A Few Minutes With

A Few Minutes With…
Todd Herzog, CEO
Accu-Router, Inc., Morrison, TN

Politics silences a once-great U.S. industrial giant:
Tell the story as an impetus for change

In 1960, the American machine tool industry dominated the world market for new technology development, production and sales of machine tools world wide, and demand thereof. Cincinnati, OH, was the “machine tool capital of the world.” These pillars of the industry provided the very machines that the U.S. used to win World War II. The position was solid as late as 1970.

Then some colossal changes came about. In 1973, product liability lawsuits began in earnest and contributed to the demise of domestic machinery manufacturing. In the early 70’s Japan’s MITI (Ministry of International Trade and Industry) began making major subsidies to its machine tool industry a high priority. Other countries followed that model, including Taiwan. We subsequently lost this core U.S. industry because of product liability, foreign government targeting/cartels/subsidies, unfair and illegal foreign trade, and a callous negligence from our government leaders on these issues.

It is a sad story. It’s not like the shoe or garment industry, which was lost to developing countries because of its low technology and high labor costs. This is a case where we had high technology and a premium product, and we still lost it. It’s a broader issue than just machine tool industry, too. It’s U.S. manufacturing. It’s the same trials and tribulations we all face. The issue is, “Can we be competitive in a world stage?”

The death of a giant
As a reflection of the forces in play that the above machine tool builders faced, let me share a few challenges that one-time machine tool giant Burgmaster had in its eleventh hour before closing from direct Japanese machine tool competition:

Japanese competitors readily offered free trips to American decision makers to Japan for their consideration of buying Japanese. Junkets to Las Vegas were thrown in. Factory “stores” were accessible where the U.S. visitors could purchase Japanese pearls, silk, etc. at special low prices. Sometimes these trips were offered “if the inside contact swung the deal to the Japanese supplier.”
Certain Japanese competitors offered customers trial machines for up to one year. They made these offers, allowing the customers to return the machine tool at the end of the one year, if they wished.
The Japanese competitors absolutely would not be under-priced. No matter what concessions Burgmaster considered, the Japanese would go lower. An order was not allowed to be lost on price. There was no direct concern over profit, as their mission was market share.

The reality of these points and others is they continue on today for major account prospects.
Italy and Germany pay 100% of all trade show expense around the world, including people expense, for their machinery industries. Italy will build additional factory buildings as demand warrants. Japan subsidizes R & D. The U.S. machine tool industry has had product liability and other litigation that has undermined its very survival.

Keep telling the story
What can we do about all this? I believe we must keep telling this story to our elected officials, particularly in Washington, DC. I see three cornerstone areas of potential new legislation that would make a difference. They are:

Accelerated Depreciation – The most recent depreciation bonus of 50% first year is scheduled to expire on 12-31-04 for large business. We need this extended. We need this expanded. How about 100% first year write-off of new capital expenditures if new technology brings added productivity? A High Productivity Investment Act has been in the House for the last two years. Other developed countries offer such incentives.

We desperately need a level playing field. If U.S. manufacturing is to survive, reinvestment is critical. If you want to be selfish, make such investment incentives only applicable to U.S. manufactured machine tools & equipment. We need accelerated depreciation as a continuing incentive to reinvest in our capital formation. Otherwise there’s no way we can be competitive. More people need to be beating the drums on this.
R & D Tax Incentives – The sister provision to domestic manufacturing stimulation is providing tax incentives for R&D spending. Investing in new capital equipment and R&D are the pathways to lead companies to future growth. All else is secondary. Why not make both areas flagships of legislative reform? Most politicians want incentives tied to new employment. Added head count does not perpetuate the company’s success – R&D and new investment does. We need tax incentives where manufacturing wins! We also need tax incentives for R&D. If you are going to reinvent yourself you need additional help with R&D. Here’s the problem. Individual machine tool companies can be very astute at R&D, but we’re not going to successfully take on a foreign subsidized program of R&D. There’s a big difference there. If the Japanese were spending a billion dollars a year in 1983, what must it be now?

One answer to this is you need external friends as part of your R&D process. Individual companies just aren’t going to get it done alone. The place that makes the most sense to me is technical research departments at universities like Tennessee Tech, North Carolina State, Mississippi State or Purdue. If you aren’t latching into that, you are missing an opportunity.

