A nervous auto industry meets in TC

ACME – For a week in August, the Traverse City region was the center of the automotive universe as auto manufacturers and suppliers from around the world descended on Grand Traverse Resort for the Center for Automotive Research's (CAR) annual Management Briefing Seminars.

It was a nervous group.

The theme for this year's meeting was "Transcending Turbulence." It was aptly named.

Auto companies still reeling from sudden changing consumer demands due to soaring gas prices and a slumping U.S. economy have seen unprecedented increases in material and production costs. Expensive, rapid changeovers in manufacturing assembly lines are having an immediate negative impact on profits as auto manufacturers scramble to produce smaller, more energy-efficient vehicles. Inventories of once-popular trucks and SUVs are filling retail lots while coveted gas-saving hybrids can't be manufactured fast enough.

Suppliers are feeling the heat, as well. Component production is being moved closer to hot markets such as China, India and Russia – countries that restrict imports to encourage joint manufacturing agreements. And with this overseas production go the supplier contracts and payrolls that once built the economies of "rust belt" states such as Michigan, Ohio and Indiana. It was no coincidence that both the Governors of Michigan and Ohio addressed the conference, each stressing their new, alternative fuel development capabilities.

The picture is a little brighter for northern Michigan automotive suppliers, according to Tino Breithaupt, senior vice president for economic development at the Traverse City Chamber of Commerce.

"We are not as dependent on the automotive industry as other parts of the state," notes Breithaupt, "thanks to our manufacturers' historic diversity in product base, client base and technology."

He observes that although some manufacturers are struggling, a few are actually picking up automotive business, while others are successfully diversifying their manufacturing into other industries and technologies.

For the work that remains in the U.S., the costs to retool to new, more demanding small car and alternative fuel technologies and specifications require capital, which is harder to find during the tightening credit market. Manufacturers and suppliers alike are scrambling to find diminishing funding sources in the current downturn.

Amidst this general upheaval, the trained members of the baby boomer workforce are leaving the industry in record numbers, and with them their knowledge and established relationships. As David Cole, PhD, Chairman of CAR pointed out, "future automotive workers will require a minimum of a two-year college degree, while only 25 percent of Detroit's high school students currently graduate." Even in a leaner U.S. automotive industry, there will be thousands of new positions and no skilled workforce to fill them.

The effect on local and statewide suppliers to the automotive industry is still in a period of shakeout. Although none the TCBN approached would speak on record, many manufacturers expressed nervousness. Some are looking to move into less volatile non-automotive industries.

The outlook for these suppliers is not good. According to global accounting, tax and business advisory service Grant Thornton, "lower industry volumes and the massive decline in truck and SUV sales have put as many as one-third of automotive suppliers in North America at risk of bankruptcy." At the same time, the firm finds that "bankruptcy concerns for the Detroit Three domestic automakers are overblown, despite recent downgrades by the major debt rating agencies."

As Tom LaSorda, vice chairman and president of Chrysler LLC points out, "over the next decade, just four countries – the so-called BRIC markets of Brazil, Russia, India and China . . . will account for 80 percent of new incremental industry sales…" Understandably, that will be a major focus of most of the world's auto manufactures.

Lending a note of optimism amidst the current turbulence, Ford Motor Company's President for the America's Mark Fields offered the audience a note of optimism with a quote from founder Henry Ford: "When everything seems to be going against you, remember that the airplane takes off against the wind, not with it."

For those at the conference, takeoff could not come soon enough. BN