Dematic nears end of the line
Supply chain solutions provider moving GR manufacturing to Mexico as economic, trade conditions shift in the U.S.
Dematic’s plan to “nearshore” its Grand Rapids manufacturing operation to Mexico is culminating as the U.S. tax code has been overhauled and NAFTA is on the line.
A supplier of automated supply chain technology, software and services for the e-commerce, manufacturing and pharma/health care markets — among many others — Dematic has its North American headquarters in Grand Rapids and global headquarters in Atlanta.
The company announced two years ago it was contemplating moving its 79-year-old Grand Rapids production operation to Monterrey, Mexico.
In April 2017, Dematic indicated it was reconsidering the move provided it could persuade the UAW Local 1485, the union that represents many of its workers, to bargain on a new contract before its 2009 agreement was set to expire in December.
When the union said it would have to make too many wage and benefit concessions, the company moved forward with the shift to Mexico.
Since then, Dematic has announced several waves of layoffs in Grand Rapids. According to a Worker Adjustment and Retraining Notice (WARN) filed with the state of Michigan in December, Dematic plans to lay off up to 60 workers in the first three months of 2018.
Scott Wahlfeldt, president of UAW Local 1485, said in an interview with the Business Journal in mid-February that nine workers were laid off in January, none was to be let go in February and possibly nine were planned for March.
He said during this production shift, operations have continued on pace as the labor pool dwindles.
“In 2017, we were at 296 (union production workers), and now we’re down to 113,” he said. “They’re working people 10 hours a day, mandatory weekends, in a plant that was closing, that was supposed to close, two years ago.
“Basically, we are just doing and handling their support work here until they can find a vendor that will take it,” he said.
A spokesperson for Dematic said the company’s current plan calls for transitioning fabrication work to Mexico by the end of this summer and completing “final cleanup and closure” by the end of December.
Wahlfeldt said it’s “heartbreaking” watching 30-plus-year employees lose their jobs, and he believes it’s a “backward” approach, given the company’s remarkable growth during the past decade.
“They went from a $300-million company to $2.8-billion company, and we saw only a 1-percent raise every year for seven years,” he said.
“I don’t understand. The economy in West Michigan is starting to come back in boom, the government is giving businesses in the U.S. huge tax benefits to stay here. It’s backward; why would you leave? But then again, how can you compete with $1.60 wages in Mexico?”
The company did not respond to questions about why it would choose to relocate production given its growing profit margins, a thriving export market and a tax overhaul Republicans say will be a boon to corporations.
Chuck Hadden, president and CEO of Michigan Manufacturers Association, said he believes labor costs are only one factor.
A big reason companies move operations south of the U.S.-Mexico border, also called “nearshoring,” is to be closer to their customers for order fulfillment purposes, Hadden said.
“A lot of times, their customer is asking them to be down there, because they’ve moved down there. It has nothing to do with economics or quality; it’s all about being close to their customers,” he said.
“This is no different from what General Motors did when they opened their plant in Lansing. All their suppliers started coming to the area. You want your suppliers to be close by, so you can get your just-in-time inventory right as you need it.”
Dematic, although not an automotive supplier, sells to manufacturers in Mexico as well as the U.S., Canada and overseas.
Hadden said it’s interesting timing for this move to Mexico to be happening, as the seventh round of talks to renegotiate the North American Free Trade Agreement (NAFTA) wraps up this week. President Donald Trump has long been a critic of the trilateral agreement and is seeking concessions from Mexico and Canada.
During the course of NAFTA, as many as 750,000 jobs moved to Mexico, partly because of lower labor costs and partly because tariffs had been lifted. Almost 80 percent of the jobs were in manufacturing.
One of the concessions Trump is seeking would require Mexico to end its value-added tax on U.S. companies’ exports.
If such a change occurs, companies that chose to build factories in Mexico to avoid the tax would no longer need to be there, theoretically drawing them back to the U.S., according to Trump.
“For this (move) to still happen now in the middle of NAFTA (talks), it’s got to be Dematic wanting to be closer to their customer,” Hadden said.
As of 2016, the company had more than 6,000 employees in 35 locations worldwide.
The Grand Rapids layoffs will include fabrication, assembly, warehouse and plant administration positions.
Cheryl Falk, Dematic’s senior vice president of marketing and communications, said the company’s plans include local expansion despite shifting production to Mexico.
“Dematic continues to grow in Grand Rapids,” she said. “We currently employ more than 1,000 professionals in the areas of engineering, project management, sales and customer services on the Grand Rapids campus and continue our efforts to recruit individuals skilled in these disciplines to add to our Grand Rapids team.”
Wahlfeldt said the terminated union workers are in a good position to receive retraining and find new jobs, as the shortage of skilled workers continues to grow.
“With the Trade Adjustment Assistance Act benefits, they get up to two years of retraining education,” he said. “They can complete a program in two years, and they will get extended unemployment benefits as long as they go to school and do what they’re supposed to be doing.”
Still, he said, it’s hard to watch the workers go through this transition.
“It’s a lot of families affected,” Wahlfeldt said. “It’s been very difficult for people the past couple years to buy a car or house. Banks say, ‘Your company’s closing, why would I give you a loan?’
“We’re just trying to hang on to the little bit we have.”