies over the past two decades have been consistently focused on strengthening that nation’s manufacturing sector. The best that might be said about U.S. economic policies over the same period is that they have not supported domestic manufacturers in a similar fashion. There are more pointed criticisms to be made, to be sure. But, a report from IHS Global Insight this week argues that it was the 2008-2009 recession that tipped the manufacturing advantage to China: “The U.S. Bureau of Economic Analysis (BEA) in May 2010 reported the Manufacturing sector portion of U.S. GDP in 2009 was US$ 1.57 trillion, which represents a 6% decline from 2008, and an 8.2% decline from the previous high (US$ 1.71 trillion) in 2007.
The decline in U.S. manufacturing over 2008-2009 was primarily attributable to the historically severe recession suffered by the whole economy. However a turn around in U.S. manufacturing output by now has already begun, starting in late 2009 and continuing through the early months of 2010, so the recessionary trends of 2008-09 for the U.S. manufacturing sector should not be extrapolated into the future.”
Even more, IHS finds that “forecasts for relative growth in the U.S. and China manufacturing sectors show that the "real" inflation adjusted size of China's manufacturing sector will not reach the size of the U.S. manufacturing sector until sometime around 2013-2014.” Even though manufacturing’s well-informed advocates cite long trends, IHS is pointing to a highly dynamic process by which China’s manufacturing segment is peaking, and the U.S. manufacturing sector is rebounding. None of this credits recent and/or past mismanagement of the domestic economy, but it should be a reminder of manufacturers’ own potential to grow.
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It’s a fact that plant safety is a serious concern for the metalcasting industry, and monitoring operating equipment and facilities in general for risks to health and safety ought to be a very high priority for everyone working in the industry. Watching workers’ performances and their use of safety apparel and equipment are another important aspect of this general concern. We know well that the U.S. Dept. of Labor’s Occupational Health and Safety Administration has oversight for these matters: setting standards, monitoring performance, and citing violations. Now, it seems OSHA is adding activism to its agenda. I may be all wrong about this, so I’m going to repost OSHA’s news release exactly as it was delivered to me, June 12. I’m not suggesting anything is going wrong, but I think plant managers and operators ought to realize that one of the goals for the U.S. Secretary of Labor is “strengthening the voice of workers”: New OSHA training emphasizes workers’ rights
WASHINGTON – “Introduction to OSHA,” a new training component emphasizing workers’ rights, is required content in every OSHA 10- and 30-hour Outreach Training Program class. OSHA developed the information in support of the Secretary of Labor’s goal of strengthening the voice of workers.
This information affects hundreds of thousands of workers who complete Outreach Training Program classes each year, and more than 50,000 authorized OSHA Outreach Trainers. It focuses on the importance of workers’ rights and advises them of their right to
• safe and healthful workplaces
• know about the presence and effects of hazardous chemicals
• review information about injuries and illnesses in their workplaces
• receive training
• request/file for an OSHA inspection and participate in the inspection
• be free from retaliation for exercising their safety and health rights
“For too long workers have avoided making claims of unsafe work conditions out of fear of losing their jobs,” said Assistant Secretary of Labor for OSHA David Michaels. “We are confident that this new training will embolden workers to speak up when they find work practices that endanger their lives and the lives of their co-workers.”
During the 10- and 30-hour outreach training program classes, OSHA trainers will cover topics on whistleblower rights and filing a complaint, and will provide samples of a weekly fatality and catastrophe report, material data safety sheet and the OSHA Log of Work-Related Injuries and Illnesses. Trainers can obtain test and answer sheets from their authorizing training organization.
The OSHA Outreach Training Program is a voluntary program that seeks to teach workers about their rights and how to identify, reduce, avoid and prevent job-related hazards. The program includes 10- and 30-hour courses in construction, general or maritime industry safety and health hazard recognition and prevention that is taught through a network of OSHA-authorized trainers. Over the past three years, nearly two million students have received training through this program.
Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA’s role is to assure these conditions for America’s working men and women by setting and enforcing standards, and providing training, education and assistance. For more information, visit http://www.osha.gov.
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British Petroleum reportedly has 17,000 unsolicited offers of advice for fixing the catastrophic oil leak in the Gulf of Mexico (and at least one impatient demand from on high), but metalcasters will be intrigued to read the proposal from one of their suppliers. Don Sanchez of Chesapeake Specialty Products, a supplier of deveining agents, metallic abrasive, and iron oxide products, has suggested using his firm's high-density material rather than drilling mid for the "Top Kill" approach that BP officials hope will resist the pressure of the flowing petroleum. Sanchez believes that HDM has a higher specific gravity than the mud, and thus will settle and hold over the open well better than the mud will do. It's an interesting proposal, and maybe a one-shot opportunity, but whether the company understands or even takes note of his idea isn't clear.
