Manufacturing is Common Sense

Our ability to perceive, understand, and judge things that are common to most of us, well, that is common sense. It is central to civilization and probably why we’re still around as a species.

Remember that Common Sense, a pamphlet written by Thomas Paine in 1775–76 advocating independence from Great Britain to people in the Thirteen Colonies, forged a nation and that which became a world superpower.

As Americans, we hold common sense to be a great attribute, that is until we elect a person to public office. Then something very strange happens. That person, who previously exhibited a great abundance of common sense, becomes a politician.

As a result, common sense becomes a casualty, and our trust in our institutions erode. Notwithstanding this erosion of faith, I truly believe in the common sense of the common man. He may not understand immediately, but he eventually discerns the truth. He will get it.

Critical to Our Nation’s Future

Which is why I am heartened by a recent survey that show that an overwhelming majority of Americans see manufacturing as critical to our nation’s future prosperity.

It is only common sense to believe this. But now it is up to our elected officials to shirk off the D or the R from their shirtsleeves, and come together to enact common sense policies to grow manufacturing in this country.

I will offer up some ideas on that front, but first let’s take a look at that recent U.S. public opinion survey by Deloitte and The Manufacturing Institute. Among the findings:

• 83 percent believe U.S. manufacturing is critical to economic prosperity
• 81 percent feel it is important to maintaining their standard of living.
• 81 percent believe trade and export of U.S. manufactured goods benefits the economy
• 76 percent believe the U.S. needs a more strategic approach to developing its manufacturing base
• 76 percent believe the U.S. should further invest in the manufacturing industry.
• 71 percent believe the U.S. should ensure long-term, stable funding for programs that spur innovation and advanced manufacturing.
•  88 percent expect future manufacturing jobs will require a higher level of technical skill

They Get It

In a nutshell, this survey confirms that most Americans correctly view manufacturing as vital to America’s livelihood and that we as a country should invest more in manufacturing.

They understand that manufacturing jobs will be more high-skill and less manual labor, and they know that manufacturing fuels job creation in this country. (Something that economic developers on the state and local level have long appreciated.)

Having grown up in a manufacturing family (my father was the president of a foundry) and having worked on factory floors, I have special affinity for manufacturing. Most of the companies that I have helped as a corporate site selection consultant have been manufacturers.

They like the fact that I am true believer in manufacturing and that the location of a future plant, to which I will help in finding, is critical to its long-term operational success. Factoring costs, which includes the good, the bad and the ugly, is the essence of corporate site selection process.

The Smart Factory Needs Smart People

One critical factor in finding that optimal location for a future plant, which should not be shock to anyone, especially economic developers, is the technical talent within an existing local (commuting distance) labor pool.

As I have written many times, we are in but the early stages of a digital industrial revolution. The “smart factory” of the future, employing digital technologies such as the internet-of-things, big data analytics, artificial intelligence and advanced robotics, will require smart people.

By the end of 2022, manufacturers expect that 21 percent of their plants will be smart factories, according to a new report by Capgemini’s Digital Transformation Institute. Sectors, such as aerospace and defense, industrial manufacturing and automotive, where people are working alongside intelligent machines, are expected to be the leaders of this transition.

To suggest that the shift to smart factories will transform the labor market in this country is an understatement. Companies see automation as a means to remove inefficiencies and low-skill jobs. In short, those manning the smart factory of the future must have digital skills.

Conversely, it also means that there will be more employment opportunities for highly skilled workers in automation, analytics and cybersecurity.

Some Companies Step Up

U.S. manufacturing job openings are quickly outpacing qualified candidates, resulting in a widening skills gap across the industry. Between 2015 and 2016 an average of two unemployed manufacturing workers existed for each open position, according to the U.S. Labor Department.

Some companies, seeing a way to lower costs and accelerate innovation, are stepping up to the plate by training their existing employees to use cutting-edge digital technologies. Capgemini found in its study that more than half (54 percent) of respondents are providing digital skills training to their employees and 44 percent are investing in digital talent acquisition to bridge the skill gap.

