Moving On Up: Medical Manufacturing

The metalworking industry showed surprising resilience in 2010, thanks in large part to a resurgent U.S. auto industry. Will 2011 continue the trend?

After a wrenching 2009, when parts manufacturers saw precipitous sales declines and orders and sales of machine tools and cutting tools also dropped sharply, the U.S. metalworking industry experienced a relatively strong recovery in 2010. Demand for manufactured products in developing markets, a rebound in the domestic auto market and inventory rebuilding by companies that had been holding off on orders helped fuel the recovery.

However, with the residential and commercial real estate markets still bogged down and consumer spending restrained, some observers are concerned about the pace of the recovery, particularly because growth rates have slowed. Indeed, U.S. industrial production declined by 0.2 percent in September, according to market research firm IHS Global Insight, Lexington, Mass. Within that segment, manufacturing also declined by 0.2 percent in September from August. While auto production rose by 0.5 percent in September from August, this was more than offset by declines in machinery, computers and aerospace. For the third quarter as a whole, U.S. manufacturing rose 3.6 percent, but growth was down from 9.1 percent in the second quarter.

However, October saw manufacturing trending upward again, demonstrating the unsettled state of the U.S. economy. “The nation’s manufacturing industries increased production activity considerably in October as new orders jumped to record the highest level of forward momentum since May,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight. “The good news on orders is that both domestic and export orders picked up momentum.”

Outlook for 2011

The U.S. economic recovery will slow more than previously estimated earlier in the year, to 2.5 percent GDP growth in 2011, according to a recent survey of 59 economists by Bloomberg News. The group sees elevated unemployment depressing consumer spending, with U.S. companies also scaling back investment plans. The economists surveyed expect the U.S. unemployment rate to remain above 9 percent in 2011. The U.S. Federal Reserve is more optimistic, predicting “a moderate strengthening of the expansion in 2011.” The Fed estimates that 2011 U.S. GDP growth will range from 3.5 to 4.2 percent, after a 3 to 3.5 percent growth rate in 2010.

While sales of machine tools and related equipment remains well below totals reached prior to the Great Recession, the recent trend has been positive. In September, U.S. manufacturing technology consumption totaled $400 million, according to AMTDA, the American Machine Tool Distributors’ Association and AMT – The Association For Manufacturing Technology. This total, reported by companies participating in the USMTC program, was up 66.1 percent from August and up 156.8 percent compared to the total of $155.69 million for September 2009. With a year-to-date total of $2.09 billion, 2010 is up 74.1 percent compared to 2009.

“September 2010 was a watershed in the recovery from the recession of 2008-09,” said Peter Borden, AMTDA President. “The 1,992 [machine tools] sold this month is the highest number since September 2008 and demonstrates the resilience and staying power of the U.S. manufacturing base. More remarkably, this was done while many factories are running below the capacity levels that require capital goods purchases, despite the tight credit market, and in spite of questions about government debt and potential tax increases. The catalysts of the successful IMTS, the weaker dollar and the passage of bonus depreciation paid surprising and long awaited dividends.”

Shipments of cutting tools also reflected the growing strength of U.S. manufacturing in 2010. While 2010 tool shipments started poorly, with shipments down 1.2 percent compared to the already depressed levels from the same period a year earlier, they began to rally, according to the U.S. Cutting Tool Institute, Cleveland, which tracks shipments of its member-companies. In the second quarter, cutting tool shipments soared 32.2 percent and in the third quarter the growth rate jumped 38.8 percent, compared to the same periods in 2009.

U-Turn in Autos

Ironically, one of the factors fueling the growth of the metalworking industry is the U.S. auto industry, which was the cause of much pain during the recession. It has clearly rebounded from the depths of the recession. “What we’re seeing is the OEMs (auto manufacturers) are running lean and plant utilization rates are at all-time highs,” said Paul Lacy, manager of technical research, Americas, for market research firm IHS Automotive, Northville, Mich. “Because they closed so many plants, the ones still operating are running at good rates. As a result, OEMs are in a better position to control the elements that help Tier 1, Tier 2 and Tier 3 suppliers conduct their business more consistently. Vehicle inventories are in check, which means the supply base can produce without having to wonder if they’ll be bottlenecked at some point and have to take a week off because the OEMs don’t need parts.”

Also, a large number of new vehicles are being introduced and new fuel-efficiency demands by the federal government are driving innovation. New engine, transmission, hybrid technology and other technology programs are creating the need for new part designs and tooling.

Overall, North American light vehicle (cars and trucks) production is climbing off the lows experienced during the recession. In 2009, total vehicle production was 8.56 million units; in 2010, the total should range from 11.3 million to 11.5 million, and in 2011 the total should be about 12.3 million, according to Lacy.

The main trend driving development of new parts and tooling are engine and transmission programs targeting higher power density—improved power and fuel efficiency from smaller-displacement engines. “The 2011 Ford Mustang, for example, features a 3.7-liter, V-6 engine with 305 hp as its base engine,” Lacy said. “Compare that to Ford’s V-8 engine last year, a 4.6-liter, with just over 290 hp.”

Higher power density is achieved through new cylinder block design and better cam phasing systems that regulate how much fuel and air go in and out of the cylinders.

Designing parts that can be produced more efficiently is also a major focus for automakers. For example, use of P/M parts is growing because the process can produce a near-net-shape part closer to a finished product than ever before, according to Lacy. “These parts require a lot less grinding, deburring and finishing than other processes, such as plain stamping or forging, which brings down cost and waste.”

The use of alternative materials may also grow as auto manufacturers continue to pursue lightweighting. “For example, magnesium is expensive, but Ford recently used a magnesium subframe for vehicle tailgates to improve fuel efficiency by reducing weight,” Lacy said.