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Auto’s Fast Lane 

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By David Hodes

The auto industry comes roaring back, emerging from the recession with a vengeance.

It’s old news, but still serves as a tough lesson for capitalists of all stripes across the world — stay alert to the market.

Automotive manufacturing is alive and well in the United States after experiencing one of the worst stretches of losses ever, spanning from 2008 to 2010, when automakers stuck to pushing sports utility vehicles even as the country was mired in a deepening recession and consumers were dealing with higher gas prices.

It took an unprecedented move by the U.S. government to bail out the Big Three domestic automakers — General Motors Co., The Ford Motor Co., and Chrysler Group LLC — and even as it was happening was not a sure thing.

All of that has changed.

In fact, the Big Three have had record sales for the last two years.

General Motors sold almost 10 million cars globally in 2013, up 4 percent from 2012, with a record 4.8 million Chevrolet sales alone that topped the previous record from 2012.

GM’s Cadillac brand domestic sales were up 22 percent in 2013, making it the fastest growing full-line luxury car in the United States.

The Ford Motor Co. had its best sales year since 2006, powered in part by sales of the Ford Fusion (up 27 percent and a record) and the Ford Escape (up 22 percent and a record).

And in 2013, Chrysler had its 41st consecutive month of year-over-year sales gains, and its best August since 2007, with six of its models setting sales reco

The improvement has allowed the industry to make directional changes from just surviving to exploring advanced engineering for cars. “Manufacturing is the realization of the intellectual work that is done before the actual manufacturing.” – Nigel Francis, senior automotive adviser to the state of Michigan and the senior vice president, Automotive Industry Office of the Michigan Economic Development Corp.

rds during that month.

Nigel Francis, senior automotive adviser to the state of Michigan and the senior vice president of the newly-created Automotive Industry Office of the Michigan Economic Development Corp., says that the comeback of the Big Three in Michigan is also responsible for the state’s impressive employment numbers in the industry, up 48 percent since 2009 when the state lost 400,000 jobs.

The improvement has allowed the industry to make directional changes from just surviving to exploring advanced engineering for cars. “Manufacturing is the realization of the intellectual work that is done before the actual manufacturing,” Francis says.

There are 370 R&D advanced engineering technical centers in Michigan that are vehicle related, generating more than 70 percent of all U.S. automotive R&D spending, Francis says. “That is more than anywhere else in the world by such a large margin, it just stands out by itself,” he adds.

Michigan, producer of 23 percent of the nation’s vehicles, is grabbing on to the comeback surge, creating a strategic plan for the state. “What we have done is looked about 30 years into the future and basically said, ‘OK, let’s look at all the global trends, and let’s evolve those down into which ones are relevant for the auto industry,’” Francis says. “And then we used those to develop a vision of the auto industry 30 years from now.”

Developments in some of those core areas are already underway, such as the connected vehicle — where you can use a Bluetooth device to talk to anyone hands free as you drive. “All we are talking about are further developments on something that has existed for years,” Francis says.

Michigan is the hands-down leader in automotive manufacturing. But there are other areas of the country that are also seeing increases in their businesses as a result of the recovery.

Missouri will be home for the assembly of the new GMC midsized truck, the 2015 Canyon, scheduled to be built at GM’s facility in Wentzville; and the 2015 Ford F-150, which will be built at Ford’s plant in Claycomo.

Since 2011, GM has committed more than a half billion dollars to expand its Wentzville plant operation.

Adrian Steel, a Michigan-based manufacturer of contractor grade products and storage solutions for commercial vans used in daily rental and other commercial industries, chose to expand into the Kansas City area to supply parts for Ford’s redesigned family of Transit vans. Ford invested $1.1 billion in its 4.7 million-square-foot Claycomo assembly plant for the Transit work, and for work on the F-150s. The company will hire an additional 1,000 workers as well.

Adrian leased 11 acres for a new 32,000-square-foot facility and 8-acre logistics center at the 2,500-acre Hunt Midwest Business Center, creating 39 new jobs. Adrian has reportedly invested $4.7 million in the facility.

The move by Adrian comes in advance of the end of the production of the Ford Econoline van, scheduled to be discontinued by June.

Adrian will be doing the same work for the Transit that they do now for the Econoline, says Bob Browns, general manager for Adrian. That work is now evolving as customers demand lighter weight materials both inside and outside, better fuel efficiencies, and better tracking of the truck’s position. “We send some of our engineers with the drivers; watch them for a week to get a fresh eye on what kind of solutions we can do for them,” Browns says.

Another company supplying the Transit is Grupo Antolin North America, which is investing $15.7 million in a 148,000-square-foot manufacturing facility in Kansas City, Mo., to produce overhead liners for the Transit. They will create 118 new jobs for the area.

