Tower closure could cost region $40 million

Traverse City – The closing of the Tower Automotive factory in Traverse City will deliver at least a $40 million wallop to the region in lost wages, dampening consumer spending and overall economic activity, according to some standard economic models.

Those numbers roughly represent the cash infusion that the Tower plant gives the region over one year directly and indirectly.

While it's true that other communities have at least partly recovered from similar financial body blows, the long-term effect depends on whether the region can generate economic growth to replace the plant's wages and economic activity in an extremely tough economy.

"The real challenge is that the state has benefited from its association with the auto industry for so long," said George Erickcek, senior regional analyst with the W.E. Upjohn Institute for Employment Research in Kalamazoo.

"Only now, unfortunately, the industry is not only moving south, it is changing to a product mix that we simply do not have."

The "multiplier effect" is one of the tools used that economists can use to describe what happens when a plant like Tower's closes. Without substantial economic growth in the region, the closing could jeopardize up to four to eight other jobs per Tower position eliminated, according to some economic models.

So based on the multiplier effect, roughly 1,600 to 3,200 jobs now depend on the Tower jobs and plant. If those jobs pay the typical area wages of about $26,000 a year, that would mean a $40 million loss in payroll at the low end and a $80 million loss at the high end.

Normally, the growth of other manufacturing and service companies would help take up the slack, and the region will certainly see job growth at some companies. But manufacturers – especially automotive firms – are mostly in full retreat across the state.

And it's not easy to replace a manufacturing plant that has an estimated $11-million-a-year payroll. Taken all together, the payroll at Tower represents more than one percent of all wages paid in Grand Traverse County.

The Traverse City retail community has long been familiar with the multiplier effects of factory closings.

"Any time we have lost jobs in the region, it is of concern to the retail sector," said Bryan Crough, the executive director of the Traverse City Downtown Development Authority. "When people have lost their jobs, they are not out there shopping."

The multiplier effect also describes how the community benefits when a services firm like Hagerty Insurance hires more employees, he notes. The notion has played a role in city officials' recent discussions about a new Old Town parking deck.

In that case, about 225 new Hagerty jobs would presumably lead to the creation of at least 100 new jobs in the region indirectly. That's not as great a multiplier as a manufacturing plant would provide, but as Tino Breithaupt, senior vice president of economic development at the Traverse City Area Chamber of Commerce, puts it, "Every job helps."

Even in good times, attracting a facility the size of the Tower plant could take many months, if not a year or more, and would likely involve the granting of major tax breaks to the company.

In the worst-case scenario, economic developers could spend time, money and energy on the deal, only to lose out in an incentives bidding war against rival suitors in the end.

Relatively high-paid jobs are the trophies. Most Tower jobs have paid $25,000 to $40,000 a year, depending on the amount of overtime, employees say. That's close to the average for a Grand Traverse manufacturing job – about $35,000 a year, according to U.S. Census figures released in 2005. By comparison, retail workers are paid less than $20,000 on average.

Most Tower workers don't think it will be easy to find a job that pays as well as their current ones, says Darwin Roberts, an employee at the soon-to-be-shuttered Garfield Township plant.

"Right now, there isn't much work up here, so I figure a lot of people will be moving out," he said. "All the people I have talked to say they don't know what they are going to do yet."

Some are looking at retraining options, "and then they will figure out where they will go from there."

While luring a big company to the region would be the ideal solution, it's often better to offset the loss of manufacturing jobs by helping companies grow locally.

The Traverse Bay Economic Development Corporation mostly takes that route. It does its best to assure that any local company chooses northwest lower Michigan for any expansion, often working with its managers far ahead of the decision, Breithaupt said.

"We are working with a number of manufacturers who are aiming to expand their operations," he said.

He expects his organization will try to match up some former Tower employees with local firms that are growing. "We certainly aren't going to be successful in placing everyone who is losing a job at Tower," he said.

"The goal would be to try to work to make the proper placement in those companies that are adding jobs and trying, as much as possible, to prevent the scenario of leaving the region or the state."

Erickcek of the Upjohn Institute says the auto industry isn't likely to give the Grand Traverse region much of a boost right now. But the community should resist the temptation to get out of manufacturing altogether.

"We do it very well. It's an activity that many workers – many of our neighbors – excel at," he said. "We have to somehow look for the newer markets, and that is a challenge for any community, whether it's Traverse City, Grand Rapids or Kalamazoo."

While entrepreneurs are the deciders on their future product lines, "it's up to the community to create an environment where risk-taking can occur."

This may mean establishing business incubators and counseling programs for entrepreneurs, and, especially if the current global credit crisis continues, helping firms get access to capital.

New strategies for long-standing companies are also part of the solution. For example, a firm "may have manufactured a product for 50 years, and then they decide to change it a bit, redesign it and go after a different market," Erickcek said.

"Instead of manufacturing for the office furniture industry, maybe you change your part and go after the medical equipment sector. That's entrepreneurship.

"That is the opportunity for a community – to create the environment where workers, the engineers, the designers and the owners of local companies are willing to step back and take a look at new markets."

Some Tower employees might be able to follow the example of former Pfizer employees in Kalamazoo. Over the last five years, they have showed a strong entrepreneurial streak in response to the pharmaceutical giant's shutdown of its research facilities in that city.

"When Pfizer decided to close down its research and development there, the community responded very quickly with an incubator that enabled those who wanted to stay to create their own business," Erickcek said. More than a dozen businesses started up in the Kalamazoo's Southwest Michigan Innovation Center, employing about 200 people within three years. That's still a far cry from the 1,200 employed in Pfizer's Kalamazoo operations in 2003.

"Not everyone did it – not everyone is an entrepreneur," Erickcek said. Many of the researchers wanted to stay in established labs. "But the community responded to those who wanted to stay and had an idea about how to set up their own business." The new enterprises have been successes, according to many observers.

The 350 workers leaving Tower represent a similar resource, Erickcek said. "The idea would be to tap into those assets, to those abilities, to see if any of them have any ideas for their own companies. Or they may have ideas that would be food for thought for a new company to come in."

Breithaupt said the Chamber has small-business counselors to help workers who want to start their own businesses. They can also tap into the resources of the local satellite office of the Grand Rapids-based Small Business and Technology Development Center, one of the Chamber's partners.

"In today's world, we have to realize – and I believe that Traverse City has realized – that it is the talent of the workforce that is the key asset to the community," Erickcek said. BN