Want to lower motor costs? Focus on energy efficiency
by Staff -- Purchasing, 1/17/2002 2:00:00 AM
The first few months of 2002 can best be described as a classic buyers' market for industrial motors: Demand is expected to be flat with 2001. Supply is plentiful. Leadtimes are contracting. Prices are low. What's more, smart motor purchasers can claim an added bonus—those aware of the importance of maintaining a fleet of energy-efficient motors will reap cost savings over and above the price they pay for a motor throughout the lifetime of the motor.
Looking ahead, "from an industry perspective, economists are telling us that the third and fourth quarters of next year may show some improvement," says Gary Wolfe, marketing manager, integral motors, A.O.Smith, Milwaukee. "Still, that doesn't necessarily mean that spending on capital equipment will pick up as well. So, we are planning on a market that's level to a bit down in 2002."
At Baldor Electric, Fort Smith, Ark., Randall P. Breaux, vice president, marketing, thinks "we are at the bottom of the trough now and should start to see some improvement late in the first quarter. Improvement will be very slow and gradual initially but hopefully it will take off."
Motor makers are in agreement: Corporate buyer demand for their products started to fall off early in 2001 and remained flat throughout the year. And, there aren't too many industrial sectors that they are describing as "bright spots."
"To say demand is off by 12%-15% is fairly accurate," is Wolfe's assessment.
"Currently, demand is very slow and it has been that way for the past nine months or so," says Baldor's Breaux.
"You can make a general statement that all market sectors are down," says John Wolfe, sales and marketing manager, Pittman, makers of specialized motors in Harleysville, Pa. "However, medical equipment is not down nearly as much."
Most recent data from the U.S. Department of Commerce show integral horsepower motors (those over one HP) and generators decreasing 6% from $1.8 billion in 1999 to $1.7 billion in 2000.
Slow sales of industrial motors means it's a good time for purchasers to buy. There's ample supply. Leadtimes are in. And, pricing, for the most part, is expected to stay in line with 2001.
"There's plenty of product on the shelf," says A.O.Smith's Wolfe. "I would say that supply is plentiful."
And, while manufacturers say there are "no major problems" to report from suppliers who provide them with raw materials and components, they are keeping an eye on LTV Steel, which is reorganizing in bankruptcy court. LTV provides some manufacturers with electrical grade steel used in motor production.
As such, leadtimes for motors continue to fall. Delivery of custom motors takes about eight weeks, manufacturers say. Leadtimes for those "slightly modified" are running an average of two weeks. The rest are "off-the-shelf."
Readers of PURCHASING concur. Results of the magazine's monthly business conditions survey show deliveries of motors (1 HP to 30 HP) shrinking by 13.4% during 2001.
Pricing pressures?
Motor manufacturers that tried to raise prices (due to higher costs of copper and steel, as well as transportation and energy) a year ago met with some fierce resistance from buyers.
The price index used in PURCHASING's 100 Major Markets Report (p. 30) shows that manufacturers had little luck. Motor prices have steadily decreased over the past two years. PURCHASING's forecast shows tags dropping a bit in 2002, before rising slightly in the third quarter.
"We probably had more pressure on pricing last year than ever that I can recall," says A.O. Smith's Wolfe. "That can be attributed to a number of things that occurred in the past couple of years including (end use) industry consolidation," which means buyers are working to leverage their increased purchasing power. Other factors include product coming in from offshore, particularly from China and South America.
As for materials and components which go into production of industrial motors, manufacturers are watching electrical grade steel and transportation costs.
Pittman's Wolfe—who says his company is only making minor adjustments to prices—and Baldor's Breaux don't see much change from 2001 to 2002. "LTV Steel could be an influence in the cost of materials next year," says Breaux. "Fuel prices that we saw climb last year have actually flattened out or come down a degree. So, there may be some savings this year coming if that trend continues, he says pointing to some changes made at Baldor recently to control the motor maker's costs resulting from energy consumption.
Breaux notes that while the country in general didn't see the energy crisis with regards to electricity that had been predicted—because the economy has cooled and the summer wasn't very hot—the problem still exists. "There's still a lack of power plants and transmission lines, and we are anticipating that will probably continue. So, we are preparing ourselves to take care of our customers this year by putting more emphasis on the efficiency of our product. Baldor recently started holding "Understanding and Selling Energy Efficiency" workshops for its distributors, which provide information for their customers on coping with rising energy costs.
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