Machine shops basking in profits, good times

October 19, 2007

Machine shops, the places where machines carve chunks of metal into parts used in everything from prosthetics to hydraulic pumps, are enjoying some of their best times in a decade.

Industry observers say the companies are more financially sound than they've been since the '90s, and that they continue buying equipment to make themselves more efficient and competitive in the face of rising global competition.

And their prosperity suggests the economy will thrive for at least several more months without the threat of a major slowdown.

"It shows that the business to business sector is still in pretty good shape," said Indiana Manufacturers Association President Pat Kiely. "It's positive for the economy."

Details about the industry are difficult to ascertain because of the way the federal government tracks businesses and employment. However, manufacturing-intensive Indiana has dozens if not hundreds of the shops.

Experts familiar with the industry say most of the shops, some of which employ only a few people, are faring well compared to the downturn that hit manufacturing hard early in the decade.

American Machinist, a trade publication that follows the industry, reported this summer that only about 1 percent of loans for machine tool leases were in delinquency-the lowest rate in years.

That's a far cry from a grueling stretch from 2000 to 2002, when shops that turned out low-precision parts lost waves of business to China and other countries; defaults also were higher then.

Shops that survived turned to making high-precision pieces that required expensive equipment and highly skilled labor that many overseas competitors couldn't match.

They also diversified. Many were cloistered in one industry and often relied heavily on a single customer.

A recent survey by the National Tooling and Machining Association, a Maryland-based trade group, found that fewer than 10 percent of respondents had more than 50 percent of their business in one industry.

"Our industry is doing very well," said association Chief Operating Officer Rob Acres. "They're learning you can't put all your eggs in one basket."

Ron Blake, sales manager at the Indianapolis office of Dayton, Ohio-based Gosiger Inc., a machine tool distributor, said Indiana machine shops are faring admirably by supplying medical companies, aerospace and U.S. plants operated by foreign automakers. Military contracts also are a staple due to the war in Iraq.

"It's not the best it's ever been, but it's above average," Blake said.

Indianapolis-based Hurco Cos. Inc., Indiana's only machine-tool maker, reported a 36-percent boost in profit during its third fiscal quarter ended July 31. Much of the increase was driven by overseas sales aided by a weak dollar, but much also was attributed to strong U.S. sales.

Hurco specializes in the highly automated machines that are helping make shops more competitive. Many Hurco customers are automotive suppliers who survived shakeouts early in the decade, Ritter said.

"Times for machine shops are really good right now," marketing manager Rick Ritter said. "The shops are making a lot of money. They're at a fairly high level of capacity."

Numerical Productions Inc. in Indianapolis is one machine shop doing well.

The company, located at 3901 S. Arlington Ave. southeast of Beech Grove, supplies hydraulic pump components to Caterpillar Inc. The Illinois manufacturer of earth-moving equipment has fared well due to both a strong domestic economy and booming emerging markets elsewhere in the world.

Numerical has thrived on Caterpillar because its sales seem resistant to downturns during slow times, which has made diversifying away from such a large customer difficult, said plant manager Steve Wolsiffer.

Still, the past couple of years have been particularly strong for the company, Wolsiffer said. He declined to disclose financial results.
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