Timken Will Close Torrington Fafnir Ball Bearing Plant in Rockford

The Timken Company (USA) announced it will close the Torrington Fafnir radial ball bearing plant in Rockford, Illinois within the next 90 - 150 days. Rockford, originally built by GMN in 1989, now produces Fafnir brand radial ball bearings in sizes from 9.96mm through 16.99mm (6200 through 6203 series). 2002 sales were under $7 million. Although the facility became a part of Timken when it acquired Torrington earlier this year, Rockford has a long and instructive history. In many ways, the Rockford plant is the U.S. ball bearing industry in a microcosm. eBearing had the opportunity to speak to a number of current and former employees of GMN, Torrington and Timken about the facility, and we are grateful to them for the picture which emerged. In 1988, German bearing manufacturer Georg Muller Nurnberg AG (GMN) developed plans for breaking into the huge U.S. market for high-volume radial ball bearings as used in electric motors, appliances, exercise equipment, and even Rollerblades -- a market which GMN practically created. GMN planned a fresh approach -- building a greenfield manufacturing facility, leveraging state-of-the-art production, workflow and automation technologies to produce high-volume, high-quality, German engineered ball bearings at world-best speed, efficiency, and cost effectiveness. In many ways, GMN envisioned a practically "lights out" facility, needing very few staff devoted to the manufacturing process. As its first target product for the plant, GMN chose the ubiquitous 6203 single-row Conrad ball bearing. The high-volume U.S. demand for that size, coupled with the need for high-quality bearings in most applications, made it the best starting point. GMN based its project cost justification on 1988's U.S. demand for 6203 ball bearings and 1988's average U.S. selling price for that bearing of $1.25. Actual market conditions, however, soon changed dramatically in the wrong directions for GMN. Rockford, Illinois, a heavily industrial city of 150,000 people northwest of Chicago, lured GMN with an extensive package of incentives and a 5-year tax abatement. Groundbreaking for the manufacturing plant and the nearby office/warehouse took place in 1988; in 1989, the 32,000 square foot facility was online and production was ramped up. While GMN reported spending just over $2 million on the buildings themselves, the investments in plant and equipment were never disclosed. By all accounts, Rockford met or exceeded its operating goals. With a total designed staff of less than 50 people in a facility of under 33,000 square feet, GMN Rockford could put out a million finished 6203 bearings every month, 12 million per year. And do it at a cost of around $0.74 per unit. However, in that year between planning and coming online, the economics of the U.S. market for high-volume ball bearings changed dramatically. Imported ball bearings were flooding the U.S. market by 1989, driving down all prices and taking huge volume out of the domestic market. Over the course of a few months, GMN's 6203 target selling price went from $1.25 to only $0.72. With its cost at $0.74, GMN saw its per-unit gross evaporate -- falling from $0.61 to a loss of $0.02 on each bearing. Further compounding GMN's problem, Rockford's cost structure was highly leveraged based on volume production. But that same financial leverage turned around quickly to mounting losses if volume could not be maintained. So GMN faced the no-win situation where Rockford's production could not be scaled back without dramatically increasing the per-unit costs. Slashing the plant's output, in fact, would only make the operating losses escalate. By late 1989, GMN was looking for alternatives. GMN and Torrington began negotiating the terms of a joint venture arrangement. In mid-1990, a deal was struck and for an undisclosed financial contribution, Torrington became GMN's partner in the Rockford plant. In that partnership, half of the 6203 production, 6 million bearings per year, would be branded GMN and sold by GMN channels. The other 6 million per year would be branded Fafnir and sold by the Torrington division. According to most of the people eBearing spoke to, the relationship between GMN and Torrington never worked well. With so many bearings to sell, Fafnir and GMN sales were often targeting the same customers. The inevitable price competition essentially pitted the Rockford plant against itself, with predictable results. A former GMN staffer told eBearing, and a Torrington salesman confirmed, that Torrington/Fafnir rarely, if ever, took its full allotment of bearings. Instead, they piled up unsold and adding to inventory carrying costs. At the same time, the company was going forward with plans to add more variety beyond the 6203 line, with 6200, 6201 and 6202 added. 6204 and 6205 were planned, and GMN even had hopes to add the 608 skate bearing line. While all of this was going on in the U.S., GMN faced bigger troubles at home in Germany. The reunification of east and west had begun in 1990 as the Berlin Wall fell. But it also marked the beginning of financial turmoil in Germany. Fearing reunification would undermine the deutschemark, Germany's banks began exerting tight monetary controls. Many privately-held German companies, such as GMN (still owned by the Muller family), found they were suddenly unable to gain access to the funds they needed to continue meeting their operating needs. GMN eventually was forced into receivership. The company later recapitalized as Paul Muller Industrie GmbH & Co. KG, and bought back the precision radial bearing facility in Nurnberg. GMN recently re-entered the U.S. marketplace via GMN Bearing USA. While GMN was in receivership, Torrington's parent Ingersoll-Rand reportedly made several attempts in Germany to buy it outright from the receivership banks. I-R / Torrington was ultimately unsuccessful in those efforts, but there are widely conflicting accounts of why the acquisition attempts failed. In 1992, the U.S. competitive cost structure for ball bearings changed again when the ITC dramatically lowered the duties on ball bearings manufactured in France, Germany, Italy, Japan, Romania, Singapore, Sweden, Thailand, and the United Kingdom. By 1994, Torrington owned the Rockford joint venture outright and converted all of the production to Fafnir brand bearings. Several people directly involved in the operation told eBearing the Rockford plant has never been profitable, while others claim it had occasional bouts of profitability. Timken spokeswoman Carol Titus told eBearing that Rockford has not been profitable for at least three years. In the plant closing announcement, Michael Connors, Timken's Director of Manufacturing - Industrial, said, "Making the decision to close the Rockford plant has been difficult, but it is one that we can't avoid. As a result of weakening industrial markets an the increasing availability of low-cost imports, the plant has been losing money for some time. The decision to close the plant was only done after careful study of the markets and the future of this type of product." Timken has assured Torrington and Fafnir customers that these bearings will remain in the product line and that it, "will continue to ensure an uninterrupted supply of products to its customers." Whatever the final circumstances, Rockford turned out to be a project which initially looked as though it was a sound business decision with every possible chance of success. Yet the execution of that project was undermined at almost every turn by economic, environmental, and political factors which they could only sit back and watch. Almost everything that could go wrong, did. The U.S. market for domestically-produced radial ball bearings has never recovered to its pre-1988 level. And the demand itself has gradually disappeared as the components which use those bearings are increasingly sourced overseas. As one salesman told eBearing, "Companies only buy price now, they don't care about quality or the country of origin. Buyers would rather risk buying junk than get caught paying too much for bearings." In addition, he pointed out that U.S. ball bearing manufacturers' recent failure to convince the ITC to levy antidumping duties on ball bearings from China, "... doomed everything but specialty ball bearing production in North America." From a late 1990's peak of approximately 75 people, and 50 less than a year ago, Rockford now has only 32 full time employees. Ms. Titus confirmed Timken had tried to sell the Rockford plant as a going concern but received, "no reasonable offers." She said Timken has not yet determined the fate of Rockford's production equipment.