GE, which invests more than $1 billion in employee development each year, announced in March a “Brilliant Learning” curriculum that will include immersion boot camps on advanced manufacturing, additive and other digital technologies.

“Today, manufacturing is driven by productivity – and when combined with the merging of hardware and software, the need for a highly skilled labor force is becoming integral to the success and modernization of our industry,” said Philippe Cochet, GE’s Chief Productivity Officer in a prepared statement.

“At a time when the creation and retention of U.S. jobs in America’s manufacturing cities is more important than ever, GE is helping to secure these jobs through the execution of ‘Brilliant Learning,’ and we hope it becomes a model for the industry.”

Meeting the Needs of People and Companies

A 2016 Pew Research Center survey, “The State of American Jobs,” found that 87 percent of workers believe it will be essential for them to get training and develop new job skills throughout their work life in order to keep up with changes in the workplace. Again, the common man showing a lot of common sense.

A central question about the future is whether formal and informal learning structures will evolve to meet the needs of people who want to work and “stay current” and companies who want skilled workers.

Pew Research Center and Elon’s Imagining the Internet Center surveyed technologists, scholars, practitioners, strategic thinkers and education leaders in the summer of 2016 on the future of workplace training.

Seventy percent of the 1,408 respondents said successful programs would emerge to teach new skills at the scale that is necessary to help workers keep abreast of tech changes. But 30 percent said “no,” that they do not believe adaptation in teaching environments will be sufficient to teach new skills at the scale needed to keep up with changes in technology.

Some Communities Will, Others Won’t

As one who does economic development consulting for communities in addition to corporate site selection, I see a spotty record. Some communities will make a valiant effort to offer and keep up with what is essentially vocational training that begins in elementary schools and lasts a lifetime.

It is these communities that are preparing for a smart factory future by preparing their people with needed digital skills.

Sadly, I come across some communities that are not even thinking about this, much less doing anything about it. Now guess which communities are going to do well in the future with manufacturing and which ones aren’t.

It’s only common sense. I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com

A Ho-Hum Opinion of Cars May Be Part of the Problem

If you were to believe much of what you hear and read about this seemingly monolithic group called millennials, you might wonder if they are not an alien bunch from outer space.

Indeed, marketers and consultants have determined there is much money to be made if they can convince us that millennials have special wants and needs and cracking the code is critical if we are going to reach them

While I acknowledge there are some generational differences in how we all see the world, I suspect that much of what we are being told about millennials, which is shorthand for young Americans, is a crock.

Never mind there is no consensus on what a millennial is. Some say millennials are anyone born between 1980 and 1995 while others say it is between 1982 and 2000.

Don’t Put Them in Box

More to the point, we seem obsessed with generational labels and stereotypes.

“There’s about 80 million millennials right now and some of those millennials are CEOs in Silicon Valley, and some of them are illegal immigrants in the Midwest who are waitressing somewhere,” said Jessica Kriegel, author of Unfairly Labeled: How Your Workplace Can Benefit from Ditching Generational Stereotypes in an interview with USA Today.

“You really can’t put them all in a box. And what we do is, we put them all in a box, and that box is really based on a middle-income, white, American person and then we just say that’s the only kind of millennial that exists right now.”

We have been told ad nauseam that millennials would prefer not to own and will thereby drastically shape our future consumer society. And while there may be a kernel of truth to that, the bigger aspect is that digital technologies are changing how and what we buy via online transactions, and tech savviness has much more to do with socio-economic status than age.

They Actually Do Own

Fifty-three percent of millennials actually do own homes and overall, 88 percent of millennials who don’t hope to one day, according to a survey conducted by Qualtrics, a Provo, Utah-based survey software firm, and venture capital firm Accel Partners (a Qualtrics investor).

Nearly 80 percent of millennials own cars and 75 percent of millennials who don’t own a car aspire to own one, the Accel + Qualtrics Millennial Study 2017 found.