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A few weeks back I learned about a new metalcasting venture, but I let the "news" take precedent. The fact that McWane Inc. is temporarily idling a foundry in Birmingham due to weak demand from the home-building sector seemed to be more important than the fact that the same company had started off in a new direction. In truth, it probably was the clever work of a publicity person to let the two items come to light at almost the same time — softening the blow of the bad news and underplaying the significance of the new venture, so as not to overstate its positive impact on the company. Note, too, that McWane is a company that almost never gets sympathetic treatment from news reporters. The people there probably know better than to issue a stand-alone "good news" report: the local news reporters understand too little and suspect too much about the business to expect them to see the value of such a development. But, credit McWane for its creativity and foresight to start something new, and promising, in the midst of a miserable business cycle. The story linked above describes the two-year development process, as well as the product roll-out and its performance so far. Producing ductile iron poles as an alternative to wood, concrete, or fiberglass for supporting overhead electrical lines may not be the most innovative application of casting technology, but it gives the company a new angle on the municipal and construction markets on which it relies so heavily with its pipe products. More important, it shows that the engineers there understand the material that their business is built upon, and the customers that they can appeal to with their products.
"We have seen a decline in sales in many of our core businesses and we
have had to respond with reductions in production to match the lower
demand levels," according to McWane Global president Michael Keel. "McWane is financially very strong, however,
and now that we have adjusted we are performing well in this new
environment."
As of now, more than 50 utility companies have adopted the cast iron poles, and if more follow it's a fair bet that more ferrous foundries will enter into the market. They can copy McWane, but they'd do even better to mimic the creativity and determination that caused McWane to develop a new line of business. And then, to hope other foundries might want to copy them, too.
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Intermet Corp. was a kind of emblem of what a unified metalcasting organization might be, in a more perfect world, and its demise with the financial collapse of 2008-2009 is rather emblematic of all that went wrong for investors that, in the early part of this decade, sought to establish a new operating model for the industry. The news last week that new investors from Cadillac Casting plan to aquire the former Intermet operation at Radford, VA, is welcome because it demonstrates that there are still some optimistic and determined individuals and groups angling to succeed in metalcasting. To me, the striking detail of this new venture is this figure: $9,100,000.00. Nine million dollars doesn't seem like a lot of money for the world that we live in now. It's roughly the same amount that Big Ten schools received in revenue last year from their contract with ABC/ESPN. And, it's the same amount of money that the Tampa Bay Rays will surrender to a washed-up outfielder they released recently. It's also, reportedly, the amount that former Vice President Al Gore paid for an estate in California. It's more money than I can pay for anything, or am likely ever to pay for anything, but restarting a valuable industrial operations seems like a bargain at that price. Maybe, a steal.
Of course, values are always determined not so much by what you or I might pay for something, but what the world at large determines that thing is worth. Shall we assume that the world at large doesn't value the Radford foundry as well as we think it ought to do? Maybe so, but the new investors obviously aren't concerned with the cost, or the value that the rest of the world sees there. Their valuation is based on what they think they can gain by the investment — and properly so. Their plan, we must assume, is not based on the low price of the assets, because that would mean their expectations are low, too. Rather, let's be encouraged that their investment is based on their expectation of a significant return, one that will benefit them, their stakeholders, Radford, VA, and the entire industry.
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The news earlier this year concerning the National Institute of Standards and Technologies' investment in an R&D program, to perfect metalcasting techniques for aluminum and magnesium structures that feature ceramic elements ("nanocomposites") in a metal-matrix structure, certainly was a hopeful sign. The dollar value of the research program is not extraordinary — $10 million over five years — but the promise is significant. FM&T covered the announcement in a January news item. Now, a few further details have been revealed, including a general summary of the metallurgical theory behind the metal-matrix composite and the news that some ingots of the material have been produced already. If there is to be a rebirth of strong domestic manufacturing, it will be on a foundation built by creative efforts like this one, which propel known technologies into applications that are practical now — not premised on various objectives and mandates but not on actual demand.
