Is a wave of price cuts coming?

Producers of factory equipment and tools are doing a mixed job of navigating troubled economic waters. Three industries (lift trucks, transformers, and motors) received a failing F margin grade in March 2003. Seven industries earned troubling D grades. Increasing costs as prices stall have been the cause of these margin troubles.

The only way out for many suppliers will be to hike prices. The fact that end markets are starting to show some pep may make higher tags easier to enforce in the latter half of 2003.

For plant engineers hoping to avoid wholesale price increases, we have some suggestions. Eight of 19 industries in PLANT ENGINEERING magazine’s marketbasket of factory equipment industries seem to enjoy margin positions that would encourage future price cuts. Most of the industries in this position are essentially living off margin surpluses created prior to March 2002. For buyers, that means constructing a cost-based argument for lower prices may be more challenging.

The best negotiation opportunities lie in the instruments market (SIC 38). Here, 11 of 17 industries can afford to lower prices by amounts ranging between 0.8% and 5.6%. For example, makers of process control instruments (SIC 3823) have kept price increases in line with cost changes. Pre-2002 inflation victories, however, mean margins remain above normal. As a result, SIC 3823 can safely cut average prices by 1.65%.

Looking at other sectors, we see that the first quarter was very good to makers of speed changers, drives, and gears (SIC 3566). Here, industry prices advanced 1.8% while costs rose at about half that pace. These expanded margins have created a discounting ability of 1.6%.

Price/cost/demand roundup

Average Product Prices
Average Product Prices
Direct Mfg. Costs
Direct Mfg. Costs
Growth in U.S. End Markets
Growth in U.S. End Markets

Industry
SIC
Dec 02
Mar 03
Costs are…
Grade
Dec 02
Mar 03

the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs.

Other Hand and Edge Tools
3423
0.96
-0.06
stable
D
0.30
0.66

Hand Saws and Saw Blades
3425
1.03
1.70
rising
D
-0.45
-0.12

Other Hardware
3429
0.86
0.48
stable
D
-0.42
0.16

Other Power Transmission Equipment
3568
1.79
1.43
stable
D
-2.84
-0.23

Conveyors and Conveying Equipment
3535
0.35
0.07
stable
B
-3.56
-2.26

Hoists, Cranes and Monorails
3536
0.59
0.79
stable
A
-4.89
-4.97

Industrial Trucks and Tractors
3537
-0.06
0.01
stable
F
-0.68
-0.30

Metal-Cutting Machine Tools
3541
-4.29
-3.37
stable
D
-4.51
-1.67

Machine Tool Accessories
3545
0.41
0.19
stable
C
0.61
3.39

Power Driven Hand Tools
3546
0.24
-0.21
stable
D
-0.82
-0.63

Welding Apparatus
3548
1.17
0.79
stable
D
-2.54
-1.92

Pumps and Pumping Equipment
3561
2.13
1.55
stable
A
-2.41
-1.68

Air and Gas Compressors
3563
1.89
1.50
stable
B
-2.41
-1.68

Speed Changers, Drives and Gears
3566
1.08
1.27
stable
B
-2.84
-0.23

Transformers
3612
-2.07
-1.40
stable
F
-2.82
-1.19

Motors and Generators
3621
0.05
0.28
stable
F
-2.61
-0.21

Process Control Instruments
3823
1.23
1.39
stable
A
-1.05
0.10

Fluid Meters and Counting Devices
3824
0.83
1.49
stable
A
-1.05
0.10

Instruments to Measure Electricity
3825
0.86
0.46
stable
B
3.53
6.78

Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our CFE Media editorial team and getting the recognition you and your company deserve. Click here to start this process.