Add Value to be Competitive

June 5, 2004
"It's not just the forgings, but the value you add to the forgings, that will keep you competitive."

Metaldyne claims to be the largest independent forging company on this continent. But it doesn’t call itself a forger, according to Timothy D. Leuliette, in his keynote address at the 2004 Forging Industry Technical Conference held recently in Detroit.

Leuliette is chairman, president, and CEO of Metaldyne, a company resulting from the merger of metal products producers MascoTech, Simpson Industries, and Global Metal Technologies.

“We do hot, warm and cold forgings. I think we’re as good at forging as anybody. Forging is the bedrock of our business.

“But we’re not a forging company. We’re a company that does forgings and then adds value to them through machining and assembly.”

Leuliette sees a bright future for forgings. “The auto industry in this country alone is going to produce 17 plus million vehicles for as far ahead as I can see. And it’s going to continue to buy at least as many forged components as it does now.”

At Metaldyne, it’s not enough to simply make forgings these days. “We used forging as a building block to grow this company. But raw forgings are becoming a smaller and smaller part of our business. Our employment numbers are up, but our forging employment is down. Where we are competitive, we’ll compete. Where we’re not, we’ll move on. But we’ll still be providing forged products to our customers. We’ll just focus more on machining and assembly and other value-added processes.”

According to Leuliette, there will be losers in the forging industry. “Some are desperately trying to hang on by low balling bids, signing contracts they can’t service profitably, hoping for miracles like a drastic drop in the price of steel.

“If you think of yourself as simply a forging house—if you see your future as simply doing forgings, and doing them only in North America—then you are shackling yourself to the past. And you are going to get buried by the changes taking place in the world today.”

Leuliette pointed out that the forging process itself represents only 20 percent of the value of a forged product that reaches the end user. “And that’s the first 20 percent. For every dollar of value that forging produces, someone else has to add four or five dollars of value before you have a marketable product. When you are at that end of the value chain—the bottom end—you are a commodity. And when you are a commodity in a global market, you are extremely vulnerable.”

To be a winner, you have to deal with two realities, Leuliette said. “One is that this is, and will continue to be, a global market. And second, it’s not just the forgings, but the value you add to the forgings, that will keep you competitive.”