US machine-tool manufacturers rebound after foreign trouncing

Continued success lies in taking the contest to expanding foreign markets, analysts contend

UNITED States manufacturers owe some of the credit for their widely hailed resurgence to the low-profile makers of machine tools.

Laboring in the shadows of auto, steel, and other manufacturers, small machine-tool workshops provide the essential building blocks for industry. They produce everything from nuts, bolts, and screws to the robots, presses, and casters vital to a myriad of manufacturers.

After years of painful streamlining, consolidation, and technological upgrading, US machine-tool manufacturers are more productive and competitive than they have been for more than two decades, industry executives and analysts say. ``There is very little doubt that productivity and efficiency of domestic machine-tool producers has improved dramatically,'' says Peter Toja, president of Economic Planning Associates Inc., in Smithtown, N.Y.

The opportunity for growth for the US industry is also extraordinarily good, industry experts say. With the US economy on the upswing, orders received in 1993 by US companies for metal-cutting and metal-forming machine tools surged 33 percent over the previous year. In the first six months of 1994, industry orders jumped 23.6 percent over the same period last year.

US machine-tool manufacturers are better positioned than their foreign rivals to sell to the booming markets of North America. Moreover, companies are seizing on the burgeoning markets of China and other developing countries in Asia.

Still, machine-tool manufacturers face steep challenges. Japanese and European competitors swooped into the US market after import curbs expired last year. These foreign manufacturers are especially aggressive because of the low demand in their own recessionary economies. Also, government restrictions on the export of sophisticated machine tools hobble efforts by American companies overseas. The US industry estimates that cold-war-era export bans cost it $150 million annually in sales and discourage the creation of about 3,000 export-related jobs.

Most US machine-tool manufacturers operate on a small scale and lack the capital for the research and innovation necessary to stay ahead of large foreign rivals.

Mostly mom-and-pop operations

In general, ``machine-tool companies are still mom-and-pop operations with comparatively few employees, relying on a few big purchases,'' says John Townsend, a spokesman for Giddings & Lewis Inc., in Fond du Lac, Wis., the largest US producer of machine tools. Many US companies were founded by highly skilled entrepreneurs and are family-run and owned.

Fortunately, machine-tool manufacturers are not strangers to harsh competition. They have learned firsthand about the high costs of complacency, the danger of indifference toward foreign competition, and the imperative for technological advancement. In 1956, US machine-tool manufacturers controlled more than 80 percent of the domestic market and employed about 75,000 workers. They were the world's No. 1 producers, building nearly one-half of the world's machine tools, exporting more machines than any other country, and, on a per-worker basis, leading the world in investment and productivity.

Within three decades, however, the US industry was brought almost to its knees because of government and corporate neglect at home and intense, sometimes predatory, trading by companies abroad.

By 1982, the US could claim just 10 percent of world production. During the same period, Japan rose from a weakling in machine tools to the world's leader.

`Tears of glee' to `tears of woe'

Morrow Garrison, chairman of the Association for Manufacturing Technology (AMT) in McLean, Va., recalls that in the 1960s, executives from the then-puny Japanese industry attended the first US machine-tool trade show with crude machines but with many note pads and cameras at the ready.

``Americans, at that time, laughed at the Japanese and the first machine tools they marketed over here,'' says Mr. Garrison, vice chairman at CRL Industries in Des Plaines, Ill. ``But in a short span of time, those tears of glee turned to tears of woe.''

Along with bitter foreign competition, US companies also faced a brutal cyclical downturn in the early 1980s. The severe ebb was especially hard on the skilled craftspeople at machine-tool plants: From 1980 to '83, the number of blue-collar workers at US machine-tool factories plummeted 44 percent to a total of 39,800.

Since their heyday, US machine-tool manufacturers have seen foreigners seize one-half of the domestic market. The US companies that have survived have done so by merging, offering a broad product line, or creating a niche in a close tie-up with one or a few manufacturers, says Mr. Toja of Economic Planning Associates.

US companies have also received strong assistance from the government. In 1987, Washington enacted ``voluntary restraint agreements'' with leading foreign exporters. The import limits helped give domestic producers breathing room to streamline through innovation and the adoption of more productive equipment.

The import curbs expired last year, however, and foreign machine-tool manufacturers are stepping up efforts to capture a larger share of the US market, Toja says.

Japanese and German machine-tool companies - the world's top two producers - are especially keen on looking beyond their recessionary economies. German companies last year suffered a record slump in production and sales, according to the Association of German Machinery and Plant Manufacturers.

US companies could push back their foreign rivals by taking the contest to expanding foreign markets, especially Mexico, Canada, and developing countries in Asia, industry analysts say. ``The companies who will stand out are those who are better able to penetrate the export markets,'' Toja says.

According to the AMT, in Canada and Mexico, the North American Free Trade Agreement gives US producers a 20 percent price advantage over Japanese and German companies. Last year, consumption of machine tools in Canada jumped 19 percent.

Among the many promising markets along the Pacific Rim, China has offered stellar opportunities for machine-tool exporters. Consumption of machine tools in China jumped 28 percent last year, as the world's fastest-growing major economy became the third-largest consumer of machine tools. China bought 11 percent of world production, an increase from 7 percent in 1992.

``China will probably be, in the next 10 to 15 years, one of the fastest-growing machine-tool markets in the world,'' says Mr. Townsend of Giddings & Lewis.

Still, in order to export, many US companies have had to stretch, industry experts say. ``These are relatively small, entrepreneurial companies that simply haven't had the infrastructure or resources to go to foreign markets,'' says AMT chairman Garrison.

At home, major US companies could fend off the foreign challenge through innovation, especially by sustaining their peerless record of integrating computers with machine tools.