Engine Casting Capacity Shrank In Recession, Foundries Say
This story appears in the Jan. 9 print edition of Transport Topics.
While heavy-duty truck makers said last week that they do not share Navistar International’s assessment that engine castings are in short supply, foundry executives said the recession eliminated industry capacity and problems could become more noticeable if demand for metal parts continues to rise.
Spokesmen for Daimler Trucks, Paccar Inc. and Volvo Group — Navistar’s heavy-duty North American competitors — all said they faced no shortage of engine parts machined from foundry castings.
Daniel Ustian, Navistar chairman and CEO, said in a December conference call there is an industrywide shortage of the parts that has hindered, although not hobbled, production. He said much of the U.S. and Canadian foundry capacity has moved to Latin America, especially Brazil and Mexico.
A Navistar spokesman said after the conference call that the parts that can be difficult to source are engine blocks, heads and rods.
Representatives of foundries and machine shops tended to back Ustian’s position, adding that U.S. manufacturers are already trying to lock up capacity for much of 2012.
“Most of our facilities are running at a high level of utilization,” said Tony Lovell, vice president of sales and marketing for foundry operator Grede Holdings, Southfield, Mich., adding that North American utilization is around 80% or higher.
“We’ve planned for an uptick, but if all sectors of the economy move up together, it will definite-ly be a challenge to balance demand,” Lovell said. Beyond heavy- and medium-duty truck makers, Grede’s customers in-clude automakers and an assortment of industrial companies.
Lovell said Grede operates 16 foundries in the U.S. and Mexico and that his production schedule for 2012 is already “pretty full,” although foundry managers and their manufacturing customers do consult continuously, he said. The foundry industry needs more time to adjust on capacity than does the machine-shop business, which can alter output levels more quickly, Lovell said.
“When the market tanked [in the 2008-09 recession] there was a lot restructuring in the industry. A lot of foundries went out of business, and then machine shops,” said Anthony Jackson, vice president of sales and marketing for TAG Holdings, Detroit, which includes a Decatur, Ill., plant that does machining and welding of castings. “If a smaller shop can’t survive, it goes out of business, whereas some other companies hibernated; but capacity has been diminished,” Jackson said.
He described the industry’s process, in which foundries do the initial work of making rough parts by pouring metal into forms.
Shops then take the fresh metal parts and machine them on a lathe, polish them, tap holes, create threading and make welds as needed, Jackson explained. Some of these parts go into heavy-duty truck engines, and that is what Navistar’s Ustian said is causing some difficulties.
“Right now, if demand stays the same, the balance is OK,” Jackson said of the supply-demand balance for machined parts. However, a steady increase means foundries and shops will have to expand and, for foundries especially, that is not a quick process.
The United States uses about 12 million to 14 million tons of iron and steel castings a year, said Raymond Monroe, executive vice president of the Steel Founders’ Society of America, Crystal Lake, Ill. He said domestic foundries had surplus capacity as recently as 2005 and 2006, but the recession accelerated a long-term trend toward cutting back on total foundry capacity.
“Members of my association are really busy now. Their problems have gone from a lack of business to not enough capacity and a lack of labor, both skilled people and common laborers,” Monroe said.
Daimler spokesman David Giroux said the corporation’s Freightliner and Western Star Trucks divisions and its Detroit Diesel Corp. subsidiary get castings from Daimler-owned foundries in South Africa and Germany. He said “the supply of castings is not an issue.”
Spokesmen for Volvo Group’s Volvo and Mack Trucks units said separately that they are not experiencing shortages of castings.
Paccar Inc. Treasurer Robin Easton said the supply of castings is sufficient to meet demand. Paccar makes engines in Mississippi for its Kenworth and Peterbilt trucks.
Easton said Paccar does not operate a foundry but does machine cast parts in-house.
Independent engine maker Cummins Inc. did not respond to requests for comment.
A few years ago, Navistar was going to close its Indianapolis foundry and retrench to just one in Wisconsin after the OEM stopped supplying medium-duty engines to Ford. However, Ustian said management decided last year to keep Indianapolis and refit it because they anticipated that foundry capacity could become in short supply.
A manager with an independent foundry in the Great Lakes area said on the condition of anonymity that his company has promised capacity to one major manufacturer and is working on a deal with another major customer. If the second deal does go through, he said, that will lock up 70% of his manufacturing capacity for the year.
“They [customers] all understand our constraints,” the foundry manager said.
