allmetalworking > News & Topics >Federal Fiscal Woes Don’t Ruffle Business Prospects Among Equipment Makers
Federal Fiscal Woes Don’t Ruffle Business Prospects Among Equipment Makers
Author: Pat Toensmeier
Source From: IMT Machining Journal
Posted Date: 2013-02-28
With the fiscal cliff averted — at least for now — and Congress gearing up for a showdown in March about raising the U.S. debt ceiling, which reached $16.4 trillion in December, questions abound as to what impact the shaky economy is having on the machine tool industry in terms of planning and sales. Based on feedback from equipment suppliers, the general answer is none, though there are pockets of concern in the market.
Perhaps the most representative answer comes from Scott Knoy, vice president of German Machine Tools of America (GMTA), in Ann Arbor, Mich. “The fiscal cliff was not discussed at all in terms of our planning,” he wrote in an e-mail response. “The business climate is still at a level where additional taxes are taking a backseat to [raising] revenue and earnings and the issue of identifying and developing talented people.”
GMTA customers, moreover, think much the same, Knoy answered. “Our customers follow their sales planning and forecasts much closer than the political landscape,” he noted. “If they are hitting or eclipsing the sales plan, then they march forward. If they are coming up short to plan, then they cut costs (people, hours, etc).”
Mark Rentschler, marketing manager at Makino, in Mason, Ohio, comes to a similar conclusion. “The negotiations had no effect on Makino’s plans,” he said. But Rentschler, whose congressional representative happens to be House Speaker John Boehner, one of the principals in the fiscal cliff talks, said that “uncertainty around policy as well as fiscal responsibility is causing some concerns in the private sector. I would urge leaders to act responsibly and effectively in managing the U.S. economy to achieve growth and prosperity.”
Suppliers of machining equipment expect demand for their products to be strong this year. Credit: Makino
Eric Bertsche, sales and marketing manager of Bertsche Engineering Corp. in Buffalo Grove, Ill., is taking a wait-and-see attitude in the first quarter. “The negotiations didn’t seem to have an effect on the purchase orders placed [late last year],” he remarked. The company had a strong finish to 2012, “but some pending projects were held up in December.” Bertsche isn’t sure why, but noted, “We’ll find out in January and February if these will finish up or be postponed. We won’t see an effect on our business until the end of the first quarter.”
Bertsche acknowledges that the project delays could be due to economic concerns, as well as other factors. “If I could understand everything about a customer, I’d have a lot more orders,” he said. “There are many factors involved in large capital equipment purchases, and many things take place behind the scenes that you can’t predict.”
Knoy observes that the fiscal cliff negotiations and upcoming talks about the debt ceiling are “really not a concern for our customers.” As he noted, “The operation of the government does not affect these companies. The only projects that may be affected are those partially funded by the [federal] government …”
An important point about the companies interviewed for this article is that they deal in costly machining systems — generally $1 million or more — which means their customers are large companies, even multibillion-dollar global corporations. And these firms have been doing pretty well lately. “The economic recovery in the U.S. has been seen only [by] companies with a global footprint,” Knoy wrote.
Small companies, not surprisingly, are still feeling the effects of the recession. “These shops have not invested since 2008 and will not invest at substantial levels,” Knoy remarked. “And regional companies continue to struggle, especially with the uncertainty coming from Washington. Thankfully, they do not make up much of our customer base.”
For these businesses the fiscal cliff negotiations raised concerns about taxation. Many are so small that their earnings are listed as personal income on tax forms. As a result, the higher tax rate on individuals earning $400,000 or more per year ($450,000 for couples), which rose to 39.6 percent this year from 35 percent, could hit the smallest machine shops hard.
Ideas for resolving the debt crisis were pretty straightforward: make significant, but responsible cuts in government spending.
“Congress should raise the debt ceiling, but combine this with responsible spending reforms instead of tax increases,” said one equipment executive who asked not to be identified. “We need to provide for government and its services, but Congress needs to address spending and the $16.5 trillion debt. It’s time to hold them responsible to make changes and set in motion fiscal structures that generate economic growth.”
All of those interviewed report that 2012 was a good year and expect that 2013 will be as good if not better.
“Makino had a record year in 2012,” said Rentschler. The new year is starting off a bit more slowly than it did at the beginning of 2012, but he believes that such strong markets as automotive, aerospace and precision job shops will generate an uptick in demand by the second half that carries over into 2014.
Bertsche agrees that after his company’s strong finish last year, 2013 is looking like it will also be good for business, owing to automotive, aerospace and the job shops. “As long as we keep the pipeline full, we’ll do well,” he commented.
Knoy called 2012 “the best year that we have had with sales coming in at 250 percent of plan.” He expects to surpass this in 2013, largely due to pent-up demand for consumer durables that first appeared two years ago, and to the fact that Generation Y, born between 1985 and 2005, “is the largest generation seen to date in the U.S. and will bring a tremendous demand for cars, electronics [and other products] over the next 20 years.”
Despite economic concerns that occasionally seem more academic than immediate, 2013 seems to be off to a good start for large machine tool companies and most of their customers. Whether the great expectations will equate to great business, though, remains to be seen. For the near term, higher taxes for some businesses and the debt ceiling are not damping enthusiasm and sales prospects among suppliers.
