First off--your model Ammco is their "El-Cheapo" model.
Yeah, they work, when they work that is.
I doubt that your problem lies within the spindle bearings. But it could-- I suggest that you tug on the spindle to see if you get any back and forth end-play, or up and down play.... if so, you are screwed. This machine is not worth the effort, money and time fix this problem.
As for the arbor...
This model uses the same arbor that the better 3000, 4000, 4100, 7000 and 7100 models.
Every time you replace an arbor (new or used) you have to...
A. Lap the arbor into the spindle using lapping compound (just like lapping valves in a cylinder head) The lapping compound is then cleaned out of the spindle and off the arbor, then...
B. You then have to check the "runout" with a dial indicator. These are obtained cheaply at Harbor Freight FYI. With the dial indicator mounted (magnetically) on the twin-cutter check the arbor run-out. The runout (two inches from the spindle) should be no more than 1 1/2 thousandths. One thousandth or under is optimal. Any reading over 8 thousandths cannot be straightened.
C. If the run out exceeds 1 1/2 thousandths, you have to then straighten the arbor.
To straighten the arbor you will again need the dial-indicator and a heavy copper hammer....
With a wrench on the end of the draw bar (far right on the end of the drum gearbox), rotate the machine (counter clockwise) until you find the high spot on the arbor (carefully watching the dial-indicator).
Remove the dial indicator and give the arbor a whack with the hammer (not too hard if this is your first time) when the high spot is directly straight up.
Install the dial-indicator and check the run-out again.
Sometimes you will get it on the first whack--sometimes you will have to go through an ordeal until you get the arbor in spec.
And remember--sometimes you can bust the arbor completely off on the first whack. They are hardened and allegedly tempered, but some are more hard than others. If it breaks off--tough luck. You need to get another arbor.
I have personally straightened arbors more than 30 thousandths out (once)... and I don't want to repeat that ordeal. Sometimes arbors cannot be straightened (bent in strange ways) and cannot be straightened.
When loosening a rotor, do not allow the work to dump onto the arbor. This is the main reason they go out of whack.
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