In last week’s blog, A Rocky Road Ahead for the Auto Industry, I wrote about how some industry analysts believe auto sales have peaked and are set to trend downward. Without trying to put them into a box, young people’s attitudes toward cars might be partly responsible.

A Softening of Drivers Licenses

One major truth facing the industry is the fact that a lower proportion of young people have drivers licenses today compared to their counterparts in the 1980s.

In a 2016 report examining changes in driver licensure in the U.S. from 1983 to 2014, researchers at the University of Michigan found a continuous decrease in the percentage of those under age 45 with a license.

About 87 percent of 19-year-olds in 1983 had their licenses, but more than 30 years later, that percentage had dropped to 69 percent. Even the proportion of Americans ages 45-69 with driver’s licenses have declined overall since 2008, following a 25-year rise.

Delayed Buyers

One could surmise from this study that millennials could bring about a historic collapse in auto sales because they will reject vehicle ownership entirely in favor of car-sharing, on-demand services and, in a few years, shared autonomous vehicles.

In fact, the share of the new-car market jumped to 28 percent for those between 21 and 38 percent in 2015, according to the J.D. Power Information Network, which defines millennials as those between 21 and 38.

That’s a big improvement from 2010, when millennials — who make up around 30 percent of the population — bought just 17 percent of new cars. That had auto executives wondering aloud if the trend would be permanent.

Still, it is probably true that many millennials simply cannot afford to buy a new car, because they are under employed and/or saddled with tons of college debt. They will either resort to buying a used car or hold off on car ownership entirely.

This is particularly true in large cities where housing prices are high, public transportation and Uber or Lyft are available and where just parking a car can be a major expense.

Even if and when these young, carless urbanites become middle-aged and move to the suburbs, thereby requiring their need for a car, the fact that they have postponed buying a car poses a problem for the auto industry. It likely means they will buy fewer cars during their lifetime.

The Utilitarian Aspect

I grew up in the generation of the “muscle car,” exclusively Detroit-powered V-8s known for creating a little havoc on the streets. The closest I got to one was a 1968 Pontiac Firebird 328. It was red with a white convertible top.

My next vehicle would be a 1969 Volkswagen bus. Even though they were vastly different vehicles, both the Firebird and the VW bus represented freedom of sorts for a dumb kid venturing out into the world.

Many of today’s young people view cars less as a status symbol and more like a utilitarian thing, like a pipe wrench. A survey last year by NerdWallet reported that while 75 percent of millennials who own a car plan to buy another within the next five years, 43 percent said owning a car is a hassle.

In short, car ownership appears not have the appeal or fascination with many young people today as it did with my generation. In a recent trip to Austin, I was struck by how many bicycles were parked outside of neighborhood bars and restaurants.  Made total sense to me now.

But again, it is lazy thinking to lump all young people into the millennial box with the belief that they think one way. A young man growing up in rural Oklahoma will likely see the world somewhat differently from a kid growing up in Boston.

For the kid in Oklahoma, that first set of wheels may indeed represent freedom, whereas the kid in Boston or Austin may be thinking, “I’ll get one if and when I have to.”

Carless in Seattle

Census data show that from 2010 to 2015, the percentage of Seattle households that own a vehicle declined, according to a report last week by The Seattle Times.

During that five-year span, car ownership among the city’s young , those younger than 35, had declined by about 3 percentage points. The data suggests that young newcomers to the city are, more often than not, choosing to forgo owning a car.

It’s a combination of economics and priorities.  As Seattle housing costs rise, cars are one expense that many young city dwellers are willing to sacrifice, Mark Hallenbeck, director of the Washington State Transportation Center at the University of Washington, told the newspaper.

“If you get away from the high set of fixed expenses that go with owning a car — monthly payments, parking, insurance — you can pay for the apartment … ,” he said. “You can go out to bars to meet your friends, and you can get around everywhere you need to go.”

Aside from the fact that many young people, particularly those living in large cities, have a rather ho-hum opinion of cars, there are likely other factors contributing to a cooling of car sales.

