HV Mfg Preview: The Car of the Future

Editor’s Note: This blog entry is excerpted from a longer piece that will run in the Spring issue of the Council’s HV Mfg Magazine. Be sure to pick up your copy when the issue comes out this April.

Will you be able to simply tell your next car “home Siri” then sit back and enjoy the ride? Are those long lines at the pump about to become a thing of the past? Are automobile accidents soon to go the way of the dodo? No, not anytime soon they’re not (sorry for getting your hopes up), but it is very likely that within the next generation America’s car industry and culture will see its biggest revolution since Henry Ford. The car of the future will be green, autonomous, and safe.

At a press conference on January 7, Carlos Ghosn, chairman and chief Executive of the Renault-Nissan Alliance, a strategic partnership between the two car manufacturers, announced that Nissan would introduce 10 new autonomous vehicles in the next four years. Not two weeks later, Tesla chief executive Elon Musk told reporters that the “Autopilot” feature introduced in the Tesla Model S last fall was “probably” a better driver than a person, and even went so far as to claim that within a couple years it would be technologically feasible for a driver to summon a Tesla car from the opposite side of the country.

The R&D Tax Credit Is Made Permanent

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Let’s talk taxes, everybody’s favorite subject. Specifically, let’s talk about a newly permanent tax credit included in the recent $600 billion tax deal signed into law by the president. It’s called the Research and Development credit, and Michael Siegel of Industry Week calls it, “the largest tax credit out there for U.S. businesses.”

If you don’t see how that could be, you’re not alone. Many people understandably believe that Research and Development is confined to a lab environment, but the government’s definition of R&D is much broader than that. As Siegel explains, eligibility is actually tied to improving existing products or processes. So any step taken to make them better—faster, cheaper, cleaner, more efficient—could qualify a company. The credit has existed for a few years now, but only as a temporary credit that needed to be renewed each year. While that didn’t stop many businesses from taking advantage of it, the uncertainty surrounding its future made it difficult for companies to plan ahead and discourage some businesses from taking advantage of it. Likely to be even more enticing is the so called “turn off” of the Alternative Minimum Tax (AMT) floor which makes it easier for small businesses to gain the full benefits of the credit. According to the IRS, in the last tax year on record manufacturing companies comprised the largest amount of R&D Tax Credit claims at 39.2 percent. After these modifications, it seems safe to say that number will be going up.

The Triumph Motorcycle’s Great Escape—From Obscurity

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While the name won’t mean much to anyone not versed in motorcycle lore, chances are you’ve seen one of Triumph Engineering’s legendary bikes. For a couple decades (about 1950-1970) the Triumph motorcycle was the definitive model, thanks to a series of high profile film appearances and celebrity owners. Marlon Brando rode a Triumph, which he used in the famous biker flick The Wild One, James Dean liked it so much he went out and bought his own and photos of the actor astride it are still popular on social media, and perhaps most iconic of all, it was a Triumph bike that Steve McQueen, the King of Cool, rode to jump the barbed wire fence in the 1963 prisoners of war thriller The Great Escape. For a while the Triumph motorcycle was the motorcycle, synonymous with the vehicle in a way no brand, not even Harley, could touch. But it was not to last.

In a story familiar to manufacturers on both sides of the Atlantic, the company’s fortunes took a turn for the worse in the 1970s when it found itself overwhelmed by foreign models that were built better and cost less. In 1983 it was sold off to a property developer named John Bloor who spent the next decade revitalizing the brand. Bloor studied and incorporated Japanese manufacturing techniques that had allowed the country’s automobile industry to usurp Triumph’s place as an industry leader. When the new models began come out in the 1990s they combined the signature Triumph style with Japanese inspired engineering and reliability, and suddenly the old guard was back on the map. Today the company, now Triumph Motorcycles Ltd, has managed to reclaim some of its former status. International celebrities like Tom Cruise and David Beckham are clients, and what once was a symbol of western manufacturing’s failure to adapt with the times and compete in a global market, now represents the reinvigorated spirit of the modern manufacturing industry refusing to go gently into that good night.

The Uncertainty of Reshoring

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Confusing news for manufacturers, as two different reports offer contradicting conclusions on the effectiveness of reshoring—the practice of bringing manufacturing jobs back to the US. On the positive side is a new report by A.T. Kearney, in which their “U.S. Reshoring Index shows that, for the fourth consecutive year, reshoring of manufacturing activities to the United States has once again failed to keep up with offshoring. This time the index has dropped to –115, down from –30 in 2014, and it represents the largest year-over-year decrease in the past 10 years.”

On the more positive side is the Boston Consulting Group survey, whose results showed that “Thirty-one percent of respondents to BCG’s fourth annual survey of senior U.S.-based manufacturing executives at companies with at least $1 billion in annual revenues said that their companies are most likely to add production capacity in the U.S. within five years for goods sold in the U.S., while 20% said they are most likely to add capacity in China…The share of executives saying that their companies are actively reshoring production increased by 9% since 2014 and by about 250% since 2012. This suggests that companies that were considering reshoring in the past three years are now taking action. By a two-to-one margin, executives said they believe that reshoring will help create U.S. jobs at their companies rather than lead to a net loss of jobs.”

Which one people choose to believe will come down to the details in how the surveys were conducted, as well as personal biases. Taken together though the reports contradictory findings serve as a reminder of the continuing challenges facing America’s manufacturing industry.