It’s a continuing challenge to stay ahead of world-wide competition from an R&D perspective particularly when they are subsidized and we are not. The only other salvation is to stay within a very narrow niche and try not to be all things to all people.
Product Liability Reform – This is a U.S. problem that has undermined our competitive posture and eliminated much of our manufacturing base, certainly in the machine tool area. We have the proliferation of attorneys. Our developed country competitors laugh at this issue. They say it is uniquely “our problem.” They are right. Somehow, we must get tort reform before it ruins this country’s ability to compete on the world stage. With most Congressmen attorneys, reform is difficult at best.

That does not mean we should stop trying. Ralph Baldwin of Oliver Machinery gave testimony to a U.S. Senate Committee in 1973. We needed reform then. We desperately need it now. Under tort law, the only issue is, is a machine inherently safe or unsafe. Employee negligence including drugs, total disregard for safe shop practices are not a defense. The problem has been that companies have been sued for machines built literally 100 years ago that did not have state-of-the-art guarding then, that have been sold several times and reworked and remanufactured, and the original manufacturer has long since lost control or track or ownership of that machine, yet he is judged by today’s safety standards. Product liability has forced closure of a lot of machine tool companies.

These are very important issues to Accu-Router. More importantly, these are survival issues to WMMA, NAM and U.S. manufacturing in general. We can’t have everything made in China.

When I have gone to see my three Tennessee congressmen, I find young, bright staffers. They do not know the story above. That is why I almost dutifully tell it.

What has transpired

1. Cincinnati Milacron - Once the world’s largest, sold its machine tool division to a holding company. This once proud, world leading firm is no longer a factor.

2. Ingersol Milling Co. - The other major machine tool builder closed its doors in 2003. It was a shining example of American technology for many years and a pillar for custom machine tools for worldwide aerospace.

3. Kearney & Trecker - A major machine tool builder with a broad line of machine tools with the latest technology – closed forever.

4. Warner & Swasey - Its turret lathes won World War II – every plant used them for machining – closed forever.

5. Bullard - Its vertical turning lathes (VTL’s) revolutionized aerospace machining – It was the industry standard bearer of that technology – closed forever.

6. Burgmaster - The original leader in NC drilling machines and then CNC machining centers. It licensed Yamasaki (Mazak), only to endure a lawsuit over imports contrary to the licensing agreement. Burgmaster won a $1 million settlement. Burgmaster closed a 750,000-square-foot plant in Gardena, CA in 1985 – closed forever.

7. DeVlieg - The leader in jig bore machining centers needed for tight tolerance work. It had over a 1 million-square-foot plant in Royal Oak, MI and an equal sized plant in the UK. Its technology was necessary for aerospace and automotive. It is – closed forever.

8. White Sunstrand - Manufactured large machine tools in Rockford, IL. Highly respected for its leading technology – closed forever.

9. Cross - A major machine tool supplier to automotive. Recognized for its customized machining systems – closed forever.

10. Carlton - Manufactured large radial drills and other machine tools in Cincinnati – closed forever.

11. Pratt & Whitney - Had a full line of CNC machining centers in the early 1970’s. It dropped its machine tool manufacturing product line to concentrate on CMM measuring machines.

12. LeBlond - Primary U.S. manufacturer of lathes and CNC lathes in Cincinnati. At the point of closure, was purchased by Makino of Japan.

13. DiAcro - Manufacturer of sheet metal machinery, including CNC turret punch presses – was in Lake City, MN – closed forever.

14. Niagara Press & Shear – Had a very impressive factory in Buffalo, NY where it manufactured presses, brakes, shears, etc. – closed forever. Product liability played a role here.

15. Acme Cleveland - The leading manufacturer of screw machines in Cleveland, OH – led the world in this important technology – closed forever.

16. American - Primary manufacturer of large HP turning lathes – closed forever.

17. Bridgeport - The household word for milling machines. The original firm in Bridgeport, CT is closed forever. The name is still active as a marketing brand name covering imported machines mostly.

Does no one care about this huge loss of world leading technology in such a priority industry?

I would like to thank Brooke Wisdom, Editor of Modern Woodworking Magazine for giving me permission to re-print this article.