Published February 27, 2006

Riding the auto storm


While the American automotive industry undergoes a painful restructuring, the automotive supply sector in the Blue Ridge Region is staying in the game because of its diversity. Many of the region's 19 companies-at least-are booming because they serve Japanese companies or successful American sub-sectors such as heavy trucks or fuel-efficient vehicles. Others hedge their bets by only doing a small percentage of their business within the automotive sector.

Recent announcements of massive layoffs in the U.S. automotive industry have alarmed many, causing concern about the health of one of the nation's most important sectors.

Ford and GM are each planning to shed approximately 30,000 workers stateside, and Chrysler and Volkswagen collectively will be eliminating some 25,000 jobs overseas.

Yet in this region, with its array of companies that manufacture and supply automotive products (see sidebar), the impact appears to be minimal. In fact, the area has been seeing significant factory expansions and upgrades lately: Timken (Altavista), $10.3 million; Koyo (Botetourt County), $36 million; Virginia Forge (Buchanan), more than $18 million; and Intermet (Radford), $14.3 million.

"Nothing has really changed much yet," says John Goetz, plant manager for Koyo Steering Systems USA in Botetourt County. "We're in a normal cyclical pattern right now. We are exclusively shipping to GM, but fortunately our products are going to the smaller, more fuel-efficient vehicles [not affected by the layoffs]." Economic impact can be selective, he says, depending on which vehicles and components a company is providing to the industry.

But Goetz remains on guard. "We're still questioning what the impact will be in 2007 and 2008. I don't think we've seen all the changes, and we don't think their plans are final. [However,] we'll probably know at least a model-year ahead of time. We'll have some preparation time."

No impact

"At this point, we don't see any impact," says Mike Kelly, spokesman for Intermet, which has foundries in Lynchburg and Radford. "But a lot depends on our customers' platform plans." (Car models are based on "platforms.") However, while Intermet in Radford does supply Ford, the facility also does a significant amount of work for Chrysler and parts supplier Visteon, he says.

Another Ford supplier is Integrated Textile Solutions in Salem, which provides upholstered inserts for door panels. The company will feel a small impact of the Detroit layoffs because the Ford plant it serves will be closing, says Steve Anderson, president. "It won't affect our work load that much," he says. "But even though it's a small percentage of our revenue [about five percent], it's hard to replace those sales when you lose them in a block like that."

Integrated Textile Solutions did cutting work for Lear Corporation's Covington plant, which recently closed due to declining Ford SUV sales. Lear was also producing interior parts for the Ford Explorer. "When they closed, we became a primary supplier [for the Explorer] to a different Lear plant," says Anderson. He is working on a proposal, in partnership with the material manufacturer in Georgia, to continue producing this product.

The trends

Uncertainty and partnership are key trends within the automotive supplier community. Original Equipment Supplier Association President Neil De Koker predicted in a January 2006 speech: "We will experience significant uncertainty and industry consolidation in the next few years. Suppliers will move from Tier 1 to Tier 2, acquire or be acquired, seek global alliances and develop partnerships and innovations to meet customer needs."

BGF Industries in Altavista is another company with about 5 percent of its business focused on the automotive industry. It has aligned itself with a diverse and thriving customer base. "Most of our automotive products deal with Japanese companies," says Alan Simmons, manufacturing manager. "We produce exhaust systems for all types of vehicles-Toyota, Honda-just about everywhere."

Foreign carmakers produced 4.9 million vehicles in the U.S. in 2005, estimated to grow to 5.8 million by 2009 (increasing from 31 to 34.5 percent of total U.S. production), as reported by a February 2006 article in Business Week. Toyota is poised to become the world's largest automaker within the next year or so, according to the New York Times last month.

Truck growth

Also experiencing healthy growth is the heavy truck sector. "We're in a peak period now," says Troy Blevins, IT manager for Metalsa/Roanoke. "There are some EPA regulations coming in 2007 through 2010, which, if enforced, will [stimulate] the heavy truck industry to pre-buy." Metalsa manufactures custom-built chassis frames for customers such as Volvo/Mack, Peterbilt and Kenworth. Several lines are running continuously, he says.

Mike Lehmkuler is team leader of the transportation and equipment team of the Virginia Economic Development Partnership. He foresees little ripple effect in our region due to Detroit layoffs; however, he says it is still too early to tell. He adds that automotive suppliers in southwest Virginia have several important advantages:

"The suppliers within I-81 are the closest to the midwest corridor, from a logistics standpoint. Unlike other industries, the logistics costs are borne by the automotive industry." He points out that far Southwest Virginia falls in a straight line directly south of Detroit.

"The productivity of the workforce. There are several Virginia facilities that are considered centers of excellence."

Overall, says Lehmkuler, "The thing that helps suppliers in [the Blue Ridge Region] is this: the more diversified the customer, the better insulated."

(Deborah Nason is a contributing editor for the Journal. She lives in Roanoke.)

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