Auto suppliers are enjoying an industry-wide resurgence
But if incentives can’t keep auto sales rolling, all bets are off.
(As seen on WZZM TV 13) Since the Great Recession, the auto industry has been on an upswing, a positive change that’s been more evident in Michigan than anywhere else.
And though Detroit is the birthplace of the U.S. automotive industry, West Michigan automotive suppliers and tool-and-die manufacturers have felt the ripple across the state.
Brian Long, director of supply chain management at Grand Valley State University, said on this side of the state, many auto suppliers and manufacturers have been operating at capacity for some time now, and in the past three years or so, many have begun the process of expanding their operations.
“They decided the recovery was sound enough and were pressured by customers enough to add capacity — and that’s been very good, particularly on the west side of Michigan,” Long said.
“Some of our West Michigan auto parts suppliers can go toe-to-toe with the entire world market, and that wasn’t the case as far as 10 years ago.”
Among those manufacturers looking at expansion is Holland-based tool-and-die manufacturer STM Manufacturing Inc., which saw an increase in revenue from 2013 to 2014 of about 32.23 percent, from $11.7 million to $15.94 million.
STM president Roger Blauwkamp said changes in the automotive industry that require more tooling, along with a higher demand for tooling done in the United States rather than overseas, have led to an explosion in the industry.
“That has been a big advantage to us, and our company keeps growing,” Blauwkamp said. “We build a very high-quality product; we’ve got a good customer base and it keeps growing.”
Long said much of the demand for American-made products is thanks to the industry’s sudden increase in the level of quality it outputs. As far as quality, most American-made products now match those put out by overseas manufacturers, and the total cost of that output is lower in the United States than overseas.
“The thing that saves the tool-and-die business is the fact that, generally, the engineers want to be on site, looking at tools, testing the tools, and it’s a heck of a lot easier to do that when the supplier is local,” Long said.
Like many of the suppliers and manufacturers Long cited, STM Manufacturing is operating at capacity, and Blauwkamp said the plant desperately needs a new tryout press to meet the demand. He said the company is in the process of building a new warehouse to make room for the press.
“We expect to see increased growth,” Blauwkamp said, “But the problem that we’re dealing with is basically capacity size. We’re pretty much maxed out.”
Long said the turning point for the auto industry, and in turn, the tool-and-die and supply industries, was the Cash for Clunkers program in 2009, which stimulated car sales and aided in steady growth industry-wide.
In 2014, almost 2.34 million cars and trucks were manufactured in Michigan — nearly 800,000 more than the next highest state’s auto production, according to numbers from the Detroit Regional Chamber’s report, Michigan Is Auto.
According to data from the North American Dealerships Association, dealers in Michigan made $17.43 billion in total sales in 2014, averaging out to about $29.25 million in sales per dealership.
Tool-and-die makers have benefited not only from the auto boom, but also from the change in relationships between automakers and the suppliers that manufacture their parts.
Long said in the past, automakers were more confrontational with their suppliers, threatening to pull a contract or trying to intimidate suppliers into giving lower prices and output beyond their capacity. In today’s market, Long said, those relationships have grown friendlier, and programs between suppliers and automakers last longer.
“Rarely do they change,” Long said. “If (a supplier and automaker) have a five-year program in place, that supplier’s probably going to be the supplier from here forward. And as a result, if there is a problem with the supplier, they work it out. That was not the case 50 years ago.”
Long’s biggest concern about the future of the auto industry is that it’s growing too quickly. Cars last much longer now, but drivers aren’t putting more miles on those vehicles. Meanwhile, incentives are being created to pull those sales numbers ahead, and as cars continue to be sold, a bubble is being created — one that may burst and deal a heavy blow to local manufacturers and suppliers.
“Someplace down the line, we’re going to drop way down in auto sales, so our biggest risk is that we’re building this bubble and the auto sales will drop off,” Long said.
“That will flow through the supply chain — not right at first, but eventually.”