Re-tooling Tool And Die
While the hotly debated application process for the state’s Tool and Die Recovery Zones may soon be at an end, the program will remain in full swing until at least 2022. Whether it will succeed in saving the state’s tool and die industry over that time remains to be seen.
“This is not a gift to survive a few more years without changing,” said Jay Baron, president and CEO of the Center for Automotive Research in Ann Arbor and the driving force behind the collaborative tool and die business model. “You need to change, and this is an opportunity to do that: It will be a huge mistake to pass it by. You’ll be even worse off than you are now.”
Arguably the most controversial incentive program in a generation, the program was launched in 2004 to entice tool and die firms to adopt a collaborative business model piloted by the Center for Automotive Research in 2002 that brought together a diverse group of 17 companies from across the state.
The collaborative model is part of Baron’s answer to the effects of globalization and contraction that shuttered roughly a third of the state’s toolmakers in the early part of this decade. The only manufacturing field to regularly employ an apprenticeship model, the state’s substantial tool and die sector could prove a valuable asset in a knowledge-based economy. However, the growing number of shop closures had shown how ill-suited many shops were to compete on that level.
To address this, Baron has promoted a two-pronged plan to reshape the industry. First, he advocates for Michigan toolmakers to stop competing for the simple, labor-intensive projects that have become the bread-and-butter of offshore competitors. Next, it is necessary for the trade’s various craftsmen to share knowledge on a pre-competitive basis and to partner for improved operational efficiency and more diverse capabilities.
The easiest comparison to Baron’s collaborative model might be a midsized law office — a group of professionals with different backgrounds and specialties who generally operate within their individual practices, assist each other as needed and function as a cohesive unit when necessary. But while lawyers are accustomed to working with one another, the concept was alien to toolmakers.
“It’s like when your kids are fighting over toys and then you tell them they have to share,” Baron said. “It’s hard for tool and die shops to come together and work together.”
Early pilots such as the United Tooling Coalition, which Baron still manages, and the West Michigan Tooling Coalition proved successful enough for Baron to convince the state’s legislature of the model’s worth. As an incentive, lawmakers offered a version of the Renaissance Zone program to the tool and die industry. Dubbed Recovery Zones, every small toolmaker that pledged to participate in a coalition would be relieved of nearly all state and local taxes. Last year, the program was expanded to include companies with less than 75 employees. The cap was at 50 employees the first two years.
Baron is openly critical of the legislation, specifically in how it discriminates against larger firms, a core element of his intended model. “But if the tax zones are an incentive to bring people together, it’s a step in the right direction.”
Bob Sloma, president and owner of J.S. Die in Byron Center and chairman of the Great Lakes Tool & Die Collaborative, said that collaborative efforts have been challenging. “It’s a slow process; everybody has been receptive to sharing, but it takes a while for the relationships to gel,” he said. “We’re only now getting our act together from a marketing standpoint.”
The majority of the collaboration has come in the form of workload sharing. Some members have unsuccessfully bid on packages as a team; Sloma expects that it will be at least two or three years before the coalition can bid on packages as a unit.
The Coopersville Tooling Coalition, another first-round coalition, is not bidding on packages as a collaborative, but is using the collaborative to support individual customers’ bids, according to spokesman Phillip Allor of Self-Lube in Coopersville. “When our position has been a little weak, the coalition backing has helped us get the job.”
Members of the West Michigan Tooling Coalition, which predates the Recovery Zone program and has members too large to qualify for it, also bid on packages to be dispersed among the collaborative but has not bid as a collaborative. Members also share employees and customer contacts.
In its first year, the Michigan Coast to Coast Tool & Die Collaborative has limited its collaboration to workload sharing and knowledge transfer.
“We’ve found this is not something you can accomplish overnight,” said Brenda Burch, vice president of Mattson Tool and Die in Belmont and coalition spokesman. “We’re able to supplement our capabilities right now, but for the most part, we’re still getting the group up and rolling.”
Whereas some groups have yet to get their bearings, others have found immediate success. The Michigan Tooling Group has been so successful with its innovative purchasing and combined medical insurance plans that collaborative chairman Rocky Johnston, president of Bessey Tool & Die in Sparta, has been working with other coalitions to establish similar initiatives, including the flagship Center for Automotive Research group, the United Tooling Coalition.
In its first year, the Tool Makers Alliance has shared proprietary software, cross-trained engineers and salespeople, hosted speakers from other coalitions and shared knowledge. It is also working on pooling health care expenditures and joint sales representation in international markets.
Baron has some concerns over how the coalitions are being administered. He cautions that the willingness of different coalitions to work together does not mean there is a lack of competition between them. To date, he has seen no evidence of collusion or an unhealthy decrease in competition. He also believes that some of the tax savings companies experience should be put back into managing the coalition, perhaps even hiring an independent consultant to do so.
“It’s difficult to run a coalition on a volunteer basis,” Baron said. “Everyone also has to run their own company, and it’s hard to build momentum when it’s not getting your full attention.”
Sloma said there was little thought of using the tax savings for coalition investment this year.
“If not for those savings, we wouldn’t be in business after this year,” he said, speaking for his firm. “The past 18 months have been the worst conditions for injection molders in 40 years.”
David Dault, president of Focus Mold & Machining, which recently received Recovery Zone approval from the city of Walker but has yet to join a coalition, agreed with Sloma’s assessment. The company’s top customer nine years running abruptly shut down its operation.
“You don’t recover from something like that in a couple of months,” he said.
Surveys from the Michigan Economic Development Corp. found that Recovery Zone companies have invested highly in new equipment. The data showed no significant job growth. “It’s obvious some companies are doing this for the tax break,” said John Czarnecki, the MEDC vice president responsible for administering the program. “But they’ve found value in collaborating, and they’re embracing it. And they’re using the tax savings to invest in new equipment.”
The MEDC has only removed the Recovery Zone designation from one company for failing to meet collaboration standards. That firm was reported by members of its coalition. The MEDC plans to increase its auditing efforts in the coming year. It has not conducted any audits in 2007.