In 2010, the automotive industry had just come off its worst year in decades. Vehicle production in North America had plummeted to exactly half of what it was at the start of the decade.
Rogers, the company’s president and COO, and his fellow directors were undeterred. The painting supplier for vehicle interior parts needed to become more vertically integrated by adding plastic injection molding and light assembly capabilities. American Autocoat’s “if you build it, they will come” attitude pushed them to add plastic injection molding capacity to pursue new business rather than hunker down and ride out the downturn.
The customers did, in fact, come calling. The company recently had to invest $1 million to add more molding equipment to keep up with the demand.
In its first eight years of business, the supplier focused solely on painting interior plastic parts for automotive applications, but that narrow focus limited its growth and its value to its Tier I customers. When American Autocoat added in-house plastic injection molding in 2010, it made the multimillion-dollar investment out of strategic necessity.
“We recognized there was a demand and a market for it,” Rogers said. “We needed to be able to make that next strategic move.”
Larger, well-capitalized suppliers had money available to invest even at the depths of the downturn. But smaller suppliers such American Autocoat that invested during the downturn “are probably in rare company,” said Mike Wall, an auto analyst at IHS Automotive in Grand Rapids.
“Making the leap — it was huge. It took a massive amount of courage to do that,” Wall said.
American Autocoat’s story is also indicative of a move toward more value-added suppliers, Wall said. Plastic injection molders have moved away from “shoot and ship” operations to those that can do inset molding or that can also paint and assemble products, he said.
“They’re adding some value to the overall process. They’re not just punching out parts,” he said.
American Autocoat’s customers started looking for one-stop shops that could mold, paint and assemble products, Rogers said. Because it offered just one piece of that value chain, the company was excluded from some bids. In essence, it was ceding business opportunities to its competitors, Rogers said.
“We needed to prepare for the upswing,” he said. “We just didn’t realize how deep and how long (the downturn) would go. We were prepared to make those investments or fall behind. If you’re not investing in your business, you’re going to slide back, not move ahead.”
Wall from IHS said the general lack of supply chain investment and a reluctance to add headcount coming out of the recession has saddled the industry with some capacity constraints as production swings back into gear.
“It’s still a fire drill, and it’s not getting a heck of a lot better. Plants are running flat out. They’re running six or seven days and 12-hour shifts just to keep up,” he said.
A Sept. 15 article in The Economist, “Return of the graveyard shift,” cited a survey from an auto industry consultancy that found about 40 percent of North American vehicle assembly plants are running three shifts, up from a longtime average of 10 percent to 15 percent.
Most of the supplier constraint this year resulted from a nearly 2-million-unit increase in vehicle production, going from 13.1 million last year to “probably closer to 15.1 million” this year, Wall said.
“Next year, we’re seeing about 15.3 million units, so there will not be as much incremental business from this year to next year,” he said. “The pain has been to get from 13.1 to 15 million. That’s a lot of growth considering how companies retrenched a couple years earlier.”
Even given that increase in business, Wall said many suppliers and automakers are still stretching their current equipment and headcount.
“We’re still at a transitional period. They’re not quite yet moving into the next phase of growth mode … but we’re starting to see some movement,” he said. “Those that (invested) during the downturn are reaping the benefits.”
It would appear American Autocoat’s calculated bet has paid off. Since adding molding capacity, the company grew from serving five customers to nine main accounts. It has more than doubled its headcount to 104 employees.
With its molding equipment at capacity earlier this year, the company invested an additional $1 million to more than double its molding line in September, and even that extra capacity is almost entirely booked.
With the in-house molding capacity, American Autocoat has been better able to control quality because its processes were built to mold parts that would be painted, versus working with outside suppliers to perfect paint-ready substrates, Rogers said.
“It gives us much better yield and results,” he said.
Along with injection molding, the company also added light assembly, providing customers a full line of solutions.
So far, executives say the measure has paid off. The company recently won business for a large Ford program by beating out a competitor that had been producing in Mexico, said Beth E. Gordon, the company’s director of business development. She said 50 percent of revenue this year can be attributed to other takeaway business where an existing supplier lost a contract to American Autocoat.
“A lot of the work we get awarded is because somebody else can’t do it very well,” Gordon said. “They launch it someplace else, they can’t get approvals and then they come here. We do a lot of takeover (business) because of it.”
The net result of taking the risk two years ago and making the investment in new production processes is that the company is able to provide more value to its customers, to the point where they are involving American Autocoat early on in the development process to ensure parts are designed for manufacturability, Gordon said. In an era when automakers across the spectrum are upscaling vehicle interiors, American Autocoat is positioned to continue growing, she said.
While American Autocoat’s executive team conducted a thorough study and performed its due diligence going into the expansion project, the company’s investment at an unsure time in the industry was far from a surety.
“We saw the future, we knew it was possible, and we knew it could be done,” Gordon said. “It was just a matter of time.”
Rogers added: “We just never gave up.”