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2 0 1 4 C a p i t a l S p e n d i n g Survey & Forecast 2. HiStoriCal perSpeCtive Metalcutting Equipment (billions of real $) 10 8 6 4 3 2011 2013 2013 2014 2007 2009 2005 2001 2003 1997 1999 1995 1991 1993 1987 1989 1985 Real Consumption 2012 Nominal Consumption 1983 1979 1981 1975 1977 1973 1971 1967 1969 1965 1961 1963 1957 0 1959 It is also helpful to look at machine tool sales as a function of capacity utilization, which we call our machine tool demand curve. The red line on this chart represents optimal demand for machine tools based on capacity utilization. Based on our survey's capacity utilization of 77%, optimal machine tool demand would be $5.836 billion. Forecasted machine tool sales are signifcantly above optimal demand. In fact, machine tool sales have never been above $7 billion without a capacity utilization of at least 79%. However, machine tool sales tend to fall above (over buying) or below (under buying) optimal demand in four to seven year cycles. 2014 would be year fve of the current over buying cycle. So, it is to be expected that machine tool sales will be above optimal demand in 2014. SEE CHART 12 Avg. Real Consumption 3. reSHoring / Quality StandardS Reshoring is a major trend afecting American manufacturing. Some reasons for this include relatively cheaper labor costs in the U.S. over the last fve to 10 years, relatively cheaper energy costs, and a move to manufacture locally. But, another signifcant reason for reshoring is quality. OEMs are concerned with the quality of overseas manufacturers as well as a lengthy supply chain that can hide quality problems and prevent communication between design and manufacturing departments.Tighter quality standards had been a declining reason for manufacturers to buy machine tools from 1993 to 2012. But, since 2012 there has been a noticeable uptick in tighter quality standards as a reason to buy new machines. Motivation to Buy a Machine 80% 60% 50% 40% 30% 20% 10% New machine to reduce costs New products, models Increase machine/equipment capacity Tighter quality standards 2010 2011 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 0% 1990 SEE CHART 70% 1989 American manufacturers are also realizing the cost benefts of technology. Finding skilled labor has become a real problem for many metalworking facilities. Also, rapidly rising healthcare and benefts costs are making it less desirable for manufacturers to hire new employees. This means that metalworking facilities need process fexibility. Since 2011, machine and process fexibility has been a more important reason to buy a new machine tool. 1988 4. CoSt BenefitS Machine/process fexibility Make instead of buy

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