Tauber-Arons, Inc. - Quarterly Report

After 30 years at the same location, Tauber Arons, Inc. & T/A Appraisal has moved about 5 miles to our new corporate headquarters. We previously sent out a change of address but wanted to take this time to re-notify. Our telephone numbers are the same but our fax numbers have changed to (818) 933-0782 for Tauber Arons, Inc. and (818) 933-0787 for T/A Appraisal, Inc.. Our new address is

We have hesitated in opening regional offices unless we have the right person to represent Tauber Arons, Inc.. Well, that right person has joined us. Mr. Dave Mazzalupo will be representing both Tauber Arons, Inc. on the auction side and T/A Appraisal, Inc. on the appraisal side. Dave has 35 years of experience in the plastics industry and in my opinion knows blow molding equipment better than anyone in the country. Dave has set up manufacturing plants in the blow molding industry. He has liquidated through Orderly Liquidation and public auction sales plastic plants both nationally and internationally. He has appraised for lenders equipment in the plastic and various other manufacturing concerns. Dave will be located in Pittsburg, Pennsylvania and will cover the entire Eastern region. He will be the easiest to reach at Dave’s cell number (860) 997-1587.

Mr. Spencer Quale has joined Tauber Arons, Inc. and will be working out of the Los Angeles office. Spencer graduated from Cal State San Luis Obispo with a B.S. in Business Administration. Spencer will be working jointly with the auction staff setting up auction sales and learning the appraisal process.

Tauber Arons, Inc. will be an exhibitor at the CFA Convention in Arizona at Booth #133. Both Dave & Spencer will be at the booth, along with Tony Arons the CEO of Tauber Arons, Inc. and myself, Steve Quale. If you have time, we would like to introduce our new personnel and offer you a cigar, t-shirt and a golf towel. We are also tinkering with the idea of opening a Portland, Oregon office in the near future. Hope to see you at the CFA and look forward to any input as to how we may better serve you.

Nothing new that wasn’t already discussed before except we are starting to see the effects of China, housing and automotive. This last year before the elections should be pretty much a lame duck session, but the only thing that could create positive volatility is if the troops are brought home from Iraq. I would think that the Republican Party is trying to get Bush to do everything he can do to effect a troop withdrawal before the elections. But outside of that, it appears that everything will continue its present course that it is heading on.

CHINA – just more and more companies leaving the U.S.. With the decline in the exchange rate of our dollar it may help U.S. production a little due to cheaper U.S. products, but I don’t see it as the white knight for U.S. industries. It’s going to be awhile before the creation of a Chinese middle class with wage increases has any effect on U.S. production.

HOUSING – probably about 2 ½ more years of downturn. Prices haven’t dropped much yet but at some point people will have to drop prices to move their property especially when new home developers start dropping prices to move inventory. Once that inventory is evaporated then it will probably be status quo for five years because people will be afraid of getting burnt again. Just a repeat of the stock market collapse. It takes awhile for people to jump back in again, and after that the next five years should have up ticket in prices. The saving grace is that this did not happen in a recessionary period – Yet.

AUTOMOTIVE – you’re starting to see the sales in Michigan for the automotive support industries. There have been talks of closing automotive stamping plants which should happen soon. I find it interesting that Ford at this point in time (Oct. 29th) has not agreed to a new labor contract. I can’t help but think that in those boardroom meetings someone is kicking around the idea for changing the shape of Ford into an engineering/marketing company. The Sears, Wal-Mart & Boeings of the world have laid out an enticing corporate model i.e. “Let someone else deal with all that manufacturing crap and let them fight among themselves for our business.”

We’re doing a sale for Alcoa Wheel Division in Canada and have looked at other wheel deals in other continents. So this is not just a U.S. problem, but an international problem in trying to compete with China.

WOODWORKING
We have had (6) auction sales this year in woodworking and we have one coming up in Tijuana Nov. 6th. Prices are pretty volatile from one sale to the next. When you are appraising a plant you are supposed to be taking into consideration the amount of equipment (more equipment – more buyers – better prices); the age of equipment (people will come from long distances for 2006 equipment when they won’t even show up for 1985 equipment); the location of the plant (a small sale only draws locally). This is where the “who knows” effect comes into play. You have a small sale in Corona and have a great sale; a week later you have a small sale with the same equipment in Burbank and have a lousy sale. “Who knows?”

