The economic downturn has hit bookings for new machine tools and equipment hard, with U.S. machine shops' financial strength and business activity hitting record lows earlier this year. Most experts agree that a recovery in capital spending won't be assured unless production picks up in a lasting way.

As the first in a new feature that highlights the views of industry experts, IMT recently picked the brain of Van Crotts, Chairman-elect of the American Machine Tool Distributors' Association (AMTDA) and President of Winston-Salem, N.C.-based Crotts & Saunders Engineering, Inc.

Here Crotts sizes up the challenges manufacturers and distributors face, and spells out what actions must be taken to ensure the sustainable success of the nation's industrial sector.

IMT: What we've been hearing from IMT readers, and ThomasNet users in general, is that business in the manufacturing sector has been especially slow — credit trickling, hiring at a standstill, etc. — over the past year and a half. How have AMTDA members, who encompass more than 80 percent of all distribution sales in the United States, been most affected by the recession since it officially started in December 2007?

VC: Members of AMTDA have taken a tremendous hit. Most, if not all, of our members — distributors and marketing associates — have had workforce reductions. Most remaining workers have seen some form of salary reduction.

Meanwhile, the consumption of machine tools — both metal working and metal forming — is approximately 70 percent below 2008 levels.

The resizing of organizations for this dramatic reduction in demand for products and services has been a challenge. I would estimate that we have not completed all the reductions. Until we see a consistent upward trend in sales dollars, we'll continue to constrict and resize our firms.


IMT: Because many manufacturers have had to cut back on investing in capital metalworking equipment in the past year, they've had to prioritize their equipment purchases and put off buying less critical equipment. Of the equipment investments considered top priority by manufacturers, what has been the most consumed manufacturing tech in 2008-2009? Simply put, what can't manufacturers live without?

VC: It has been my experience that when a machine tool project was related to the introduction of a new product or part that required a new machine process, we had high confidence that a purchase would occur. As sales companies, we always try to identify the programs that have the most likely outcome of an order.

We have seen the dramatic reduction in new part or project introductions, thus orders have been cut sharply. The replacement of tired or nonproductive machines has continued, but at a very slow pace; quite often, these can be postponed "until next year," at the end of the selling cycle.

For the very few companies that recognize current depressed conditions are not permanent, the cost of machine tools are at all-time lows in real dollars, and the available resources to implement new technologies are at all-time highs. The time to buy has never been better.


IMT: Credit availability continues to be a serious problem for numerous manufacturing sectors. Do you see the frozen credit markets thawing enough for businesses to invest more in tools and equipment?

VC: I think that the new tighter credit markets are in need of change. I think subprime mortgages — driven by political motivations rather than sound business practices — and the poor understanding of business risks by lending institutions were significant contributors to the economic crisis.

We may currently be in an over-reactionary environment, where reasonable loan requests and funding needs are not being met due to overly cautious lenders. I think large companies have been able to secure access to funds, but the smaller companies have had an ongoing challenge. This group of companies makes up the majority of machine tool consumers, and I do believe growth is being restricted.


IMT: In recent years, a lot of lip service has been paid to a forthcoming talent shortage in manufacturing and engineering. Do AMTDA members see this reported labor shortage as a future reality?

VC: I do agree that we are currently facing, and will continue to face, a shortage of technically trained engineering sales professionals. A partial offset to this challenge will be the "baby boomer" generation continuing to work. The recent loses in investments by many baby boomers will undoubtedly keep many skilled and experienced sales professionals in the workforce and postpone retirement.

However, it is clear that this is a short-term event and cannot fill all the needs of machine tool distribution in the long term. Our industry is very small in size and, for the most part, is made up of small businesses. Recruitment can take many forms, including identifying candidates in our customer base and recruiting at technical colleges. Our firm's two last sales engineering hires were from regional engineering schools, which seems to be working for us.


IMT: What are the biggest challenges facing the machine tool industry?

VC: The reduction of manufacturing in the U.S. has been the most important factor affecting machine tool consumption. In real dollars, fewer machines are consumed each year by a smaller base of manufacturing companies.

Although consumption of manufactured goods and services has not decreased in the long run, these manufactures are looking to lower-cost labor and less regulated environments' to produce these goods, and have chosen non-U.S.-based manufacturing locations. This offshoring strategy has been a major reason for reduced sales of our products.

Nevertheless, it is clear that the technology to automate manufacturing processes can be implemented here in the U.S. to allow our manufacturing firms to compete in this world market. Our mission as machine tool sales companies is to spread the "gospel" of this message and facilitate this technology into our local customers' plants.


IMT: What key things need to happen for manufacturing in the U.S. to turn itself around?

VC: I believe we need: less legislation and regulation; accelerated investment tax credits that promote the investment in technology and innovation; accelerated depreciation allowances for manufacturing machinery that also promote investments; and realistic laws governing labor practices that promote individual freedom and initiatives... work and environmental regulations based on common sense.

I also think we need to promote the understanding and appreciation of manufacturing as a way of life and desirable career choice. In recent years, our culture has encouraged non-manufacturing career choices and discouraged the technical trades as a less desirable way of life.

Manufacturing creates wealth for society, and we need to appreciate it and promote it.

Van Crotts is Chairman-elect of the American Machine Tool Distributors' Association (AMTDA) and Senior Director of the North Carolina Society of Engineers. Van joined Winston-Salem, N.C.-based Crotts & Saunders Engineering, Inc. as a sales engineer in 1982, became Partner in 1995 and has held the post of President since 1998. Founded in 1956 as a machine tool distributor, Crotts & Saunders Engineering has been working to help manufacturers find better ways to produce products for more than 50 years. He is married and has one son.