A savvy plan for the Trump era

ZEELAND, Mich. — The Trump administration has a vision for U.S. manufacturers: It wants them to rely less on overseas factories and to hire and train more American workers.

Easier said than done? Well, Michigan mirror-maker Gentex Inc. offers a glimpse of what the future might look like in the Trump era. The supplier has figured out a way to move production from overseas to the American Midwest — and things are working out just fine.

In recent years, Gentex closed its two foreign plants in low-wage Mexico and China and consolidated all production into a single factory complex in western Michigan. The Zeeland plant now produces self-dimming mirrors, garage door openers and everything else in the Gentex product catalog for global markets.

This is the sort of business model the new president is pressing manufacturers to adopt. But Gentex designed its plan not for political reasons, but for purely competitive ones as its products become more complex. And for champions of the push to create U.S. automotive jobs, Gentex has sobering news: Making modern car parts in America today is going to take a whole lot of robots.

Factory automation is what made it possible for Gentex to move production from overseas to the Midwest.

"It's a tricky product," says Steve Downing, Gentex CFO, as he inspects the company's 2-year-old assembly line that makes one of the industry's most advanced rearview mirrors. "Any scratches or smudges, or even the shipping, can damage these mirrors. Cleanliness is key."

In one corner of the Zeeland complex, a white-gowned worker loads glass pieces onto an assembly line that produces the "full-display mirror" for Cadillac — a rearview mirror with built-in video displays. Despite her production training, there is a trash can next to her workstation filled with glass shards, lingering evidence of a once-high reject rate that bedeviled Gentex when it launched production here in 2015.

Having put all of its eggs into one U.S. basket, Gentex heavily invested in automation to perform as much of the product line's delicate work as possible.

"In a perfect world, we would want to automate the whole thing," Downing said. "But the cost is a gamble. The question is, do you have the confidence to put your money where your mouth is? CFOs kill a lot of these deals. I've got to trust that there's a payback."

Gentex earmarks a significant chunk of its revenue — generally 6 to 8 percent of sales — for its capital budget, which covers the cost of automation. The company designs its own tooling and produces its own chemicals and coatings on-site.

To date, Gentex has not eliminated any of the 4,000 Zeeland workers it has had since emerging from the 2008 recession. More products are being made now in Zeeland, including garage door openers, backup cameras and sensors for self-dimming headlights. As the company adds automation, workers are reassigned to other tasks.

But the landscape of the factory is clearly changing.

A typical production line is staffed by just five or six workers who feed mirror components from racks, monitor equipment and conduct backup visual inspections. Only a decade ago, 20 to 30 gowned workers would assemble mirrors along a long production line in a clean room, according to Downing.

It's a finicky process to assemble the glass, frame, coatings, chemicals and light sensors that comprise these mirrors, which cost five to 10 times more than a conventional auto-dimming mirror.

That's why Gentex consolidated production in one location. Defects in the highly engineered mirrors are costly, so it made sense to put the work under the watchful eyes of several hundred Michigan engineers.

The company's Michigan wages average $14.50 an hour, which it supplements with a quarterly profit-sharing bonus of 13 to 18 percent of wages.

By contrast, suppliers in Mexico typically pay just $2.61 an hour, according to a Center for Automotive Research report published last year. But Gentex shut down production of its HomeLink garage door openers in Mexico after it purchased that operation from Johnson Controls Inc. in 2013.

The Mexican plant had aging equipment, and Gentex concluded it would be impossible to boost output without hiring more workers. Instead, the company installed new production equipment in Zeeland.

Now, 40 U.S. workers are needed on a line that once required 100. The business unit is 20 percent more productive, Downing says.

The Gentex factory in China also fell victim to a cost-benefit analysis. At the insistence of several customers — including SAIC Motor and Beijing Automotive — Gentex set up a plant in Shanghai to handle final assembly of self-dimming mirrors.

Gentex shipped glass and circuit boards to China, where workers would unpack the components, assemble them and repack them for shipment to customers.

But that, too, was inefficient. Gentex argued it could ship the finished products cheaply from Zeeland, but China's state-owned automakers insisted on local production. During the global recession, Gentex finally got permission to shut down its Shanghai factory.

"Desperation is a beautiful thing," Downing quipped. "It allowed us to force our Chinese customers to tell us the truth. We asked them: 'Do you care more about localization or low prices?'"

Gentex was able to negotiate discounts of 30 to 40 percent on goods shipped from the U.S. to China, since shipping companies were eager to fill half-empty cargo containers. That made it profitable to ship mirrors from Zeeland, even though they were subject to China's import tariff.

Gentex has an advantage over other suppliers that might feel the pressure to repatriate manufacturing work, according to Jay Baron, president of the Center for Automotive Research in Ann Arbor, Mich. Highly engineered products and new technologies come with a higher price tag to customers and yield bigger margins. But for more mundane parts with high labor content, locales such as Mexico and China will retain a competitive advantage, Baron says.

"Things like cut-and-sew seat covers and wire harnesses are relatively low-tech," Baron said. "Those products don't change a lot, and they are labor intensive."

Baron and others believe such labor-intensive products will simply never return to U.S. factories.

Moreover, analysts believe U.S. auto-sector employment will continue to decline as factories become more efficient.

According to a 2015 study by Michael Hicks, economics professor at Ball State University in Muncie, Ind., automation is by far the leading cause of manufacturing job losses.

Manufacturers of vehicles and transportation equipment increased their productivity per worker by 64 percent during the study's 10-year period, Hicks found. But the sector saw the elimination of 716,500 jobs during the period — and productivity gains directly accounted for nearly 86 percent of the losses.

"Employment in manufacturing has stagnated for some time, primarily due to growth in productivity," the report concluded.

Despite its devotion to automation, Gentex has not laid off U.S. workers because sales have kept growing. Last year, Gentex revenues totaled $1.68 billion, up from $1.01 billion in 2012.

The full-display mirror adopted by Cadillac is in test production for four other customers.

But it is far from certain how that will translate into more jobs.

Recent advances in robotics are making automation more common among suppliers, a development that will likely make the companies need fewer workers — even as the Trump administration campaigns for manufacturing jobs growth.

Robot-makers such as Fanuc and ABB Robotics are introducing "collaborative" robots that can operate side by side with human workers on an assembly line, rather than being segregated in more expensive automation areas, in safety cages or behind plexiglass shields.

Gentex itself is testing ABB's collaborative robot — dubbed YuMi — in its Zeeland plant.​

If other companies emulate Gentex's "build-it-here" strategy, there may be more robots to come — but not necessarily more American jobs.