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Last week former Federal Reserve Bank chairman Paul Volcker — the man who tamed rampant inflation and lackluster currency after the 1970s — seemed to endorse a value-added tax (VAT) resolve the federal government’s current fiscal chaos. This may be ironic, inasmuch as Volcker’s stewardship of the Fed is generally understood to be the period when consumer spending replaced business spending as the central force in economic growth. A VAT, it seems, would seriously hinder consumers' economic influence. But, Volker is a White House economic advisor now, and there is a troubling degree of indecision among our economic and financial leadership as to whether consumers should have that central role in our economy, or whether that influence belongs to business, or even to some unwieldy amalgamation of businesses and government spending together. That much was signaled last year by the overemphasis on federal stimulus spending. They do understand that they need more revenue to pay the debts they’re running up, and the VAT is the solution many financial “experts” have wanted for months, if not years. VAT is a taxing method that extracts value from transactions, not assets. Like a sales tax, buyers pay it; but this tax is paid at each stage of the supply chain. Ideally, it would help manufacturers like metalcasters who create semi-finished or finished products and aim to export them — a specific federal objective — but only because overseas buyers would escape this new tax. Any exports still would have to compete globally on price, however, and that might be difficult if production costs are forced upward. Manufacturers might suffer from a VAT because it would levy a charge on the cost of labor as well as goods, forcing up prices for manufactured goods and making it harder for the producer to compete on price. Small and midsized businesses would have to assume the responsibilities (and costs) for complying with the VAT, so their costs would rise even as their revenues are threatened by consumer shock. Property values would decline because transaction costs would rise, broadly undermining individuals’ net worth and restraining their ability to borrow and spend. Overall, such a tax would be a blow to any domestic company aiming to profit from domestic buyers, because it would project an instant and widespread increase in the cost of everything. With upward pressure on raw material and energy costs, it’s likely that consumer spending would take a hit. None of this proves that a VAT is a bad idea, only that it’s probably too much to ask of consumers who are just now showing some ability to fuel economic recovery. We already have to comply with the federal and other income taxes, state and local sales taxes, property taxes, and various consumption taxes. We know, too, that federal officials want to institute carbon taxes of some type. In the face of all these obligations, the taxpayer has two alternatives: do nothing, and hope to avoid taxes; or relocate to some place where the cost of living and doing business is less onerous. The problem with virtually every economic proposal coming from the federal level lately is that all of them assume every circumstance is static – that their solutions will have exactly the results that they anticipate. Tax more, and revenues will increase. But, they’re wrong on two points: first, taxpayers will change their behavior, minimizing their exposure to penalties. And, second, the rest of the world will take advantage of the new regulations to create different, non-U.S. options for investment. It would be even better for our financial overseers to make a clear choice about whether producers or consumers will drive economic activity — or indeed, economic growth — and focus their plans to let that happen.
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Last week’s employment report is good news because it shows some improvement over the previous month’s report, or indeed over much of the data for the past two years. But, it’s qualified good news because it relies so much on the anomalous effects of the ongoing U.S. Census that it’s obvious there is still no detectable trend for employers to resume hiring. So we know that the U.S. government can “create” jobs, though in this case they’re temporary.
This is confounding, because the urgency of last year’s $787-billion federal stimulus program was to spur industrial activity that would promote job creation. Speaking on television Sunday, White House economic adviser Lawrence Summers (a former Treasury secretary and an economist who ought to understand this) assured the nation that stimulating job growth is President Obama's "preoccupation."
For the past year we’ve seen that good intentions and even direct
incentives will not encourage employers to start hiring if those
employers cannot be assured that doing so is in their own best
interests. And, encouraging an atmosphere of uncertainty about the future costs of doing business will make employers cautious about their future financial obligations.
The government, at least in the American system, isn’t expected to create jobs; it shouldn’t assume the responsibility to do so. The government’s responsibility is to implement policies that will encourage employers to create jobs.
“One of the great surprises of the economic downturn that began 27 months ago is this,” the Washington Post wrote last week: “Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.”
This should not be a “surprise.” Businesses don’t scale back their goals when the results are unsatisfactory. They try something different. If they succeed in a new way, they don’t resume the old practices. So, businesses have accomplished the productivity gains that economic planners prescribed, but without the employment levels the planners expected. The mistake is in the forecast, not the performance.
"It is an episode that we're going to -- we, economists in general -- are going to want to understand better and look at for a long time," Federal Reserve Chairman Ben S. Bernanke testified about the "extraordinary" productivity gains he had not expected.
Understanding better would certainly include recognizing that businesses think and act for themselves, so regulatory restraints and financial barriers that government agents put in place will cause them to deviate from the results that planners anticipate.
