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What's driving Detroit's manufacturing turnaround?
"I'm born and raised in Detroit, and it's different than it's ever been." That's the professional and personal view of Gerry Phillips, co-founder and CFO of Prism Plastics, a highly automated injection-molding manufacturer headquartered in Chesterfield Township, Michigan , about 35 miles north of Detroit.
His perspective comes not just from living in the city for all of his 52 years but also as a supplier of precision plastic components to the region's bedrock auto industry for nearly 30 years.
Over that period, Phillips has been part of the industry's remarkable evolution, from robust to ruin, bailout to revival. Once the center of the automotive universe, Detroit had been doubly battered in recent years, first by offshoring tens of thousands of manufacturing jobs and the shuttering of hundreds of factories, then by the Great Recession and the housing crisis, which led to massive foreclosures and blighted neighborhoods. By the time the city was forced to declare bankruptcy two years ago, Detroit was $18 billion in debt and its population was the lowest since the 1910 census.
Detroit emerged from bankruptcy last year, and a resurgence in manufacturing-while never to reach heyday heights-is seen as a major pathway to continued recovery. The federal bailout of GM (GM) and Chrysler (Milan Stock Exchange: FCA-IT) helped bring the auto industry back from the brink, and today the Big Three U.S. automakers, including Ford (NYSE:F) and the foreign competitors that have built American factories, are thriving. This is good news for the supply chain producers, too, such as Prism Plastics.
Prism represents the so-called next-generation manufacturers-characterized by leading-edge technology, innovation and entrepreneurship-that are reconfiguring Detroit's legacy as a place that makes stuff. "This is a great place to be," Phillips said, "because a lot of people have that mentality. It helps the whole culture of change, growth and new thinking."
A confluence of factors-including public and private initiatives, high-tech incubators, philanthropic fundraising, an influx of venture capital and a craftsmanship movement-are bringing Detroit back from the depths of municipal bankruptcy and widespread unemployment, which stands at 7.8 percent in metro Detroit, according to the U.S. Bureau of Labor Statistics.
The auto industry still reigns in the Motor City. The U.S. auto industry as a whole, the Detroit Free Press reported in February, now employs more workers than it has at any time since March 2008. But next-gen makers of industrial robots, nanotechnology materials, biotech pharmaceuticals, even bicycles are also spurring the resurgence.
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"This is still a vibrant manufacturing hub," said Dustin Walsh, who writes about manufacturing for Crain's Detroit Business. "Only it's more technologically advanced and smarter than it was. They have different ways of doing things, of thinking about the factory floor."
Phillips and two other auto-industry veterans launched Prism Plastics in Port Huron, Michigan, in 1999, venturing out on their own after deciding that the injection molder they were working for wasn't headed in the right direction. "It took time to get the ball rolling," Phillips admitted, but by 2008 Prism had revenues of $5 million from sales to automakers in metro Detroit and around the world.
Then the Great Recession hit, devastating the city and its manufacturing core. Hundreds of companies went out of business, and tens of thousands of workers lost their jobs. Even so, Prism-already a lean debt-free operation-"was positioned where we needed to be," Phillips said, and actually prospered as competitors went under, survivors consolidated "and work came to us." Revenues jumped from $9 million in 2010 to $30 million last year and should top $35 million in 2015.
Prism had added an injection-molding facility in Harlingen, Texas, in 2005 and opened the Chesterfield plant in 2012. In May the company announced it was investing $2.5 million to add 10,000 square feet of space to the 26,000-square-foot factory to house four new Toshiba Electric molding presses. "We run 24/7 with three people per shift," Phillips reported. Although the global automotive sector comprises 99 percent of sales, he added, Prism is entering the medical arena via an acquisition within the year.
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The fact that Prism can churn out a half-billion plastic parts a year with automated machines operated by just three employees per shift speaks volumes about the new age of manufacturing-and that the millions of jobs lost over the past 20 years, whether to offshoring or attrition, aren't coming back. But automation doesn't necessarily equate to unemployment, either, as many critics charge.
Yes, robots are taking over many human tasks, but humans have to build the robots. That reality led Zurich-based ABB (Swiss Exchange: ABBN-CH) Robotics to begin production in May at a new factory in the Detroit suburb of Auburn Hills to better serve its $7.5 billion U.S. market. "The expansion is consistent with our global strategy of getting closer to our North American customers," said Keith Fox, vice president of robots and applications, who heretofore have been supplied by ABB's facilities in Sweden and China. "We'll reduce delivery schedules in the U.S. from 20 to 25 weeks to six to 10 weeks."
The Auburn Hills plant currently employs about 500 people, with plans to double that number by 2020, Fox said. Sixty percent of sales are to the automotive sector, a drop from 80 percent in the 1990s. "Other industries are growing faster," he said, notably aerospace, pharmaceuticals and packaging.
