Ripples From Detroit Felt In Manufacturing

September 13, 2008
| By Pete Daly |
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GRAND RAPIDS — Manufacturing, long the primary pillar of the economy of Michigan, has had its ups and downs over the last quarter century. It's headed down now because this is the automobile state and the U.S. auto industry is in serious trouble from competition abroad.

Suggested solutions include diversification in new industries, maximizing high-tech ability, and even building global business to find strength overseas.

In the meantime, however, manufacturing in Michigan — including West Michigan — is waning, and the tool-and-die industry offers insight into why.

"Tooling is the fundamental building block for anything in manufacturing. If we lose tooling, we're going to lose manufacturing," said Jay Baron, president/CEO of the Center for Automotive Research in Ann Arbor.

"In general, the (tool-and-die) industry has contracted significantly, particularly any aspect of the tooling industry that's tied to automotive," said Baron. One-third of all tool-and-die shops in the U.S. are in Michigan, he said, because of the requirements of the auto industry. Michigan tool-and-die companies are concentrated in two places: southeast Michigan and the Greater Grand Rapids area.

Baron said there are currently about 30,000 people employed in tool and die in Michigan.

"At its peak, it was almost double that," he said, adding that those numbers "will never grow back."

Successful shops today tend to be diversified across several industries, he said, but the fact remains that cars are the driver: Tool-and-die shops will continue to shrink "because the auto industry is restructuring … more so than the other industries," said Baron.

Baron said there are three reasons for the decline of tool and die in Michigan. One is that the productivity and efficiency of the shops has increased dramatically in the last 10 or 15 years.

"That's the good news. It's hard to knock productivity," said Baron.

The Big Three automakers have made design changes that require fewer tools per part. Twenty years ago, a car maker might have needed eight or nine dies to make a part, but now it's probably four or maybe five, Baron said.

The third change is the competition brought on by China, and to a lesser extent by India and other countries, he said.

General manufacturing in Michigan "is in the pits," said Don Snow, operations manager at CS Tool Engineering in Cedar Springs. He has worked in tool and die for 41 years and is an active member of the Michigan Manufacturers Association subcommittee focused on tool and die.

Snow said the tooling industry "has more or less been under attack by tooling now being built overseas. China is an everyday threat to tooling prices" in the U.S.

The impact on tool and die began to be understood about four or five years ago. Baron said that was when it became evident that tool-and-die wasn't just suffering a down cycle, it was in a major restructuring due to the automobile industry.

But now there is a second factor raising havoc with the financial health of tool-and-die shops: Their customers are asking them to wait many months for payment.

"There is a problem in getting paid, in that people are asking us to bankroll or finance the tooling," said Snow.

He said they are working on tooling for the auto industry that is from a year to 18 months in advance of the car being produced, and the car companies would like to pay for that tooling when production starts.

There will continue to be some fall-out from among the tooling companies that over-extend themselves financially — "and the bank calls their note," he said.

Snow said that tool-and-die shops in China, Korea and Japan "pretty much want 95 to 100 percent of their money for that tool before it leaves their country."

There are other industries in the U.S. that are healthier or easier to work with compared to automotive, said Snow — but "in Michigan, we're automotive."

He said his company once made tools for the office furniture industry "but it also went overseas."

Some of the alternative industries are aerospace and medical devices, a market Michigan tool-and-die companies need to pursue, according to Snow. He has heard the mantra that high-tech and advanced manufacturing are the solutions — but tool and die is already very much part of that change, and yet many shops are still in danger.

Snow said some of the tool production that went overseas is starting to come back, because some U.S. customers have experienced tooling that is sub-par. But, he said, "They still remind us of the low price they pay (overseas). They've had that taste of cheap, and they wonder why can't we do it for less here?"

Baron would probably agree with Snow about the quality of American tooling.

"Engineering in the U.S. and Michigan is world class," said Baron. "This is where we are still competitive. Irrespective of cost, engineering is critical. We can't compete with two-dollar-an-hour labor but we can compete against their engineering."

One way to do that is to build global relationships with overseas companies, said Baron.

"You can't stay just in Michigan anymore. You've got to work with the Chinese and the Europeans. You've got to work all around the world. … People have to travel more, and they have to identify what to do here and what to do in a low-cost country," said Baron.

Some companies in West Michigan have done just that, such as RoMan Manufacturing Inc., a powerhouse in the world welding transformer industry that has manufacturing in China. Another good example is a local auto parts stamper: Grand Rapids Spring & Stamping.

GRS&S was founded in 1960 as Grand Rapids Spring & Wire. The company had fewer than 50 employees when Jim Zawacki and a partner bought it in 1985. Today, GRS&S employs more than 400, with four U.S. locations: three in West Michigan and one in Kentucky. In 2007, GRS&S opened another plant in Chihuahua, Mexico, and in early September, entered into a joint venture with a major spring manufacturer in India that has 11 plants there.

Zawacki said more than 95 percent of their production is auto parts.

"We have a good customer base. We're 50 percent Japanese and 20 percent European," he said.

Zawacki, 66, was brought up in a union household in Grand Rapids and worked in the Bissell factory while earning a Bachelor of Science degree in business at Aquinas College. He now serves on one of the Industry Trade Advisory Committees for the U.S. Department of Commerce, focused on automotive equipment and capital goods. Zawacki has also traveled with Lester Thurow, former dean of the MIT Sloan School of Management, to other parts of the world to study companies and school systems.

Manufacturing in West Michigan is tied to manufacturing in Michigan in general, said Zawacki.

"The future of manufacturing, I think, could be grim. And I don't want to be negative, but I can tell you, 10 years ago 80 percent of my business was in Michigan. Today, it's 20 percent."

As for five years from now, he said, "We question if it will be 5 percent.”

"Our customers are moving out of the state. You don't see a major automotive company building a new plant in Michigan. They're scared of our state. Our tax base is high, we've got a you-owe-me mentality, and they don't need that when they can go to other states where you've got cheaper workman's comp, cheaper taxes and so forth.

"I sound like I'm negative and I'm not. I'm a realist. I'm very pro-American, but I'm fearful for the automotive base in Michigan," which he said represents 50 percent of manufacturing jobs.

"My two largest customers used to be Prince Manufacturing and Donnelly. Now I do very little business with either, and my largest customers are Nissan and Toyota," said Zawacki.

"The state of Michigan and its taxes, its rules and regulation, and its mentality of entitlement at Lansing and among many workers has driven a lot of my customers out of the state. If the governor offered long-term incentives to manufacturing as she did to the movie industry, and this was a Right to Work state, it would have attracted many jobs back to Michigan.”

Michigan has tried to help the ailing tool-and-die industry with the creation of Tool-and-Die Recovery Zones. Shops that want in must join one of two dozen tooling coalitions set up by the state to share information, some costs and some large orders. Coalition members then get local tax abatements for up to 15 years.

CS Tool Engineering is a member of a tooling coalition, but Snow wishes there were a way the state could help more, by marketing its tool-and-die companies beyond Michigan.

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