NEW SECTION 179 AND BONUS DEPRECIATION TAX MODIFICATIONS ARE ACCELERATING AUTOMATION AND MODERNIZATION IN US FACTORIES

With contributions from: Andrew Tangel, Sharon Terlep, Tripp Mickle and Chester Dawson with Wall Street Journal.

St. Paul, MN (January 26, 2018) —— New tax rules are accelerating automation and modernizing in U.S. factories, giving manufacturers an incentive to buy machinery and boost productivity in a tight labor market.

The revised tax code allows companies to immediately deduct the entire cost of equipment purchases from their taxable income for the next five years. Previously, companies generally could write off only a portion of the cost in a single year.

The change is encouraging manufacturers to install robots and replace aging machines sooner than planned.

U.S. manufacturers already are benefiting from a global economic upswing, a weaker dollar that has made American products more competitive overseas and improved business sentiment at home.

Manufacturing output in the U.S. rose 3% in December compared with the same month the previous year, Federal Reserve data show, up from a year-earlier increase of 1%.

Some manufacturers have already increased their planned capital spending. Sales of manufacturing equipment this year are forecast to rise as much as 12% annually, according to the Association for Manufacturing Technology, up from an annual rate of 9% as of November.

By effectively reducing the cost of automation, the tax overhaul puts “another arrow in the quiver of companies that want to go that route,” said Josh Pokrzywinski, an analyst at Wolfe Research.

Rick Toth, whose 66 employees at Toth Industries Inc. in Toledo, Ohio, make parts for heavy trucks and construction equipment, said the depreciation benefit has encouraged him to buy at least three computerized metal-fabrication machines this year for up to $400,000 each. Before the legislation passed, he planned to buy just one machine to handle the 10% to 15% boost in business he expects this year. “You’ve got to be competitive in this marketplace to protect the jobs you have,” Mr. Toth said.

Aluminum producer Novelis Inc. is among the bigger companies planning to build new plants or spend more on factory equipment this year in part because of the beefed-up depreciation benefit.

“The tax reform solidified our decision and allowed us to feel very comfortable with the financial return,” said Steve Fisher, chief executive of Novelis. It plans to build a highly automated $300 million plant in Kentucky that would employ 125 experienced process engineers and metallurgists.

PPG Industries Inc., the Pittsburgh paint and coatings maker, plans to spend $50 million on capital projects in the U.S. this year in part because of the depreciation benefit. Equipment upgrades will boost productivity, a spokesman said, adding it isn’t clear whether they would be more automated than existing manufacturing methods.

Other companies are boosting capital spending without singling out the depreciation benefit. Apple Inc. said the tax law’s benefits for repatriating overseas cash contributed to its decision to commit $4 billion more to modernizing production facilities for its U.S. suppliers.

Fiat Chrysler Automobiles NV suggested the tax overhaul contributed to its decision to shift production of Ram Heavy Duty trucks in 2020 from Mexico to a partially automated plant in Michigan. “Tax reform, I think, was an absolute essential ingredient of the decision-making,” Chief Executive Sergio Marchionne said.

Joel Prakken, chief U.S. economist at the forecasting firm Macroeconomic Advisers in Washington, D.C., estimates the new tax law will add 5% to business spending on equipment nationally by 2024. He sees the tax law boosting manufacturing production by an additional 1.25% by 2025.

Some companies were already shifting toward more mechanized production. The Minneapolis Federal Reserve said this month that 45% of manufacturers responding to a recent survey said they added automation over the past year to increase productivity. About a third did so to mitigate worker shortages and reduce labor costs.

Other companies say the tax legislation changed their plans. Nicole Wolter, president of HM Manufacturing Inc. in suburban Chicago, said because of the lower 21% corporate tax rate she will be able to afford three additional milling and lathe machines this year for her 20-employee firm, which makes transmission and other components.

With contributions from: Andrew Tangel, Sharon Terlep, Tripp Mickle and Chester Dawson with Wall Street Journal.

Matsuura Machinery USA, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

According to Marketwatch.com and SandlerResearch.org, the machining center market will surpass $5 Billion by 2020.

As manufacturing in North America becomes more complex, requiring multi-axis machining solutions, Matsuura is the preeminent solutions provider.  While most industries maintain a higher part mix and smaller batch production, reduction of inventory is an imperative initiative. Additionally, with pressure on pricing and margins, customers realize they must discover methods to reduce labor costs.

The analysts forecast global machining center market to grow at a CAGR of 5.68% during the period 2016-2020. According to the machining center market report, growing demand for fabricated metal products will be a key driver for market growth. The global fabricated metal products market was valued at $1.81 trillion in 2015 and will likely reach $2.35 trillion by 2020, growing at a CAGR of 5.36%. The US accounted for almost 20% of the entire global fabrication metal product market. There is an increase in the demand for US-manufactured fabricated metal products worldwide. For example, Mexico, Canada, and China rely heavily on the US for the supply of fabricated metals. Increased fabricated metal production in the country is leading to rising domestic demand for machine tools.

According to machining center market research and analysis, the automotive industry accounted for more than 41% of the total market shares and dominated the industry during 2015. This industry uses machining centers in various metal processing operations like cutting, drilling, and surface cleaning of the metal sheets used in the fabrication of automotive parts. The expected growth of the automotive industry all over the world, especially in the emerging markets will bolster the market’s growth prospects in the coming years.

Matsuura is a key player in the global machining centers market.

Matsuura Machinery’s exclusive distributor network works alongside Matsuura to define the ideal manufacturing method and oversee the complete project – from concept to production, from training to after sales technical and service support.

To discover how Matsuura’s automation and advanced technology provide a competitive advantage by acquiring engineering solutions for your manufacturing challenges; contact your exclusive Matsuura distributor or contact Matsuura USA at Marketing@MatsuuraUSA.com.

Matsuura Machinery USA, Inc., located in St. Paul, MN is the U.S. subsidiary of Matsuura Machinery Corporation in Japan. Since 1935, Matsuura has delivered unmatched excellence in high speed and high precision CNC machine tools. From full 5-axis, vertical, horizontal, linear motor or multi-tasking CNC machine tools, Matsuura has been the forerunner in designing innovative technology and manufacturing solutions to a variety of industries around the globe. Matsuura Machinery USA, Inc. provides the service, applications, and technical field support that have always been the Matsuura standard for business.

For more information on Matsuura products, contact: Marketing@MatsuuraUSA.com or visit: matsuurausa.com.

Matsuura Machinery USA, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.