Too Many Cars on the Road

Deutsche Bank said in a recent report that the combination of rising interest rates and a slide in used-vehicle prices, make for a potentially not-so-good scenario for the auto industry.

Today’s cars are much more durable than in the past and fewer are being taken off the road. Scrappage has declined to about 11 million a year from about 13 million to 14 million a decade ago. Total vehicles in the U.S. have increased to 270 million, from 249 million at the end of 2012.

“This has led us to question whether the U.S. is broadly oversupplied, and whether trend demand in the 17 million range is fundamentally supported,” the Deutsche Bank analysts wrote. “If it is not, the oversupply should be self-correcting — the U.S. market will experience declining used-vehicle prices, pressuring new vehicle sales.”

Faced with the shifting consumer tastes of some (not all) millennials, an oversupply of cars on the road, and declining used-car prices, it would appear the auto industry faces some major headwinds that could result in softening sales and industry layoffs.

But this has long been a cyclical industry, with ups and downs. It should weather the storm much better than it did during the Great Recession.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com

A Rocky Road Ahead for the Auto Industry

Spring has sprung and ostensibly, things are looking not so bad for the U.S. economy.

The Labor Department on Friday said employers added 211,000 jobs in April, the 79th straight month of job gains, and the unemployment rate is down to 4.4 percent, its lowest since May 2007.

Wages are up (the average hourly earnings rose by 2.5 percent from the previous year to $26.19), and we are enjoying low inflation, low interest rates and low fuel prices at the pump.

With all these things going for it, why would the automotive industry be nervous? After all, U.S. consumers bought a record number of new cars and trucks in 2016. While a repeat performance in 2017 might be a tall order, there’s no reason to be overly concerned, right?

Well, maybe there is. After seven years of steady growth — including three consecutive years of record sales — some industry observers believe auto sales have peaked and are set to trend downward.

Sales Are Off

In April, sales of cars and light trucks were off 4.7 percent from the year before, a decline of 70,000 vehicles. That marks the fourth straight month, every month this calendar year, in which sales have declined on a year-over-year basis.

It is the longest stretch of declines since 2009, when the industry was embroiled in bankruptcies. So far in 2017, sales are off 2.4 percent, or by 133,000 vehicles, with the top six automakers in the U.S. market all reporting declines from their April sales a year ago.

Ford car and light truck deliveries fell 7.1 percent last month, while GM’s dropped 5.8 percent and Toyota’s decreased 4.4 percent. All three companies reported slumping sales for passenger cars including the Ford Fusion, Chevrolet Malibu and Toyota Prius sedans.

Most analysts have predicted that auto sales will suffer a small decline this year — to about 17.2 million vehicles from the record of 17.5 million sold last year.  Mark Wakefield, managing director and head of the automotive practice at AlixPartners, is forecasting auto sales to decline to 16.6 million vehicles in 2018, and 15.2 million in 2019.

“People are starting to see that this is not necessarily a plateau,” Wakefield told Bloomberg. “It’s a meaningful reduction, and they’re starting to make plans around that.”

Layoffs Have Begun

In response to softening sales, Ford Motor Co. announced last week that it would cut production of its medium-duty F-650 and F-750 model trucks, and temporarily lay off 130 workers at the Ohio Assembly Plant in Avon, Ohio.

According to The Wall Street Journal, the layoffs will likely last until Ford launches the latest version of its F-Series in September.

Ford temporarily shut down five plants in late 2016, and Chief Financial Officer Bob Shanks told automotive analysts in March during a conference call “Don’t be surprised” to see further temporary reductions in the months ahead.

Also, last week, General Motors Co. said it would shut down its Lordstown, Ohio, plant in July for two weeks, on top of a two-week shutdown previously announced for June.

GM will lay off as many as 1,100 workers at its Lansing Delta Township Assembly plant in Michigan when it cuts the plant’s third shift this month. About 700 of the workers are expected to be rehired by the end of the year. Three other G.M. plants are eliminating shifts, moves that will idle more than 3,000 other workers.

