By Brian Papke, President, Mazak Corporation
Any manufacturer, regardless of industry segment, faces various business risks. While some risks can be internally regulated (e.g. machine failure, talent management), others arise from external factors (e.g. economic factors, government regulations) that cannot be controlled.
Right now, volatility in major currencies is creating ripple effects around the world. Last August, China allowed the yuan to fall by nearly 2% against the dollar, creating a risk that many multinational companies are now actively managing. Worse yet, China is poised to widen the yuan trading band this year, requiring manufacturers to prepare for unprecedented volatility.
I also read that a weaker euro is expected to continue in 2016, negatively impacting U.S. companies selling goods in the European market. The Russian ruble, on the other hand, remains a question mark as it was incredibly volatile in 2015 due to its rising and falling value throughout the year.
Here in the United States, the dollar will likely remain strong in 2016. Interest rate hikes, however, are forcing manufacturers to pay closer attention to their net incomes. But in terms of capital equipment, now is a good time to buy as interest rates have only increased by 0.25% and the only place they will go is higher. Plus, the government is providing tax incentives to help businesses lower their operating costs.
Legislation recently expanded the Section 179 deduction, allowing you to expense up to $500,000 on new or used capital equipment purchases. Should your expenditures exceed $2,000,000, you can expect a dollar-for-dollar phase out of the deduction. Overall, at the end of the 2016 tax year, your business can keep more capital while benefiting from new technology at the same time.
The government has also extended the 50% Bonus Depreciation deduction, which means you can depreciate 50% of the cost of new equipment on your 2016 taxes. This first-year bonus depreciation deduction is not capped at a certain dollar level on qualified capital expenditures.
Lastly, you’ll find our machines from Japan are available at prices that are among the most reasonable I’ve ever seen. And, thanks to the various lean initiatives we’ve implemented into our North American manufacturing operations over the years, some of our Kentucky-made machines are priced lower today than they were a decade ago.