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Friday, 17 August 2012 23:09

Industrial renaissance: Tool and die companies ride wave of auto activity

Written by  Matthew Gryczan/Special from Crain's Michigan Business
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Industrial renaissance: Tool and die companies ride wave of auto activity PHOTO: Crain's Michigan Business
WEST MICHIGAN — There's not as much talk in Michigan these days about how the Chinese hijacked the tool and die industry, stealing jobs that form the backbone of manufacturing and assembly plants worldwide.

With the largest concentration of tool and die shops in the country, Michigan is bursting with activity as automakers embark on what experts say is the biggest refresh of their vehicles in more than a decade. Adding to the tooling resurgence is rising demand from other industries, such as aerospace, office furniture and appliance manufacturing.

Overtime is plentiful now in shops throughout Michigan, so much so that tool and die companies have the opposite problem they faced in 2009. Instead of having to lay off highly paid skilled people, they now can't find experienced toolmakers and engineers.

"The auto companies are rolling out a lot of new, refreshed models of vehicles, and they are more likely to source locally because the lead time is faster," said Jay Baron, president and CEO of the Center for Automotive Research in Ann Arbor. "The OEMs are being driven more by delivery dates rather than trying to squeeze every last penny out of the tool right now.

"The other part of the reason why we are so busy is we lost one-third of the industry in Michigan. We are one-third smaller than we were 10 years ago."

Philip Allor, founder and president of SelfLube Inc. in Coopersville, said his company has been "working a lot of overtime, and we are looking at hiring more full-time machinists. We're hard-pressed to find capacity to hit intermittent demand now."

SelfLube has fabricated moving parts used in metal-stamping dies and plastic injection molds for more than 20 years. The company employs about 30 people in the office and on its well-lit, air-conditioned shop floor — which resembles a high-end auto dealership more than one of those dungeon-like tool and die shops of the 1950s.

Steve Kutches feels the same capacity squeeze at his Muskegon shop. He also leads a coalition of six West Michigan tool and die companies that all reported higher sales and long backlogs at their June meeting.

"We were meeting monthly, but we postponed some of our meetings because we are all so busy," said Kutches, founder and president of Aero Foil International Inc., a producer of tooling for about 28 U.S. foundries that supply blades, shrouds and other parts for high-speed turbines used in jets and land-based electric generators.

There's some concern that the tool and die industry will get derailed in 2014 when today's glut of redesigns by the auto industry subsides. For now, everyone is enjoying the ride.

Tool of industry

The tool and die industry in Michigan is like Waldo of "Where's Waldo?" fame: It's everywhere, but you have to look hard to find it.

"It's the industry that makes the tools that manufacturers use to make stuff: cars, appliances, airplane parts," said Allor, who heads the Coopersville Tooling Coalition, comprising his tool and die shop and four others. "And the key to high productivity in manufacturing is to have the best tools."

More people were employed in Michigan last year as tool and die makers than in any other state — 11,750, according to the U.S. Bureau of Labor Statistics. The ratio of toolmakers to the total number of jobs in Michigan was nearly twice the ratio of the state's nearest competitor, Ohio.

The list of the top metro areas with toolmakers is rife with Michigan cities: Warren-Troy-Farmington Hills, Grand Rapids-Wyoming, Detroit-Livonia-Dearborn and Grand Haven-Holland.

Allor estimates that about 40 percent of the tooling made in this country goes into the auto industry. "The automotive industry is ferociously competitive — it's all about style and appearance," he said. "When manufacturers want to change the appearance of the product, they have to buy tooling."

Between 2013 and 2014, the auto industry will embark on the biggest model changeover that it has seen over the past decade, said Mike Jackson, director of North American production forecasting at the Northville Branch of IHS Automotive, the Englewood, Colo., forecasting and business intelligence group.

IHS Automotive predicts that 14.9 million vehicles with gross vehicle weight of less than 5 tons will be produced in North America this year, up 1.8 million from a year ago. "That kind of increase is just incredible," Jackson said. "It's the equivalent of nine assembly plants coming online."

Among other factors, the automakers milked their existing designs longer than normal over the past three years because of lackluster sales during the recession and tepid recovery.

Let the good times roll

Kutches at Aero Foil concedes that although he has 36 full-time employees working at his Muskegon company, "I really should have 45 employees, but I need to bring people on slowly and deliberately."

Working with specialty alloys that contain large percentages of cobalt and nickel "as hard as woodpecker lips" is a demanding job, Kutches said. Machinists regularly hold tolerances anywhere from 0.0002 to 0.0005 inches on turbine parts that are precision-ground with diamond-studded wheels.

With annual sales of about $7 million, Aero Foil is one of the largest U.S. producers of electronic gages used to check turbine parts, Kutches said. While his company doesn't do automotive work, his colleagues in a coalition of five other tool and die companies all have reported markedly higher sales and longer lead times because of increased demand from automotive and other industries.