HSBC Predicts Trade Increase for 2016

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With the world merchandise trade projected to have risen a mere 1%, you would think US businesses would be pessimistic about what the first six months of 2016 have in store for it. Yet according to data forecasts from Council member HSBC Global Connections, just the opposite is true. The HSBC Global Connections Trade Forecast has found that 77% of U.S. business leaders expect trade volumes to increase in the short term, well above the global average of 64%. US manufacturing production, particularly in investment goods, appears poised to take advantage of the expected recovery in foreign demand over the next five years.

Reflecting US expertise in high-end manufacturing and continued investment in technological innovation, machinery and transport equipment are set to play the biggest role in driving long-term growth in US merchandise exports. With the report predicting they contribute close to 45% of the projected increase in the decade to 2030. Export growth of machinery and other manufactures (a category that, according to HSBC’s definition, includes cyclical sectors such as metals, but also scientific instruments) is also projected.

Empire State Fed Survey: Business activity declined for New York manufacturers at the fastest pace since the Great Recession

The headline says it all. 

According to the New York Federal Reserve Empire State manufacturing Survey December was a terrible month for manufacturing in the region and the near future is not looking bright either. “The new orders and shipments indexes plummeted, indicating a steep decline in both orders and shipments. Price indexes suggested that both input prices and selling prices increased. Labor market conditions continued to deteriorate, with employment indexes remaining in negative territory. The six-month outlook was noticeably weaker, with the index for future general business conditions falling to its lowest level since early 2009.”

The full report is here:  https://www.newyorkfed.org/survey/empire/empiresurvey_overview.html

But to give you a taste here are the reports sub-headlines….

  • BUSINESS CONDITIONS AT THEIR WORST SINCE THE GREAT RECESSION
  • PRICE INCREASES RESUME
  • OPTIMISM PLUMMETS

Let’s hope The Supplemental Survey Report on job vacancies, worker skills and wages that will be released January 19th will have some better news.

Our Fundamentals of Leadership Course Begins its 19th Year

Almost two decades after it started the Council of Industry’s training program, offered in collaboration with Dutchess Community College, has become a training ground for future manufacturing workplace leaders throughout the region. This year’s program boasts a full enrollment with 24 participants who will take an intense nine-course, training program over ten days. Council Executive Vice-President Harold King says “We are very proud of this program and look forward to another session. Without exception those who have completed the program find it to be well worth the commitment of this time and resources. Individuals who complete the program return to their workplaces and apply what they have learned to help make their companies not only more productive and profitable enterprises, but better, safer places for people to work as well.” The program kicks off Wednesday, January 13 with Fundamentals of Leadership, taught by Rebecca Mazin.

ADP Employment Report: How do the Numbers Stack Up?

Our associate member ADP has released their latest employment report for December. According to their data, manufacturers added 2,000 jobs in November. It was the second straight month the manufacturing industry had been in positive territory. Total US nonfarm private employment is 257,000. Employment among companies with 50-499 employees increased by 65,000 jobs, up roughly 10 percent from last month.

While two straight months of increasing employment is always welcome news, the report also showcased continuing vulnerabilities in the manufacturing industry. Among the specific industries the report highlighted manufacturing’s increase was noticeably lower than the rest. The financial activities industry added 13,000 jobs, construction added 24,000, trade/transportation/utilities increased by 38,000, and professional/business services was up a whopping 66,000. Overall the average monthly employment growth was almost 200,000 for the year, compared to roughly 240,000 jobs per month in 2014. In the report, Ahu Yildirmaz, VP and head of the ADP Research Institute said that “weakness in the energy and manufacturing sectors was mostly responsible for the drop off.”

The Bureau of Labor Statistics will release official job numbers on Friday.

The President is Going to Hannover Messe, And so can You

For the first time ever, a sitting US President will attend the Hannover Messe trade show in Germany. President Obama will attend the official opening ceremony on April 24, 2016, and participate in the traditional opening tour with German Chancellor Angela Merkel the following morning. Hannover Messe is the world’s largest industrial technology trade show, every year over 200,000 visitors and over 6,000 exhibitors from around the world attend to sell their wares, attend seminars, and meet other professionals in their fields from every corner of the globe. Also for the first time in the event’s 69 year history, the United States will be the event’s partner country.

For Council members this event offers a rare and very exciting opportunity. The US Department of Commerce and the Empire State Department are looking for applicants to attend. New York State has pledged a portion of its STEP fund to offsetting the financial cost for qualifying companies from the state. The price for a furnished booth and onsite services is $7,650, and the State of New York is offering up to $5,000 dollars reimbursement for the boot cost, and additional funds for travel costs.

We here at the Council of Industry urge any of our members from one of the relevant industry sectors to at least consider taking advantage of this unique opportunity to do business with over 100 buyers from 70 different countries that will be visiting one of Europe’s most beautiful and historic cities. Don’t miss out, register your interest now, or contact us with any questions.

U.S. Wins Math Olympiad – First Since 1994

In a grueling competition, held over the course of 12 days, that concluded last week, a team of top American math students defeated rivals from more than 100 countries at the International Mathematical Olympiad.

Held in Chiang Mai, Thailand competing teams had to work on three math problems each. That may not sound like much, but: “If you can even solve one question, you’re a bit of a genius,” Carnegie Mellon University professor and U.S. head coach Po-Shen Loh told NPR. Loh said the Olympiad results were proof that top Americans can hold their own with representatives from other countries, despite rising alarm in recent years over perceived decreases in the quality of American math education.

Listen to the NPR Interview with Dr. Po-Shen Loh here: USA Math Olympia

Congratulations Team USA!