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.
By Staff June 12, 2003

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