In addition to Ford’s investment in its Claycomo plant in the Kansas City metro, GM is investing $650 million on a new paint line and other manufacturing to support the new Malibu at its Fairfax plant on the Kansas side of the metro. This activity is drawing in the supplier base as well. “We are seeing a lot of Tier I and Tier II suppliers looking to this market to supply those plants,” says Chris Gutierrez, president of KC SmartPort Inc., an affiliate of the Kansas City Area Development Corp.

This is good news for a region that some consider the newest hot spot for automotive manufacturing that carries a resilience not seen in other states. “What the industry went through over the last couple of years, when a lot of plants were closed and the Big Three downsized their operations, didn’t affect Kansas City,” Gutierrez says.  “Our two plants were reinvesting during that same time, where traditional markets like Ohio, Indiana, Kentucky and Michigan saw a downsizing.”

In addition to Ford’s investment in its Claycomo plant in the Kansas City metro, GM is investing $650 million on a new paint line and other manufacturing to support the new Malibu at its Fairfax plant on the Kansas side of the metro. This activity is drawing in the supplier base as well. “We are seeing a lot of Tier I and Tier II suppliers looking to this market to supply those plants.” – Chris Gutierrez, president of KC SmartPort Inc., an affiliate of the Kansas City Area Development Corp.

Gutierrez says there will be a continual location of suppliers to the Kansas City market. “We landed two automotive suppliers by the first week of February this year,” he says. “And that is far ahead of what we were able to do last year. So I think that will continue into 2015 with suppliers all the way down to Tier III and Tier IV looking at our market.”

Part of the reason for this supplier activity is the support from the Missouri Manufacturing Jobs Act, an incentive program geared to help Ford and GM with their investments in the state. The act enables qualified automotive manufacturing facilities or suppliers that bring next generation production lines to Missouri to retain withholding taxes typically remitted to the state. “These are tax incentives for those companies but it is also designed for the suppliers,” says Subash Alias, vice president of business recruitment for the Missouri Partnership.

Alias says that this act was something that came out of Gov. Jay Nixon’s auto task force. “There are other suppliers in the pipeline for Ford as well,” Alias says, “with two others that are going to supply the GM Fairfax plant.”

Missouri is attractive because of its central location, its rail and connected intermodal system which supports NAFTA related imports — all essential in the just-in-time methodology and exporting needs that these manufacturers use. “There is a great quote that Governor Nixon uses,” Alias says, “and that is ‘Move over Detroit — the big guns of manufacturing have turned sweet on Missouri.’”  

Challenges Ahead

However, workforce issues present a challenge to Missouri’s bright future in automotive manufacturing. The state is surrounded in the north and south by right-to-work states, says Mark Sweeney, senior principal of McCallum Sweeney Consulting LLC in Greenville, S.C. The company provides site selection and economic development consulting. “They might have a competitive disadvantage because workforce is what companies look at at the beginning of the process of deciding where to put their assembly plants,” Sweeney continues. “That is one of the first screens that is done to define your search region.”

Right now, the hottest place to do car manufacturing is actually in Mexico, Sweeney says. “There have been nine firms that have said publicly that they want more North American capacity — and some of that is happening in Mexico.”

If you are not going to export the car, then a business would be more likely to land in the United States, Sweeney says, following the trend of building it where you sell it. “But the pendulum is swinging back to the U.S. a little bit as a potential export base because it has a more stable economy and good trade agreements around the world.”

He points to Nissan’s recent announcement of the first phase of a new $2 billion manufacturing complex in Aguascalientes, Mexico, the company’s third manufacturing plant in that country. Those three plants combined produce nearly 1 million vehicles annually.

So is the demand there to match all this manufacturing activity?

Sweeney cites Mike Jackson, CEO of AutoNation Inc., who offered a warning that inventories are already starting to creep up and taking a little longer to turn. “Companies are talking about announcements that they are planning or hoping to do,” Sweeney says. “But the population has gotten older, younger people don’t drive as much. And there is the indication that the life of your first vehicle is longer.”

He says with buying trends changing, and with electric cars catching on in a better way than in past years, the industry is poised to continue to grow. Suppliers, who didn’t get a bailout and “got creamed,” are now ramping back up, Sweeney says. “That’s a good thing. Because last year, some production had to stop because suppliers couldn’t produce the parts in time.”

Illustration by duron123 at Free Digital Photos.net

For more information about the organizations featured in this article, visit:

Adrian Steel

Grupo Antolin

KC SmartPort

McCallum Sweeney Consulting LLC

Michigan Economic Development Corp.

Missouri Partnership

 

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About the author: David Hodes

David Hodes is a freelance writer living in Washington, D.C. He can be reached at dhodes11@gmail.com.

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