Keeping The Wheels On

October 13, 2006
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GRAND RAPIDS — Like many local automotive suppliers, Lacks Industries expected to increase its sales volume in the coming fiscal year. But then, a month ago, Ford Motor Co. stunned suppliers when it announced a project called “Way Forward.”

The OEM plans $5 billion in cutbacks: a third of its salaried work force, nine assembly plants, and 21 percent of its annual truck production. For Lacks, a large supplier to the company’s truck line, that last resulted in an immediate 7.5 percent reduction in its sales forecast.

“That wasn’t anticipated,” said Roger Andrzejewski, executive director of Lacks Industries. “That’s a change in the business plan for us.”

The plight of the domestic automotive industry has become common knowledge in recent years, particularly in Michigan, where it has ravaged the state’s economy. While few in the local market expected industry challenges to decrease this year, many firms expected their strategic responses to begin paying dividends. For some, that may yet happen, but most will struggle through larger than expected cutbacks at Ford, General Motors and DaimlerChrysler.

“On average, it’s a very tough business,” said Jim Gillette, director of supplier analysis for CSM Worldwide in Grand Rapids

Suppliers are being hammered by production cuts at Big 3 automakers and by huge increases in raw material costs that they cannot recoup from customers in the face of intense pricing pressure.

“But when you look at the broad spectrum of the suppliers out there, there is a large number doing very well financially,” said Gillette.

Top among those is Tier 1 supplier Johnson Controls Inc. One of the largest employers in the West Michigan region, the publicly traded Milwaukee-based firm is predicting a 14 percent increase in profitability for fiscal 2007 on 6.3 percent sales growth.

JCI is not immune to the production cuts that have forced peers in the auto-parts industry, such as Visteon Corp., Borg Warner and TRW Automotive Holdings Corp., to cut their quarterly and full-year earnings. Rather, the company has found greater success in restructuring itself as a leaner, diversified company focused on product innovation.

“It’s a cliché, but I would say that a profitable supplier today is highly innovative and has gone beyond being an expert in a particular process,” Gillette said. “They’re not just a stamper or an injection molder; they’ve actually gone to market with a product that, in most cases, is easily recognizable by the end consumer as having great value.”

At Johnson Controls, this includes the HomeLink wireless control system. In Zeeland, Gentex Corp. has done so with its auto-dimming electro-chromic mirror. Lacks has done this with its Chromtec wheels and hopes to do the same with its latest invention, Spinelle Metal Finish.

“That’s the strength of our company,” said Andrzejewski. “We invest an awful lot in research and development.”

He estimated that it will take three to five years for the Spinelle to gain traction in the market. As such, the $320 million company is predicting flat sales this year and next, but strong growth in 2008.

Gill Industries is three months removed from a product launch of its own: a platform headrest mechanism that can be used across all makes and models. The yet-unnamed metal armature will fit with parts from every brand, allowing automakers significant manufacturing savings. Plus, it is nearly a pound lighter.

“This is what is going to help us in the long term,” said Richard Perreault, Gill Industries president and COO. “Having the right product, the right technology, to get ahead of the competition where people don’t have these types of products.”

Now an $85 million company, Gill Industries has seen exciting growth the last few years. It is also feeling the pinch of the Big 3 cutbacks, but expects to be back on a growth track relatively soon. Gill has been extremely successful at practicing what has become the second pillar of 21st century manufacturing — diversification — and has minimized its exposure to domestic automakers. Automotive manufacturing is today no more than 65 percent of its business, down from nearly 100 percent three years ago; it has established itself in the office furniture and small utility vehicle market. And as a result of its research and development commitment, it is wooing the “new domestic” manufacturers.

“If you look at the automotive volume projections, we’re still selling 16.7 million to 17 million cars a year,” Perreault said. “That’s not changing. There is a market shift going on; the production is not going to be going to the Big 3 — it will be with new domestics.”

That foreign automakers are rapidly gaining market share at the expense of their domestic counterparts has become conventional wisdom. The rate at which companies have been able to respond has often dictated their success.

“It’s been a big market shift,” said Lacks’ Andrzejewski. “If you have been able to shift your sales accordingly, then you’re in pretty good shape. If you haven’t, then things are going to be pretty difficult for you.”

Grand Rapids Spring and Stamping was one of a scant few automotive suppliers to see double-digit growth last year. A full 98 percent of its business is automotive, but only 20 percent of that is on Big 3 platforms. The company just landed a new Honda model for 2008, and continues to grow with its Nissan, Toyota and BMW accounts.

“That’s been a winning theme for us,” said company president Jim Zawacki.

Hill Manufacturing, the oldest supplier that responded to the Business Journal survey of Top Automotive Related Manufacturers, has not seen that success. It does have limited penetration with the new domestics, but most of its customers are Ford and GM suppliers. A maker of specialty machines, Hill is heavily reliant on new, high-volume releases. The $18 million company did have a strong 2005, but currently has 40 percent of its staff laid off.    

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