Auto suppliers are busy, but very cautious
Local builder has key thoughts about where the vital sector stands.
(As seen on WZZM TV 13) Automobile sales and industry analytics aren’t the sole economic indicators of how auto suppliers are doing. Builders also have an insightful thing or two to say about that segment of the local manufacturing realm.
Take Wolverine Building Group, for instance.
Over the past year or so, the local general contracting firm has seen its construction manufacturing rise. Wolverine has completed building projects for L&W Tech Center, Digital Tool & Die, Usher Tool & Die, Grand Rapids Plastics, ADAC Automotive and Kent Manufacturing, to name a few. All do at least a portion of their work for the automotive market, while others supply the auto suppliers.
As Wolverine President Mike Kelly pointed out to the Business Journal, the hike in manufacturing construction is a shift from previous years.
“There were periods in the 1980s and 1990s when everything was just humming along, probably not as much growth as we saw in the 1970s but enough that there was plenty of work,” he said. “But in the first of 2000 when the recession hit, it hit Michigan the worst and work slowed down to a snail’s pace. Over the past two years, though, it’s been ramping back up.”
Kelly cautioned, however, that people shouldn’t celebrate too much even though auto manufacturing has improved and the supplier sector is in a better place than just two years ago. The reason for his caution is those firms’ owners are cautious.
“None of them want to add any overhead in bricks and mortar, if they can help it,” he said. “So what’s happening is these guys are sometimes running three shifts when normally in the past they ran two. They’re working some Saturdays and even Sundays to maximize the space they have without having to put a lot more infrastructure in adding on,” he said.
Kelly said whenever he asks an owner if he is busy, the response is always yes. They tell him they are making money, even though their margins are tight. They also say the recent recession has made them gun shy about spending their hard-earned dollars on expanding their plants for fear of another economic calamity.
“They kind of likened it to my parents when they went through the Depression — they squirreled away money every chance they could and wondered when the next recession was going to hit. Some people had that mindset 50 years after the fact,” said Kelly.
“A lot of these manufacturers were stung so badly by the recession, they’re planning for a worst-case scenario. Their motto is sort of ‘Hope for the best and plan for the worst.’ It’s sort of what they’re doing.”
And there is a fairly good reason for their collective apprehension.
They know their gains in parts orders haven’t come just from an increase in auto sales. They know the increase has come from peers closing their shops due to the recession, so there are fewer suppliers competing for work than, say, five years ago.
“A lot of these guys are busy because they saw a lot of their competitors go out of business. So there isn’t as many of them around anymore and that’s why they’re swamped. It doesn’t take a big increase (in auto sales) for the few players left to get swamped,” said Kelly.
Most of the work Wolverine has done for auto suppliers the past few years has been remodeling and reconfiguring projects because suppliers are trying to squeeze as much space as possible out of their existing buildings. They’ll take out an interior wall to open up a plant, for example, or move a shipping office to a nearby smaller structure.
But that situation has changed recently.
“When they’re done maximizing that by doing everything they can, then they’ll do an addition, and we’re seeing quite a few of those right now. When it gets to a point where an addition no longer suffices, then they’ll need a bigger building than what they can get on their site. That’s when they’ll need what we call new facilities,” said Kelly.
“They’ll invest in people, they’ll hire more people. They’ll invest in equipment to help make product. But they aren’t investing in new facilities at this point. They’re saying, ‘We’re going to scrape by as long as we can,’ and they’ll admit it’s kind of a burden for them to do it this way and they could be making more money with a brand new building. But they’re just still leery of the next shoe dropping.”