Industrial robots have been employed in Detroit's auto plants for years; newer applications include machine tending and materials handling in various industries. ABB's R&D team, in collaboration with engineering students at MIT, recently took second place in the Amazon (AMZN) Picking Challenge-a contest in which robots grab packages from stacks of shelves-staged by the online retailer as it looks to supplant humans in its warehouses.
The symbiosis between academia and manufacturing goes beyond STEM education and job training. The University of Michigan, for example, paired its chemical engineering department with its business school's entrepreneurship program to create Elegus Technologies Science, a new start-up located in downtown Detroit's nascent innovation hub, which epitomizes the city's collaborative next-gen manufacturing push that has been growing since 2009.
Beginning in 2009, a professor at the Ann Arbor university, Nicholas Kotov, led a research group that discovered a way to use nanotechnology to produce thin sheets of super-strength Kevlar. The researchers teamed up with entrepreneurship grads John Hennessy and Dan Vander Ley, both of whom are engineers as well. Together they developed a nanofiber Kevlar material for lithium-ion batteries that separates the positive and negative electrodes inside. It replaces polyethylene, which has been known to melt and spark fires when the electrodes touch. Such incidents plagued batteries in Boeing (BA)'s 787 Dreamliner and Dell laptops.
Elegus' patent-pending nanofiber separator can be applied to every type of lithium-ion battery, including those in Detroit automaker's electric and hybrid vehicles, said Vander Ley, the company's CIO and CMO. "Lithium ion is projected to be a $72 billion market by 2020," he said, with $4 billion for separators alone. "Our separators are also applicable to lithium-sulfur batteries, an emerging technology about five years out."
Elegus, nonetheless, has yet to make any products or secure any customers. The principles have been busy raising private funds and fielding dozens of sample requests from automotive, chemical and battery makers. The company got a huge boost in early June when Techstars-a Boulder-based accelerator network that provides seed money and mentoring for high-tech start-ups in exchange for 7 percent to 10 percent of equity-named it as one of the 10 local transportation-related fledglings for its new Detroit incubator.
Elegus will take up a three-month residence in a shared 10,000-square-foot space on the second floor of the Ford Field office building for what is being billed as Techstars Mobility, Driven by Detroit, with each getting $120,000 in funding. That's part of the $2 million in private and public funds Elegus plans to raise while it scales up its technology and builds a production facility in Detroit.
Similar efforts are under way in Detroit to foster innovation and entrepreneurism. These include the Obama administration's manufacturing innovation institute, called Lightweight Innovations for Tomorrow (LIFT), launched in January, and the philanthropic New Economy Initiative (NEI), an economic development initiative working to build a network of support for entrepreneurs and small businesses. "We don't support entrepreneurs directly, but the ecosystem that does," explained David Egner, executive director of NEI, which has raised $135 million to fund entrepreneurs and programs like LIFT.
Egner said that about 20 percent of its recipients are budding manufacturers, making things like heated motorcycle jackets, wooden pallets and carbon dioxide-based coolants for machinery. Many are former autoworkers who have hooked up with TechTown, a nonprofit innovation hub and incubator situated in a 135,000-square-foot downtown facility provided by General Motors. "In 2009 we went to TechTown as the auto bust was happening," Egner recalled, "and said, 'There are folks in the auto industry who would be entrepreneurs if they had a path.'" TechTown initially took in 1,200 potential entrepreneurs, he claimed, and from there 1,400 businesses were started and 14,000 jobs were created.
NEI also sponsors NEIdeas, a program that will reward a total of $500,000 in cash awards to more than 30 existing businesses in 2015 through the "$10K Challenge" and the "$100K Challenge," contests that invite fledgling entrepreneurs to pitch their ideas for new businesses that need funding. One of the applicants is Mike Sheppard, a lifelong Detroiter, son of a former GM worker and a city firefighter for 16 years. A die-hard bicyclist as well, he started building handmade bikes four years ago under the moniker 313 Bicycle Works. He's a one-man player in Detroit's burgeoning bike-building community, highlighted by much larger and well-heeled operations, such as Shinola and Detroit Bikes.
In between 48-hour firehouse shifts, Sheppard, 42, learned how to weld steel frames and add various components-handlebars, wheels, brakes, gears-to fabricate custom road and mountain bikes in a makeshift shop in his house on Detroit's north-central end. The frame alone starts at about $1,500, and with components, prices can easily reach $5,000, making hard-core and affluent, cyclists his ideal customer. He's made less than 100 over four years in business, but his ultimate dream is to retire someday and build bikes full-time.
Meanwhile, Sheppard is proud to be among those working to revive Detroit's manufacturing heritage. "If you want to own a handmade bike from Detroit," he said, "it doesn't get any realer than me."
-By Bob Woods, special to CNBC.com
Correction: This story has been updated to correctly reflect that it was GM and Chrysler that received a U.S. government bailout in 2009.
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