Said GM Chief Financial Officer Chuck Stevens in a conference call last week: “We are very focused on acting like we are in a downturn.”

Fiat Chrysler is laying off 3,200 employees at its Toledo Assembly Complex in Ohio, as it shifts Jeep Cherokee production to a plant in Illinois and prepares the Toledo plant make an all-new Jeep Wrangler. The laid off workers are expected to return, but the callbacks will not begin until the year’s fourth quarter. Another 550 jobs are being permanently eliminated from suppliers.

Bloating Inventories

When sales don’t materialize as expected, however, inventory can and usually will pile up. At the end of April, GM reported that it had 935,758 vehicles in inventory—which is 100 days’ worth of selling activity at the current rate. A year ago, the company had 618,000 vehicles in inventory, representing only 71 days of selling activity.

Ford had about 72 days’ worth of selling activity in inventory in April (about the same as it did in April 2016). The industry considers 60 days ideal.

When inventory builds up when sales are declining, dealers and automakers will often resort to cutting prices, providing more incentives, pushing credit on easier terms. Such short-term measures to boost sales will dampen profits.

Of course, any cuts in auto production in the U.S. are counter to the wishes of President Trump, who has been pushing carmakers to make more cars here and import fewer from other countries.

The Big Kahuna

U.S. manufacturing and auto manufacturing jobs have yet to reach their pre-recession levels, but the auto industry has seen steady improvement. Since 2009, when it bottomed out at just over 600,000 jobs, the auto sector has been above 900,000 jobs for the past two years and at 946,300 in April, according to Labor Department.

In short, the auto industry is still a very big deal to this country, and particularly to certain communities where it is the source of better paying jobs. When I was an economic developer in Alabama and Indiana, the automotive industry was the Big Kahuna in my book and I studied it relentlessly.

There is an old saying in the industry that when the economy catches a cold, the auto industry gets pneumonia. That is particularly true for communities where the automotive industry is a big employer.

Michigan’s Remarkable Turnaround

You would think, and you would be partly correct, that Michigan would be particularly vulnerable. Back in 2009, the unemployment rate rose to 14 percent. (It was 5.1 percent in March.) But the recovery in manufacturing jobs from 2009 to 2016 has been nothing short of remarkable.

From 2009 to 2016, manufacturing jobs in Michigan rose by nearly 32 percent compared with just over 4 percent nationally. Nearly one of every three new jobs in the state during that eight-year span was in manufacturing.

Now I know what you are thinking. You’re thinking that so goes the auto industry, so goes Michigan. And while there is some truth to that, what I find most compelling is the fact that most of the new manufacturing jobs were NOT in the auto sector.

Remember that I said that manufacturing jobs accounted for about 32 percent of the total jobs growth in Michigan from 2009 to 2016, compared to 4 percent nationally. Incredibly, non-transportation manufacturing jobs added 18.5 percent.

What this suggests is that when there is another downturn in the economy, and there always another downturn on the horizon, Michigan may fare somewhat better than it has in the past. Mind you, automotive remains hugely important, but there are a host of manufacturers there making non-automotive products in medical device, aerospace, and others.

In neighboring Indiana, the automotive manufacturing sector is a $15.8 billion industry that employs more than 100,000 people. Automotive manufacturing is the second-largest manufacturing sector in Indiana, behind only chemical production. Automotive jobs have seen a 40 percent increase since 2009.

Some Parting Thoughts

As a site selection consultant for companies and an economic development consultant for communities, one of the things I like most about the multi-state Great Lakes Region is its deep bench in manufacturing talent, at least in comparison to much of the country.

That does not mean there are not shortages of talent. The tool & die industry, making the molds for which auto components are made, is facing an acute shortage of experienced and qualified workers, according to a recent recent report by the Center of Automotive Research.

That is but one headwind facing the automotive industry. There are others, which I hope to further touch on in next week’s blog.

In the meantime, I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com