In another sign that the American economy continues to recover from the Great Recession, sales of new vehicles increased throughout 2010, and many analysts expect that recovery will continue into 2011 and beyond.
Most auto industry analysts predict 13 million to 14 million new cars will be sold in the U.S. market this year. While most analysts are not predicting a quick return to the average of 17 million cars sold before the recession, the 2011 expectations are still a significant improvement from the 9.5 million cars sold in 2009.
U.S. auto manufacturers are seeing rising profits because of actions taken during the recession, when they closed plants, renegotiated labor contracts, drew down inventories and focused on efficiencies – both internal and throughout their supply chains.
As auto manufacturers in the United States – both domestic and “new domestic” Japanese and Korean car makers – see rising demand and rising profitability, so are their suppliers based in Wisconsin.
Southeastern Wisconsin is home to a diverse range of automotive component manufacturers that make fuel efficiency, battery, seating, security, fluid indicator and metal stamped products. Those manufacturers say the recovery in the U.S. auto market has turned into growth opportunities for their companies – which have seen increases in orders and sales and are hiring more workers.
“Six to 12 months ago, we were talking about the ‘new normal,'” said Doug Fisher, director of the Center for Supply Chain Management at Marquette University’s College of Business.
“They’re now talking about pre-2008 levels (of production) after they get past that 12 million to 14 million production range. We’re also hearing about the demand in China, which is good for our companies that have operations there. Ford and GM have gone a long way toward improving the quality of their products, and that’s a globally competitive situation to be in. The players in the manufacturing business seem to be positive in a consistent manner – they’re saying that (the recovery) is being driven by the market and consumers, not just a B-to-B rebuild.”
Some of the Milwaukee-area manufacturers that supply parts for the auto industry have seen an extra boost in demand from both the rebound in the marketplace and the continued demand for energy efficiency.
“That growth is compounding our market. Our business is exploding,” said Austin Ramirez, chief executive officer of Husco Automotive, the auto subsidiary of Waukesha-based Husco International. Husco Automotive makes a variable cam phasing product that optimizes vehicle performance based on different driving conditions, as well as cylinder deactivation products that can shut down several cylinders on eight-cylinder engines while they drive at highway speeds.
“In 2010, we were up 50 percent,” Ramirez said. “And in 2011, we think we’re going to double our business.”
Many auto industry forecasters predict that the Chinese market will again outpace the U.S. auto market. Some forecasts predict that 18 million cars will be sold in China in 2011, after 13.6 million were sold there in 2010.
Husco Automotive believes a significant portion of its growth will come from the Asian markets over the next several years, Ramirez said.
“That was a new market for us in 2010, and we think it will grow to about a third (of our business) in the next two to three years,” he said. “Both our off-highway (vehicle sales) and auto sales there are booming. China is going a little bit crazy. In their latest five-year plan, they’re building high-speed rail, which is great for our off-highway sales, and more roads to put cars on.”
Husco opened a facility in China in 2002. The company now employs about 100 workers there. It has about 500 employees in Wisconsin.
The company will need to make several equipment upgrades over the next two years to meet the expected rise in demand for its products, Ramirez said.
“We deal with the Tier 1 auto suppliers and the major North American OEMs. They’re all recovering,” he said. “The whole industry has recovered. The most important thing is that the industry is healthy again. Relative to the 2008 and 2009 numbers, I think this will be a great (next) five years.”
Dickten Masch Plastics
Steve Dyer, president and CEO of Dickten Masch Plastics LLC, a Nashotah-based injection molder that also manufactures metal stamped and injection molded fluid indicator products for the automotive market, agrees with Ramirez’s outlook for auto industry suppliers.
“If you look at the last nine-month run rate, the improved customer confidence, stabilization in the job market and the natural progression within the automotive cycle, we could have record production runs for the next five years,” he said. “It really could be a perfect storm type of situation.”
In 2009, Dickten Masch acquired the fluid indicator business from Milwaukee-based Charter Automotive. Earlier this year, the company moved all of the former Charter Automotive production into its 188,000-square-foot facility in Nashotah. It employs a total of 431 workers including its full time workforce and temporary to permanent employees.
Since it added the automotive fluid indicator business from Charter Automotive in late 2009, Dickten Masch has added 139 new employees. Most of that employment increase has come from increases in the company’s automotive sector.
