On ownership of National:

Upon my purchase of National in 2002, my family and I pledged to maintain National with unquestioned financial strength. I am pleased to report that National today has little or no bank debt. In fact, I believe that National now has the strongest balance sheet in the industry and an ownership that is resoundingly solid from a financial standpoint. By virtue of the fact that I am both CEO and primary owner, National is in a position to be extremely dedicated and decisive in our service to the cold forming industry.

 

On National’s market position:

National Machinery has been, and arguably still is, the company in the industry that is most clearly a true global player. I say that because we have facilities, not just field offices, on the three major continents – North America, Continental Europe and Asia. The last now means China as well as Japan. Historically North America has represented 50% of new machine sales. In earlier decades it was even more than that, particularly during the pre-war industrialization of America .

 

We bought into Europe relatively early on during the post war resurrection. In 1958 we purchased J.G. Kayser, one of the largest European fastener machinery makers, based in Nürnberg.

 

Subsequently we built a totally new factory and took a balanced approach between North America and Europe, producing the same machines in either location and participating actively in the rebuilding of Europe.

 

On Russia:

Interestingly, when you get to the late 70s and 80s, we gained substantial business into the old Soviet Union, selling through our German subsidiary. This was through the big five year buying plans, although we never really knew where anything went. We do know there are around 400 Nationals in Russia, mainly older machines but now some newer ones are appearing.

 

Russia, today, is fascinating, particularly as you watch the parallel development of China. While Russia is not so large or diverse a market as China it is still an interesting one. It is dominated by bigger projects and there always tends to be a question about whether, or when, these will get off the ground. We suspect there will be a lot of time spent chasing the so-called ‘big deal’.

 

On North America:

Today in new machines roughly 50% of our sales are to Europe; only about 15-20% to the Americas, North and South; the remainder to Asia. The North American market has been down since the early 2000s, reflecting the decline of the big three automotive producers and the major trend towards outsourcing.

 

While there is plenty of aftermarket business and we get our fair share, if not more, of the new machinery business that does exist, it has been hard for the US customer base to justify significant capital expenditure.

 

Firstly, there has been over-capacity. Secondly, particularly if you have been servicing the Detroit Three, it has been hard to justify new equipment while faced with constant demands for price concessions and threats of your contract being moved. Thirdly, even if you retain the business, you are not getting the same volume as yesterday or as forecast - because the big three have not been meeting their targets.

 

Despite that sorry state we have seen some interesting spots of spending - exceptions, though, rather than the rule. We are proud that one of the very few major expansions in North America - new capacity as opposed to relocation - is a company that has chosen to equip 100% with FORMAX® technology. Despite the ominous market trends this start-up company is winning contracts because it has been graded top quality - as a direct result of its commitment to new, high-performance equipment.

 

On Europe:

Europe, in contrast to the US, and despite a relatively low GDP growth, is quite attractive for our customers, including those servicing automotive. Europe has ten major automotive players to sell to, plus a variety of tier 1 and tier 2’s, making for a much healthier environment. There has also been substantial expansion of those companies into Eastern Europe and, in some cases, Russia.

 

While China is on everyone’s radar as both threat and opportunity, so far European fastener producers seem to have benefited from vehicle production transplants into China, because the cold formed parts have generally been supplied from Europe. That’s not to say it has not been similar with American companies but there has been a tendency for US automakers in China to try more direct sourcing with, it as to be said, mixed results.

 

Europe has been good to us, and has always been important. In terms of mix it is now a greater proportion and it has also grown in terms of absolute dollar values over the last five years.

 

We’ve certainly not been hurt by the exchange rate but that is, by no means, the key factor in the growth. Our prices, anyway, tend to be higher, but we offer more in terms of features on the equipment.

   

On FORMAX technology:

National, with its FORMAX line, has increasingly targeted cold-form parts and high precision fasteners rather than standard fastener manufacturing. Our goal is to be the global leader in parts forming process technology. We have dedicated more resources towards that end, working with the customer on their process development, not just supplying a piece of equipment.

 

Consequently, we are delighted to have achieved a number of scores in the last 3-5 years, converting accounts from cutting technology to forming technology. We continue to support the quest for the holy grail of the true net shaped part – high volume, high reliability manufacturing of complex parts without the need for secondary processing.

 

We’re also conscious that we need to service the broader needs of the fastener making and parts forming industries. That means being able to provide our equipment in more economic versions, recognizing that capital cost, in the broader market, is an increasingly important issue.

 

Under the new National, we have substantially restructured. We used to be almost 100% vertically integrated. Now we are outsourcing more. This allows us to be more flexible and eliminates some cost, albeit that has been a major challenge in an environment of dramatically rising steel prices.

 

We have not achieved as much as we would have liked but it remains a major mandate, over the next few years, to obtain meaningful cost reductions that can be reflected in what we offer our customers.

 

 

On the new facility in Suzhou, China:

A key objective is to be an immediate sales and support facility for new machinery and to be a regional service center and parts supplier to Asia.

 

As we produce spare parts in Suzhou so we will also look at producing machine parts for FORMAX at lower costs than in the US. Suzhou means we can take the knotty problem of ensuring consistent, high quality foreign outsourcing directly under our own wing. We’re not in full swing by any means yet, but that is our program. Our ultimate goal is to benefit our customers by being able to achieve cost savings we can pass on.

 

On the acquisition of Cleaning Technologies Group:

In Europe we already represent a portfolio of affiliate products, including Mectron and Nakashimada. That has been a deliberate strategy to leverage our global sales and distribution arm as well as to service our customer in a more complete way.

 

We bought CTG as part of our overall diversification program here at National but we were mindful of the opportunities to capitalize on their sales opportunity worldwide.

 

Their equipment admirably meets the cleaning requirements that are now an important part of ensuring the quality of cold-headed parts. We are working with CTG, now, to come up with some new versions to meet the specific needs of customers in our market. Again, our new Suzhou plant features in the strategy. Later this year a division of CTG will begin manufacturing components for its ultrasonic cleaning units in Suzhou. We’re also looking at the possibilities of producing Ransohoff parts cleaning equipment there.

 

On the future:

I don’t see the investment pattern in North America changing. It doesn’t mean that there won’t be investment but I think it will be tentative. On the other hand I don’t think the existing installed base will migrate offshore. Many of the automotive OEMs seem to have come round to the view that local sourcing is really the best. They continue to be demanding on price but are recognizing the advantages of reliable quality and logistics.

 

There will be inevitable disturbances in the installed base. More likely closures than the generational selling out that went on previously. That means recycling of equipment, but we believe most will stay within North America. No more than 20% of recent auctioned machinery went offshore.

 

Europe is going to be more interesting. I think automotive will get a bit tougher in terms of the demands it places on its supplier base, with more outsourcing to some lower cost countries.

 

The real question is what happens as China matures – when 5 million vehicles sales get to 8-10 million.

That’s a big number with more local models produced. The number of automotive companies will shrink - maybe not in the next five years, but certainly over ten. China currently has the opposite problem to the US with almost thirty auto companies. So what happens when the market grows, the quality of the vehicles improves, and the number of producers falls? That is going to mean some very interesting dynamics for automotive parts production. In the next five years the long-term situation will not be easy to call, but there will be a series of important crossroads.

 

That process could sap Europe to some extent and the degree that Eastern Europe grows is likely to be important. In some ways adapting could prove to be tougher for Western Europe than it is proving for the US, because of embedded employment.

 

Wherever there is parts forming, though, one thing you can assured is that National will be there to support its customers in achieving a competitive advantage in a challenging global marketplace.