How Bill Ford lured Flex-N-Gate to Detroit

DETROIT -- Shahid Khan, a low-profile U.S. auto industry magnate who has made his fortune bucking tradition and acquiring unwanted assets, announced last week that he will build a new parts factory in the rusty heart of Detroit.

The venture -- slated for a brownfield lot in an industrial park in a blighted Detroit neighborhood -- will require a $95 million investment by Khan's Urbana, Ill.-based Flex-N-Gate Inc. and hire 650 workers to turn out aftermarket parts for Ford Motor Co.

A new plant was necessary to supply Ford's part orders because Flex-N-Gate's other factories in Michigan, Indiana, Ohio and Canada are at full capacity.

But Khan, who is personally worth $6.7 billion, according to Forbes, acknowledged during last week's announcement that his choice of Detroit was prompted by reasons other than competitive ones: Bill Ford asked him to consider it.

While other manufacturers flee in search of low-cost locations in the Southern U.S. and Mexico -- a trend that has hammered Detroit for decades -- Pakistani-born Khan said last week that Ford Motor's executive chairman pitched him on the value of building in Detroit late last year.

Ford told him he "wants some real development, (to) create some jobs," Khan said following a press conference Wednesday, May 25, in Detroit. "Ford Motor Co. is not a charitable institution. Let's not confuse that. They want to do the right thing for their shareholders and stakeholders. But it's like, you could do it and still serve everybody and create good jobs and economic progress in the process."

Khan and Bill Ford know each other from the auto business, where Flex-N-Gate has grown as an award-winning Ford supplier over the past several years. But the executives also are associated through NFL franchises: Khan owns the Jacksonville Jaguars, and Ford is vice chairman of the Detroit Lions.

The Detroit investment is the latest by Flex-N-Gate, which operates 56 manufacturing, product development and engineering facilities in the U.S., Canada, Argentina, Brazil, Mexico, China and Spain, producing bumpers, lighting, front-end modules, body and chassis structural assemblies and other parts. Eleven of those plants, including its subsidiary Ventra Automotive, and one r&d center are in Michigan.

But the 60-year-old company grew into one of the industry's largest suppliers after Khan, who arrived in the United States as a teenager with little money, bought it in 1980.

At a time when many North American suppliers were decrying the rise of new Japanese competitors here, Khan overhauled the company to operate under Toyota Motor Corp.'s lean-manufacturing operating system, the Toyota Production System. Flex-N-Gate became the first U.S. supplier to adopt the practice, which mystified many U.S. companies with its adherence to low inventories and its obsession with constantly making small improvements in efficiency.

Since then, Flex-N-Gate has grown worldwide, reaching $5.1 billion in original equipment parts sales in 2014. The company ranks No. 46 on Automotive News' list of the top 100 global parts suppliers.

Part of that growth came from Khan's acquisition of large supplier operations that were spun off by an industry eager to downsize and reorganize. Khan purchased part of Meridian Automotive System's bumper business in 2009. Three years later, he acquired Visteon's Sandusky Lighting business unit.

Despite his company's growing profile, Khan remains a little-seen executive in the industry, tending to stay out of the media spotlight.

What news he has made in recent years often has been in the form of criticism from the UAW and labor activists, who accuse Flex-N-Gate of underpaying its nonunion employees. The UAW has tried over the years to organize various Flex-N-Gate operations but with little success.

It was not clear whether the union will seek representation at theplanned Detroit facility, which will be a short drive from the union's international headquarters, and it had not yet commented on the project. Nor did Khan openly welcome the union last week.

"Those are decisions, really, our employees have to make," Khan said. "It will be up to them, whatever they choose, and it's our duty, obviously, to respect that."

Khan said the plant will offer wages, including benefits, in the mid- to high-$20 range.

Detroit Mayor Mike Duggan thanked UAW Vice President Jimmy Settles for pushing the Flex-N-Gate project "from the beginning," though it was unclear what specific role he or the UAW played.

"We expect to have good-paying jobs in this town, and the locals will decide for themselves what to do," Duggan said.

Duggan said Detroit has been in talks with the Detroit 3 automakers and major Tier 1 suppliers about how to bring suppliers back to the city. Detroit and other American municipalities have been competing for manufacturing jobs with both Mexico and Asia, where low wages are more attractive to some companies.

"We've talked to most of the major Tier 1 suppliers in southeastern Michigan, and we're just looking at what parts are coming next, what plants are coming next and where the opportunities are," Duggan said. "And we just want to say, "If you've got a choice between Juarez and Detroit, we've got transportation advantages, and we've got some other advantages. They may have the labor wage advantage, but can we make the overall package competitive?'"

Flex-N-Gate is the second major U.S. supplier in recent weeks to announce the construction of a U.S. plant in a brownfield urban location. Dana Corp. revealed in May that it intends to spend $70 million to build a new Jeep axle plant in Toledo, Ohio.

Flex-N-Gate will receive $3.5 million from the State of Michigan to help with development costs such as power infrastructure and demolition. It also will qualify for local tax credits.

Crain's Detroit Business contributed to this report.