“(In 2009), we did about 8.5 million units,” Dyer said. “(For 2010), our projections were for over 10 million, but we’re running at close to 12 million, and we’re talking about 13 million to 14 million units for next year.”
Dickten Masch had about 20 percent sales growth in 2010 and is forecasting about 28 percent growth for 2011. A significant portion of the company’s growth has come from its sales to the automotive market.
The company’s facility in Nashotah and its 90,000-square-foot facility in Iowa are essentially out of room and the company will likely need to expand or build a new facility in the next few years, Dyer said.
“We’re going to leverage our current facilities and maximize production,” he said. “We can get some additional production (capacity) through our lean tool kit. Once we maximize our current facility, then we’ll continue to strategically add.”
Like Ramirez, Dyer believes the automotive supplier market will have significant growth in the coming years.
“I think there’s going to be growth there for the next five to seven years, and if people aren’t playing in the market space they’re missing an opportunity for growth,” he said. “We got in at record lows and we’ll ride it as high as we can and continue to provide good jobs by taking advantage of what the market has to offer us.”
Waukesha Metal Products
Waukesha Metal Products, which has operations in Sussex and Grafton, has about 40 percent of its business tied to the automotive market, said Jeff Clark, president and CEO. The company sells to Tier 1 suppliers that make components for the Big Three U.S. manufacturers, “new domestic” producers and European manufacturers with operations in the U.S.
While his company has seen increases in orders and sales to its automotive customers, Clark said there are still hurdles.
“The challenge has been the shortness of lead time,” he said. “There has been no huge inventory buildup. There are still those quick turnaround requirements.”
Waukesha Metal Products specializes in metal stamping and fabrication. The company was formerly known as Waukesha Stamping. It changed its name in 2009, when it acquired a fabrication business in Grafton.
As a result of the acquisition and some of the growth in the auto sector, Waukesha Metal has more than 100 employees, roughly double its workforce from one year ago. Its sales doubled in 2009 because of the acquisition and grew an additional 22 percent in 2010.
The company is forecasting 10 to 12 percent growth for 2011, Clark said.
The company believes there will be opportunities for regional manufacturers in the auto sector, Clark said, but players within the market will need to continue to update capabilities and technology.
“I believe the (auto industry) will continue to regionalize,” he said. “If you don’t have something to add increased value or if you’re not in a (nearby) region where you can ship cost effectively, (you’re in trouble).”
Strattec Security Corp.
The resurgence in the auto industry has made a significant difference for Milwaukee-based Strattec Security Corp., a manufacturer of locks and ignition controls that has operations in Milwaukee, Michigan and Mexico. Through a partnership, the company also has two manufacturing operations in China.
Strattec has about 400 employees in metro Milwaukee and its employment has increased about 25 percent since June of 2009, said Frank Krejci, the company’s president.
“We brought back everybody (that was laid off during the recession), and we’ve added people in certain areas,” he said. “We have more people in die-casting, plating and our stamping areas. And we have more people in our assembly and injection molding operations in Mexico.”
The company’s revenues have increased significantly since the beginning of the auto industry recovery in early 2009. For the first quarter of fiscal 2011, which ended in September, Strattec had net sales of $59.8 million, compared with $41.2 million from the same period one year earlier.
“Our sales were up 45 percent and our earnings were up about 50 percent for the first quarter of 2011,” Krejci said.
The company’s higher earnings, increased orders and rising employment are indicators of the recovery that the North American and global auto markets have seen, Krejci said.
“The auto companies are in a much stronger financial position than they were before,” he said. “The cleansing process was painful. The auto makers are at much more conservative inventories with their dealer networks. Those are creeping up, but not alarming. They’re not building a bubble like was done in the housing (sector).”
Strattec has worked hard over the last 10 years to win new relationships with Asian car manufacturers and the company believes its partnership in China will aid in growing and developing those relationships.
“With the globalization of these companies, maybe we could do something for them in China, and that could turn into something here (in the U.S.),” Krejci said.
Strattec’s Chinese venture partner is building a new facility there to consolidate its two operations, Krejci said.
“China is no longer as competitive as a source (of components),” he said. “China is now a consumer. There are far more opportunities to support the local Chinese economy than there are to be a low-cost producer and ship things to the U.S.”