FOOD
Still no sales, but we feel in 2008 there will be quite a few. Product recall in the food industry can be devastating and I think most food conglomerates are saying “do we really want to take the chance of having our product produced outside the U.S.?” So I feel most food conglomerates are riding the fence and just haven’t fully made up their minds. They’re waiting for the other guy to screw up first.

1. Automatic Screw Machines – done and probably not coming back.
2. CNC Swiss Screw Machines – doing great.
3. Vertical CNC Machine Centers – selling great but drop off after 10-12 years of age.
4. Horizontal CNC Machine Centers – workload is starting to drop off. Horizontal costs about twice as much as a vertical and job shops cannot justify that cost.
5. Five-Axis & CNC Gantry Profilers – Aerospace still doing great and the price of older (’78) machines is way too high because there just aren’t any gantries available. Possibly 2-3 great years left although all aerospace contractors will tell you they have 10 years of backlog. Some things don’t change.
6. Gear Equipment – hardly ever comes up for sale. There was a recent sale that did fantastic, but I would be a little concerned for the future because of automotive.

SHEET METAL
Home building may have stopped but not structural building. Same old story – where have you traveled to an older city where they are not tearing down and putting up a new building? What small cities are not expanding in their perimeters? What airport is not expanding and what area is not expanding its infrastructure?

All these factors need metal to be cut, shaped, welded, etc and to add to that the computer panel business is doing well which bolsters the CNC Turret Fabricators.

PLASTICS
Remember that after 10 years the price of injection molders really drops off. Injection molding prices are not that bad considering the automotive effect.

Where there does seem to be some concern is the blown film plants that do not have a product or process that separates them from their competitors. Resin prices are really making it tough on these guys and many play the commodities game. The problem in commodities game of becoming so large to get price discounts is if you lose a major customer or a dip in sales. Your margins are so tight that if you lose volume you may not be able to react quick enough to shrink capacity. These guys have never been able to pass on resins price increases so they have to maintain their costs by increasing their buying capacity.

METALS
Prices in metals are at least double from what they normally are. Most of this is caused by the Chinese gobbling up and stock piling metals. They have cut back on stainless steel purchases and it has just recently starting to affect the price of stainless steel tanks. Copper is nuts. People have made a fortune in the metals industry.

But like the stock market, housing market, etc. – “what goes up must come down.”

Closing – In appraising we all say that “you must use these figures for today’s value.” But a good appraiser knows that when you make a loan – you are not going to foreclose today. Therefore, when you are appraising you should give some consideration of where the market is compared to normal times and which way the market is heading.

Example – the trucking industry is in boom time and the price of trucks has gone from $90,000 three years ago to nowadays they are $135,000. New trucks may be advertised at $135,000 but I have seen invoices of $115,000 when 20 were bought at a time. Be sure to look at their paid invoice and transfer amount instead of going by quotes or advertised prices. The point I am making is that there is a lot of wiggle room in pricing during good times and new price can drop dramatically during bad times. In the 80’s during the oil collapse, Mori Seiki dropped their prices 30% in one year.

One last thought is the housing (usually called a collapse but really a normal adjustment from an over-inflated investment) and how it is going to affect the industry. Industry that serviced housing will definitely be affected. An example – trucking in most segments may not be affected, but it will be affected in dirt & concrete hauling. The value for these trailers was really over-inflated for a long period and therefore there will be an adjustment. Concrete batch plants will probably have a slowdown as will the transit mixer trucks that haul concrete. A year ago car carriers were hit by the slowdown at GM & Ford, but the trucking industry as a whole, stayed strong because of the amount of port terminal transportation and the growth of smaller cities requiring more supply of product and infrastructure.

So – is there going to be a correction for segments of each industry – YES – but only for the portion of that industry that services residential housing, but not a correction for the entire industry.