As president of the Muskegon Tooling Alliance, Kutches heard a report from Campbell Grinder Co. in Spring Lake that 2013 will be the best year in its history, based on current backlog. Dietech Tooling Solutions in Muskegon, which makes dies for the furniture, automotive, aerospace and appliance industries, said orders have been up 18 months straight, with an expectation that 2012 sales will reach a 15-year high. Qwik Tool & Manufacturing Inc. in Muskegon Heights reported sizable increases in business over the past five quarters.

But times haven't always been rosy in tool and die, Kutches said. The tooling alliance started in 2006 with nine businesses, three of which have folded as toolmaking was outsourced to low-wage nations such as China and Mexico.

Allor at Self Lube said his company discovered the degree of cratering in the tool and die trades about four years ago.

"In the worst part of the recession, we started calling our contact list of potential customers that we compiled from attending years of trade shows," he said. "We call it our X-files because we might not have had contact with them for a while. The shocking thing was that when we placed calls to these companies, about 40 percent of the phones were disconnected."

Deconstructing and reconstructing

Baron at the Center for Automotive Research said that in 2000, the Michigan tool and die industry started to look for ways to combat the hemorrhaging of jobs overseas. But there weren't any easy answers.

Six of the biggest tool and die companies in Michigan approached Baron then to see how competitors could collaborate on best practices and core competencies without violating antitrust laws.

They came to the Center for Automotive Research "looking for a safe haven to have a dialogue about the industry," he said. "For several years they funded us as a consultant to run their meetings, to be their spokesperson and go to automakers and clients and talk to them about best practices providing tools."

In 2001, the Michigan Economic Development Corp. paid CAR to come up with guidelines on how small tool and die shops could form coalitions to survive what was becoming an industry debacle. Under the Michigan Tool & Die Recovery Zone Program, if companies formed alliances and adopted best practices in manufacturing, they would be eligible for abatements on real and personal property taxes and the Michigan Business Tax.

"Here's the ironic thing," Baron said. "The six companies that started this, none of them qualified for the abatement because they were too big."

But more than 300 companies in Michigan did qualify for the abatements after they joined coalitions that sprouted up throughout the state after 2004.

Karla Campbell, manager of state tax incentives for the MEDC, said the intent was to keep the tool and die industry healthy in Michigan during the rough patch. Tool and die is particularly prone to paying high personal property taxes because the industry often uses expensive pieces of equipment.

Allor, Kutches and Baron said the tough times would have turned into a disaster without the tax abatements allowed to the 24 coalitions.

"If we did not have that, I would not be here today — seriously," Kutches said. "We would have been like the other three in our group who folded."

Said Baron, who himself helped found the United Tooling Coalition in Ann Arbor: "The average tool and die shop in Michigan has about 24 employees. These are small companies, and it doesn't take a lot of money to affect their cash flow."

Along with tax relief, the participants also learned lean manufacturing and best practices — sometimes kicking and screaming all the way.

"When you bring competitors into a room, in the first meeting or two, you hear stories about how so-and-so stole my employees or undercut me on the last bid," Baron said. "You hear the war stories and you understand that it's a ruthless business.
"But over time, they start to overlook that, and they find things that they can agree to work together on."

Campbell said a study done by the MEDC last year indicates that the return on investment was $1.35 for every $1 of tax abatement allowed, using a conservative estimate of the value of direct jobs.

While the cost of producing a die slid by about a third over the past decade, that doesn't mean profit margins have gone down by the same percentage, because tool manufacturing has gotten much more productive, Baron said.

"One of the executives at Ford said that the company reduced the number of dies per car by one-third. And at the same time, we reduced the price of our dies by one-third," he said. "So if you do that math, the cost of tooling is down by two-thirds compared with the year 2000 — the tooling industry is getting almost two-thirds less revenue than it was 10 years ago."

Where we are headed

The adage that anything is possible for those who don't know what they are talking about may apply to those who think Michigan's tool and die industry should become less dependent on the cyclical nature of the automotive industry.

"The problem is tool and die shops that have diversified have had trouble making money in some other industries," Baron said. "The unique thing about the auto industry is that it uses dies that are incredibly complex. Some guys don't make much money on dies; they make it on the engineering and changes to build.

"Complexity is what we are good at. We can do complex things quickly, and we can get tooling launched very rapidly in a factory. They are very unique demands as opposed to even aerospace or medical, which operate with totally different criteria.

"If you give us something that's easy to make, it's hard for us to be globally competitive."

Some companies that have tried to strongly diversify have found they sold capacity to industries needing simpler dies. When the auto industry became busy again, they couldn't take on more work.

The shakeout in the tool and die shops over the past decade has left a smaller number of lean companies that understand the need to outsource some aspects of tool and die manufacturing to other countries, such as the fabrication of machine details.

"My favorite quote is from an executive at one of the major foreign automakers," Baron said. "He said: 'We go to Michigan when we need help or something breaks, because that's where the engineering talent is — not because of low-cost. Michigan has the expertise to fix things.'"

This story ran in the August edition of Crain's Michigan Business. More state and Southeast Michigan business news can be found at www.crainsdetroit.com/crainsmichiganbusiness

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