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There’s been a lot of chatter in the past week about the value of the Chinese currency. Correct that: there’s been a lot of chatter in the past decade about the value of Chinese currency, and specifically it is charged that the rulers of that country keep the yuan renminbi depressed below it’s actual value in order to maintain their advantage as an exporter of manufactured goods. This is unverifiable, but it’s a fact that China is a strong and growing export power. Indeed, it has been that for about 15 years, and the fulminating about the value of the Chinese currency has been ongoing, too. As the insightful Alan Tonelson pointed out in a note to the media: the first LexisNexis mention of "China" and "currency manipulation" appeared May 1, 2002. (To be fair about Tonelson’s point of view, he thinks there is a pattern of manipulation, and contends that U.S. officials’ failure to address it has worsened the U.S trade deficit with China.) Which, is what has brought us to recent chatter. Congressmen have begun to press the matter to the White House, the Treasury Department, and their voters. And, these lawmakers are getting rhetorical support from across the range of manufacturing groups, trade associations, and unions, hoping that such demands will cause China to acknowledge some responsibility for the U.S. trade deficit and agree to help reduce it. That’s not going to happen. Raising trouble will be unseemly and unproductive. China is going to continue to do what it has done over the past 15 years to make that nation such a formidable trading partner. China is not the reason for the decline of domestic manufacturing, though it has been the beneficiary. Decades of domestic policies that inflate manufacturing costs above global standards are the primary explanation for the problems of domestic manufacturers. A change of perspective that encourages domestic manufacturers to make long-term investments, one that recognizes domestic manufacturers as creators of capital and not just sources of government revenue, would be more constructive than blaming China.
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Numerous metalcasters will be sympathetic, if not entirely familiar, with the problem faced by Acra Cast Investment Castings in Bay City, MI: … In 2006, one the company’s neighbors – who had filed 23 previous lawsuits in the county – sued Acra Cast, … The plaintiff alleged that emissions from the foundry had contaminated his cars, his carpet, and the siding of his house...the case dragged on for almost three years, and Acra Cast had to pay for the suit out of pocket.
So far, the owners of Acra Cast, the Singer family, have been defending themselves at their own considerable expense against these 24 suits: they refuse to reach a settlement because they know they’ve done nothing wrong. You can read more about this continuing problem via the U.S. Chamber of Commerce. Or, you can watch a video that has been made about Acra Cast’s dilemma, alerting the nation to the chronic problem of abusive litigation. The tag that the Institute for Legal Reform uses to highlight their campaign against this widespread problem — Jobs Not Lawsuits — helpfully draws the link between these legal snares that seem to plague one business after another, and the wider problem they create for all of us: They inhibit the growth of business. They destroy opportunities The ongoing effort to find a federal solution to every problem — health insurance coverage being only the latest — seems at times to be an effort to override the authority of individual states to support their citizens’ welfare. But, in the very tangible matter of employment, federal efforts at job creation have been less effective than originally promised. I suspect that job creation is something that very soon will remind us of how effective states can be in behalf of their citizens. States that encourage businesses to grow, rather than penalize them opportunistically, will gain economic benefits against states that do the opposite. Far-sighted states will recognize that curbing nuisance lawsuits is an effective way to stimulate job growth.
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It would be easy to get ahead of last week’s announcement from Caterpillar, that it is studying plans to build new domestic production capacity for its hydraulic excavators, and call it a trend. Several reports have hailed this as an example of “re-shoring,” or "on-shoring," or “near-sourcing,” of whatever is the preferred label for a perceived trend of manufacturers choosing domestic sites over off-shore locations, for new production capacity — or for re-locating production capacity.
I don’t know if that’s exactly the case with Caterpillar’s announcement. "The study is based on the current analysis of where the global excavator market is heading and how Caterpillar should position itself for continued leadership in the excavator industry," said Gary Stampanato, Caterpillar vice president with responsibility for excavators.
Don’t dismiss re-shoring, however: it is happening and it will continue to happen as manufacturers “develop the appropriate global footprint” (Caterpillar’s phrase) for their business. But, with respect, these are decisions to be made by large organizations that study comparative advantages on an ongoing basis. In fact, what Caterpillar is actually revealing in its release is that it sees expanding demand for its hydraulic excavators in China and Asia, and that it wants to dedicate its available plant capacity in the region to serving those markets.
Caterpillar isn’t actually saying too much about domestic business conditions that would argue for adding domestic manufacturing capacity for its hydraulic excavators, e.g., consumer demand, feasible corporate tax levels, manageable labor and costs, and so forth.
To know where re-shoring holds real promise, check the study published by NADCA a bit more than a year ago. Most manufacturers are not global (as Caterpillar is), but they need to be attuned to the choices that global manufacturers can and must make for their own sake.
When manufacturers (e.g., Caterpillar) conclude that they must be active in the domestic economy, because they recognize sustained levels of consumer demand here; and that they must line up suppliers for their domestic operations, in order to achieve standards for logistics, product development, quality control, and customer service, among others, … that will be a trend worth spotting. More to the point, the re-shoring trend, and Caterpillar' pending decision, are perfectly predictable and welcome evidence of a global manufacturing economy that is growing more interdependent.
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