Tuesday, October 20, 2015

The State of Automotive Manufacturing in West Michigan

With all its woes, Detroit remains the center of automotive manufacturing, yet Grand Rapids is a far more manufacturing-dependent city overall.  So says a Brookings Institute report that measures how specialized a metro economy is in manufacturing. Although known as The Furniture City, Grand Rapids continues to play a very important part in the automotive parts industry.

While thousands of automotive parts can be found in any one car, including rearview mirrors, seatbelts made from narrow fabrics, and panel instruments, supplying any one part to a heavy-volume global car manufacturer can be a lucrative business. As global trade changes the playing field, market changes are afoot. This is especially true within the Grand Rapids area where new developments reveal both the industry’s continuing expansion, consolidation, and global reach.

For instance, Monroe LLC, a precision plastic molding company owned by the Huizenga Group, recently expanded its operations by relocating to an 85,000 square feet facility within the AeroTech Industrial Park near the Gerald R. Ford Airport.

In March, local welding and assembly company Gill Industries acquired Grand Rapids Spring & Stamping. The transaction “strengthens Gill's position as a full-service supplier of engineered, mechanical assemblies to the automotive, furniture and multi-use vehicle markets."

In May, Grand Rapids-based ADAC Automotive, a manufacturer of exterior and interior door-handles, announced its acquisition of India-based Minda-Valeo Security Systems. The deal is part of a joint venture with Witte Automotive of Germany. The partnership with Minda allows ADAC to “gain access to strategic markets in India and the surrounding regions."

And last month an Italian plastics fabrication company named HRSflow opened a 40,000-square-foot plant in Byron Center. The company specializes in creating spoilers, fenders, and parts for instrument and door panels. They have plans to more than double both employees and plant space in the next few years. Why? “We realized that only with local production facilities could we achieve the short delivery and response times and the overall flexibility that are needed, for example, in the automotive industry,” said Maurizio Bazzo, the company's founder.

Even Tesla got into the act. The electric-vehicle manufacturer acquired its supplier of stamped parts, Grand Rapids-based Riviera Tool. The acquisition is a first for Tesla, a company that now has its footprint in the Big Three’s backyard. The plant is now “working overtime to secure sufficient production capacity” for Tesla.

At present, the vast majority of automotive suppliers are either looking to either expand or move into a new facility. This desire to expand capacity is being driven by growing production volume within North America, and many automotive suppliers expect to see a growing number of  new vehicle launches in the next three years. Competitive positioning and global trade continues to drive robust production capacity within the local automotive parts industry.

The good that came out of a fruit crop gone bad

Aside from the automotive industry, Michigan is also famous for growing an abundance of fruit crops. The state boasts 36,000 acres of tart cherry trees, with roughly the same acreage involved in apple production. Both crops are primarily grown on small farms located near Lake Michigan. The region keeps cool in the spring until it’s likely no frost will occur. Indeed, the most abundant fruit-growing region is known as the Fruit Ridge and is located a few miles northwest of Grand Rapids. Being 800 feet in elevation, the ridge protects fruit blossoms and buds from the colder air that creates late frosts.

However, in March of 2012, cherry crops in West Michigan were heavily damaged by a spring frost. Two months later another spring frost wiped out 90% of the apple crops (Michigan produces about 18 million bushels of apples each year). The frost affected food processors who relied upon the state’s apple production for creating pie filling, butter, jellies, applesauce, vinegar, and apple juice/apple cider. Consequently, hundreds of millions of dollars in income were lost by fruit growers, packers, and processors.

Given the devastating economic impact of the frost, the Michigan Legislature created an emergency loan package available to farmers who qualified. Secured by collateral, these low-interest loans allowed farmers to borrow up to $400,000 to cover actual losses, minus any insurance payments. For growers who did not buy available crop insurance, the loan amount was reduced (tart cherry growers don’t generally have insurance available).
The state authorized $15 million to pay lenders for administrative costs and loan origination fees. In all, the loans helped the state’s fruit growing processing industry meet $300 million in economic need.

In the aftermath of the crisis, many packers and fruit growers made improvements to their marketing and branding efforts. Both also upgraded their production facilities to become more efficient. For instance, many farmers began installing high-speed doors to maintain constant production facility temperature. Several others incorporated high-speed internet into their operations.

More importantly, the state’s loan interest loans are helping farmers combat a growing labor shortage. Fortunately, by focusing on labor-saving technology, growers were able to minimize labor shortages in the field. With the extra time not used harvesting crops, farmers allocated additional loan funds to upgrade housing for migrant workers.

Becoming better prepared to handle such weather calamities is a silver lining that came out of the 2012 crop devastation. Fortunately, the State of Michigan worked with willing lenders to help facilitate this process.