The Manufacturing Leap of Faith

by Richard T. Stuebi

Despite all the optimistic talk about green jobs in the advanced energy economy of the future, many manufacturers from the industrial heartland are deathly afraid of the potential passage of climate change legislation, concerned that cap-and-trade will increase their electricity costs and thereby make their operations less profitable.

A poster-child of the heavy industry here in the Midwest is The Timken Company (NYSE: TKR) of Canton, Ohio. Timken is arguably the world’s leading manufacturer of bearings, for a wide range of applications and industries. Last week, Timken reported its second-quarter 2009 financials: a loss of $64.5 million.

The article in The Plain-Dealer reporting on Timken’s results painted a very bleak picture — right up until the very last paragraph, in which a Timken spokesperson noted that the wind industry represented a “bright spot” for the company. Across town, Crain’s Cleveland Business was profiling Timken’s $200 million in recent investments to more aggressively pursue the “fast-moving” wind industry.

Of course, the “bright spot” afforded to Timken by the “fast-moving” wind sector will only remain attractive if it maintains momentum — something that is far more likely to occur if climate legislation is passed. On the other hand, it is all the other pieces of Timken’s business — the ones that are currently in the dumps — that many of those who oppose climate legislation are trying to protect.

It may be a leap of faith for a company to make a bold manufacturing commitment away from mature (in many cases, dying) industries of the past towards high-growth industries of the future — such as renewable energy. But the results of Timken suggest that those who try to make this shift at least have a chance at pockets of profitability even in these trying times, while those who avoid or defer this transition may face a lingering period of weak and declining prospects.

Manufacturers who protest against the Waxman-Markey bill may be spitting in the face of one of the few good manufacturing opportunities available to them in the coming decades. It’s time for the manufacturing world to build bridges to the future, rather than digging tunnels to the past.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Effective September 2009, he will also become Managing Director of Early Stage Partners.

3 replies
  1. Betan Testravosky
    Betan Testravosky says:

    I believe the Wind Energy commitment by Timken is simply more hype than reality, a company on the ropes that's now grasping at straws to boost its plunging stock. Timken's executive business level decisions, viewed over the course of the last decade, have been a road to ruin for the company. Look at their wonderful Torrington acquisition a few years ago. Capture the Needle Bearing Market! As of this week, Timken sold off what remained of Torrington and closed what it couldn't sell. Needle Bearings were also supposed to be a bright spot – but it was a dead market. Something that Ingersoll Rand knew years ago and Timken ignored. Timken hasn't been a world leading manufacturer of bearings for some time – barely a Fortune 500 – it sulks in the shadow of SKF and NTN. Little innovation, lack of leadership – I think Timken will hinder wind technology more than help it. Whatever they get into, they kind of mess up. I'd much rather see SKF, which has been in wind technology longer than Timken has been able to even spell it, take the lead. SKF has a proven track record of success – Timken, on the other hand, can talk the talk … but usually stumbles when it comes to walking the walk. I want Wind Technology to gust up a storm! Not … simply blow.

  2. John - Clean Tech Ex
    John - Clean Tech Ex says:

    Recent Timken's financial performance is likely the result of a well-known supply chain effect. It is called "bull-whip" and states that demand variation is amplified as you go further upstream the supply chain.Therefore, it's recent performance is not atypical for a ball bearing manufacturer. I still agree with the underlying points in the article however.

  3. John - Clean Tech Expert
    John - Clean Tech Expert says:

    Recent Timken's financial performance is likely the result of a well-known supply chain effect. It is called "bull-whip" and states that demand variation is amplified as you go further upstream the supply chain.Therefore, it's recent performance is not atypical for a ball bearing manufacturer. I still agree with the underlying points in the article however.

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