L.A. Plant to Close : Houdaille to Drop Machine Tools

Houdaille Industries, the Florida-based machine-tool manufacturer whose highly publicized request for trade relief from Japanese imports was rejected by the Reagan Administration two years ago, is pulling out of the slumping machine-tool business, the company said Monday.

Houdaille, one of the 10 largest machine-tool makers in the United States, is selling off or closing virtually all of its operations that are related to the import-ravaged tool business, according to John Latona, vice president-law.

As a result, the company will close the Los Angeles plant of its Burgmaster division, eliminating the jobs of 124 hourly workers there.

Fort Lauderdale-based Houdaille (pronounced “who-die”) first came into prominence during the recession in 1982, when it filed a controversial petition asking the Reagan Administration to deny American businesses tax credits for purchasing Japanese machine tools. The company argued that such an incentive to buy Japanese tools should be eliminated because it claimed that Japan has secretly subsidized an industry cartel, allowing its machine-tool producers to unfairly gain an edge in the U.S. market.

Houdaille claimed that the Japanese had “targeted” machine tools as an industry in which their nation would seek to gain international dominance. (Such tools are the machines used by factories to make other products.)

The Houdaille petition sparked a heated trade-policy debate in Washington and caused a split within the Reagan Administration over how to deal with the rising tide of Japanese imports.

The Houdaille case also brought into sharp focus the issue of whether the United States should take action against countries that subsidize their exporting industries in order to take markets away from American manufacturers.

After a long internal review by the Administration, President Reagan rejected Houdaille’s request for protection in 1983, but not before the Japanese moved informally to limit exports and to raise the floor on export prices for machine tools.

Since the Houdaille controversy, however, imports have virtually taken over the machine-tool market, and the number of domestic producers hanging on in the face of foreign competition is rapidly shrinking.

Charles Pollock, a spokesman for the National Machine Tool Builder’s Assn., an industry trade group, says that 25% of the nation’s machine-tool makers “have, in essence, stopped manufacturing over the last three years.”

The import market share in the machine-tool industry, which stood at 27.5% when Houdaille filed its petition in 1982, has surged to roughly 50% today, according to the trade group. And imports have also taken over the markets for the two product lines that most concerned Houdaille when it filed its petition--advanced machining centers and punching machines. Latona said imports command 75% to 80% of the U.S. market for large machining centers and 50% of the punching machine market.

Houdaille officials are still bitter over the Reagan Administration’s rejection of the company’s petition, which they believe is leading to the demise of the domestic machine-tool industry.

“Machine tools are so critical to any kind of manufacturing technology that we just assumed everybody agreed” that they were important to the nation, Latona said Monday. “But it is clear that (Administration officials) at best do not have a policy and at worst . . . have decided that the American economy and America’s defense can get along without machine tools. We consider that absolutely erroneous.”

Leveraged Buy-Out

Houdaille said Monday that it plans to move out of machine tools by selling its Strippit/DiAcro and Hydraulics divisions in the Buffalo, N.Y., area to their current managers through a leveraged buy-out. The group, led by the head of Houdaille’s machine-tools group, apparently plans to keep those operations intact and retain their workers.

The management group will also buy the assets and rights to the machining center product line of the company’s Burgmaster division but will not take over the division’s Los Angeles plant, which Houdaille plans to close and put up for sale.

A definitive agreement with the management group is expected to be signed within the next few days, Latona said.

Houdaille is also negotiating with other investor groups to sell three additional subsidiaries, and it hopes to have divested itself of virtually all of its machine-tool operations by the end of the year, he added.

Latona said Houdaille was selling off the operations to raise cash and reduce debt, but he conceded that the move might not have been necessary if imports hadn’t swamped the machine-tool business.

“Obviously, had the machine-tool industry been stronger, we might have taken a different view” about staying in the business, Latona said. “We certainly would have taken a different view if the imports were not there.”

After the divestiture, Houdaille, a privately held firm with sales of more than $500 million (including revenues from its machine-tool operations), will focus on its other operations that produce pumps, seals and industrial products, Latona said.