Everyone knows that Michigan manufacturers are having their most difficult time in decades.  The question: What to do about it?

Michigan manufacturers, more than any other industry sector, are seeing challenges in all directions. The past decade has seen transformational change in the industry, and the pace of that change has rapidly accelerated in recent years. Changing markets, products, processes and technology coupled with significant revenue declines and lack of available capital brought on by the recent recession, have severely weakened our manufacturing base.

Michigan manufacturers benefited from nearly a century of steady growth in the automotive sector, with the industry’s Michigan roots and many auto plants statewide.  For years, there was plenty of business in automotive, so most companies focused their efforts in this area.  There were periodic down cycles, but the auto business always seemed to come back from each bust with an even bigger boom.  However, with the recent bankruptcies at GM and Chrysler, the industry has moved into a new period of consolidation that’s left manufacturers across the state scrambling to find new markets.

But while the battle rages on, the myth that “manufacturing is dying” is being challenged by a changing breed of manufacturer. Diversification is their watchword.  It’s been said that Michigan is the best in the world at “making things”—but the state’s manufacturers had put all of their eggs in one basket by focusing on making things for automotive.

The need to make up for lost automotive sales has spurred Michigan manufacturers to delve into new markets such as aerospace, alternative energy, defense contracting and medical devices. Manufacturers have discovered that the quality systems they have built for their automotive business are highly regarded in the aerospace and medical device industries. Utility scale wind turbines require large forgings and castings similar to those used in automotive.  Plastic injection molders who have supplied interior parts for the auto industry are finding demand for plastic molded parts in the medical world. After years of fighting in Iraq and Afghanistan, the United States Department of Defense has a big demand for repair and replacement parts for tanks, troop carriers and other military vehicles.

Michigan manufacturers are asking themselves the following:

•   Which new industry to pursue

•   How to manage the change (especially for a small company without a big management team)

•   How to get a handle on the financial impact of pursuing a new industry

•   How to obtain capital for tooling, equipment and more

•   How to plan strategically

•   How to better structure the internal systems, processes and communications needed to facilitate the growth

Many manufacturing firms have had trouble accessing capital. Lending practices have changed and borrowers are under far more scrutiny than in the past. Business owners should ask these questions:

•   Have I been able to secure any bank funding in the last six months?

•   Have I been able to maintain existing lines of credit?

•   Even if I secure new business, can I obtain the funding to make it happen?

While the last few years have been tough financially for many manufacturers, many of our banks have had similar struggles. Banks are simply not willing to fund losses in today’s environment, so a written plan leading to profits and positive cash flow, along with adequate collateral, is essential. Recent changes to SBA loan guarantee programs, along with new programs from the State of Michigan like the supplier diversification loan program, offer borrowing options for companies who have had difficulty obtaining needed capital. Remember to “think like a banker” when preparing a loan proposal, clearly showing how the loan will be repaid from cash flow and what collateral is available to secure the loan.

The Michigan manufacturing landscape will be much different in five years. Strong companies producing innovative products for diverse markets are expected to rise from the current downturn.

		Tom McFadden is a manufacturing assistance specialist for the Michigan Small Business and Technology Development Center (MI-SBTDC). He has extensive experience in banking, manufacturing finance and entrepreneurship. To learn more, visit www.misbtdc.org.