The Center for Automotive Research is breaking out on its own in hopes of cutting costs up to 40 percent.
The center is owned by the Altarum Institute, a nonprofit research organization in Ann Arbor, Mich. Because Altarum mostly handles government contracts, the Center for Automotive Research also must comply with many expensive federal requirements.
"We need to get away from that cost structure. Our overhead is high enough not to make us competitive," says David Cole, president of the Center for Automotive Research and a management partner at Altarum. "We do accounting to government specifications - there's a resident auditor. Security requirements here are very substantial. Space here is 30 or 40 percent more costly than other space."
So the center likely will move elsewhere in Ann Arbor, he says. It will remain a nonprofit organization. Altarum will extend a line of credit during the spinoff and hand over existing contracts.
The center researches issues relating to the global automotive industry's future. It also conducts conferences, including the Management Briefing Seminars in Traverse City, Mich.
The center got the go-ahead in early February to spin off, Cole says, with hopes of completion by April. But he'd been talking to Altarum about it for two years.
Soon after the center joined Altarum, then called the Environmental Research Institute of Michigan, "we did an acquisition of a company three times our size," Cole says. That company, Vector Research Inc., was more of a government contractor than Altarum, he says.
The Center for Automotive Research will retain its 25 employees and likely add people temporarily per project, Cole says. To get those people, the center will continue to collaborate with Altarum and the center's prior owner, the University of Michigan.
"It's a business relationship," Cole says. "We pay their departments for their time."
The center broke from the university's Office for the Study of Automotive Transportation in September 2000 The center also had changed its business model, Cole says.
The Center for Automotive Research spinoff could be practice for future spinoffs of the center's businesses, he says. It currently has four groups: economics and business, forecasting, manufacturing systems, and transportation and information systems planning.