|Businesses, including specialty-equipment manufacturers, are feeling confident enough in economic recovery to begin investing in machinery and equipment again.|
A Commerce Department report released two weeks ago showed capital spending plans rose 2.1% in May from April, and was 18.4% above its level a year ago. And despite jitters that some measure of economic recovery has slowed, The Wall Street Journal (subscription required) reports that companies including 3M and Cummins have stepped up equipment and manufacturing spending in anticipation of increased demand.
3M will spend an additional $3 billion on manufacturing this year, including a new Singapore plant to make films for solar panels, while engine manufacturer Cummins plans to spend an additional $400 million this year, up 30% from 2009, to meet demand from rising truck sales in China and India, and for its fuel-injection and emissions-control systems. Analysts attribute the increases documented in the Commerce Department report to more available credit, as well as businesses balancing the risks of being left behind during a recovery with prudent financial practices.
Large enterprises aren’t the only ones investing in manufacturing. Some specialty-equipment companies are also building out in anticipation or reaction to demand. ARB 4x4 Accessories, an Australian manufacturer of differential lockers, suspension, racks, bars and other off-road equipment, is adding infrastructure due to rising worldwide demand.
“We’re buying new machinery, we’re hiring and we’re having a hard time keeping up with worldwide demand,” says ARB President Jim Jackson. The company’s U.S. headquarters near Seattle is responsible for sales in the Americas, which Jackson says was down 9% last year.
“But the last six months, it’s like someone flipped a switch here in North America,” Jackson adds. “Australia and the rest of the world [market] is growing. We had 25% growth worldwide last year.”
Jackson notes that the company’s heavy-duty suspensions for Toyota, Jeep and Nissan trucks have also created demand in rugged war zones such as Iraq and Afghanistan.
Grant Products, maker of specialty steering wheels, is also ramping up for increased demand. Rich Barsamian, vice-president of sales, says the company has been acquiring new machinery to speed production and product to market. Grant plans to boost capital spending by about 9.5% for the 2010-2011 fiscal year.
"This is based on us seeing an increase in business and bringing new airbag replacement steering wheels to market rapidly," Barsamian says. "We have a 7% increase over what we budgeted for incoming orders."
Barsamian adds that Grant is also in the process of buying companies that will help build its core business and access to OEM partnerships, company leadership is playing it conservative.
"We do think there will be a second round of recession," he says. "How bad it will be is anyone's guess. We haven't seen an increase in credit in the last six to eight months, and seems it's still pretty tight."
Todd Gartshore, Baer Brakes vice-president of marketing, says his company is approaching any signs of recovery cautiously, despite an already heavy investment in new equipment.
“We’ve significantly added to our machine capability over the last four years as an initiative to become self-sufficient and manufacture more than 90% of our own calipers by 2010,” Gartshore says. Baer has achieved about 75% of that goal and expects to reach it by 2012.
Gartshore adds, however, that he doesn’t see anything in the near-term that inspires great hope for his company. He says Baer plans to “entrench” and begin focusing investment in R&D and new product, “to be positioned to grow our market share when a cyclic improvement does come."
High-end racing and custom car builder markets are two bright growth areas, Gartshore says, adding that autocross racing at Goodguys events and track days are encouraging enthusiasts to go beyond the quarter-mile.
“This makes our segment in braking and handling more relevant,” he notes.
To contain costs, Gartshore says Baer “continues to look for creative solutions within U.S. manufacturing companies to bring iron castings and other forms of industry lost to China over the last 15 years back home." —Dan Frio