Darwin‘s Law

June 28, 2009

Darwin’s Law
‘Adapt and Survive’ works for
local manufacturers

By Anne Stanton 6/29/09

Adapt and survive. With last year’s crash and burn of the auto industry,
Darwin’s theory has taken on new meaning.
Take Tellurex, a small company tucked away in a Traverse City business
park. At its height two years ago, Tellurex employed 52 people. Its
biggest customer was Cadillac, for which it produced a cup holder that
could either heat or cool drinks at the touch of a button. But when sales
of the luxury car line stalled out, so did the orders. Tellurex had to lay
off about 30 people.
But there’s optimism. The company survived and has a new big idea—that is,
to use the thermal electric technology to power a cell phone or laptop
computer for soldiers who travel into no-man’s land. It works by applying
a candle flame to a wafer-thin device, which turns heat into electricity.
The company is also creating a device that converts the hot exhaust from a
military tank into electricity, thereby increasing the tank’s fuel
efficiency.

NEW TECH, NEW MARKETS
The auto slump has hit rural auto dealerships and area auto supply
companies particularly hard, as reported recently in Express.
The good news is that a number of small companies, like Tellurex, are
adapting their technology to new markets. Other manufacturing
companies—those that have avoided the auto industry altogether—have
survived, and even thrived, in this difficult economy. As reported last
week, there are more than 10,000 manufacturing jobs in northwest Michigan,
although they get little press.
“The national media has been really hard on manufacturing lately because
there’s a focus on what’s happening with GM and Chrysler. Their business
model supported plants of 500 to 600 employees—essentially small villages.
But in our rural area, we support a variety of different types of workers
and we have niche manufacturing that supports the global market, high
tech, and agriculture, ” said Matt McCauley, Northwest Michigan Council of
Government’s associate director for regional planning.
The most successful companies are niche manufacturers with 20 or 25
employees. Next door to Tellurex, for example, is Opti Temp, which designs
heating and cooling equipment.
“We provide appropriate temperatures for X-ray equipment, lasers, and
military applications. Our biggest piece of equipment is probably 600
times bigger (than Tellurex),” said Daniel Dorn, vice president in charge
of engineering.

NEED FOR DIVERSITY
A third of Opti Temp’s 25 employees are engineers, and half of the staff
hold bachelor’s degrees. The company has grown every year, with modest
growth this year. The secret? Opti Temp doesn’t rely on one product, one
country, or one customer.
“You need diversity,” Dorn said, adding that it was recognized as one of
the top 50 small businesses by the state of Michigan.
McCauley said that manufacturing often carries a stigma of smokestacks,
noise and pollution. That can rarely be said of these smaller companies,
and there are a lot of good reasons to keep our manufacturing base; a
single manufacturing job has a multiplier effect of creating about seven
other support jobs, such as a teacher or grocery store clerk, McCauley
said.
Another plus: Manufacturing offers steadier work and higher pay than the
notoriously low, seasonal wages of the area. The median salary for someone
working in the manufacturing sector is $48,500 compared to $25,225 for a
job in the retail trade, according to a 2008 report issued by the Traverse
Bay Area Chamber of Commerce.
Yet 13 years ago, John Melvin heard a rumor that the city of Traverse City
had proposed rezoning Textron (Cone Drive) to a residential district in
its master plan. No one had mentioned it to Melvin, and he was the plant’s
top executive at the time.
“I went down to the meeting, and I couldn’t believe my ears. Obviously, I
wasn’t prepared to say anything, but after I heard what they were
proposing to do, I had to get up and say something. I talked about how
there was X million dollars in payroll, how I wasn’t speaking for Textron,
but for all the people who work there. Here we have a long-term strategy
to invest and grow a business and provide a long-term opportunity for our
workers. I asked each of the commissioners individually, with this kind of
recommendation, would they care to carry the workers on their own
shoulders? No one answered me. It was kind of sad, you know. It blew over
after that, and they backed off. They weren’t friendly to industry.”
Yet manufacturing was good to the employees and their families, he said.
“I think manufacturing, generally speaking, offered fairly decent wages
and security to the families. It provided an opportunity for the
employees to improve their standard of living, and many, many did. Most,
as a matter of fact. At Cone Drive, you hire in at the lowest paid job. As
your seniority increases, your wages increase because your position goes
higher. I myself started as a janitor.”

WHO SURVIVES?
So which companies have found the magic formula that has allowed them to
survive? Here are a few:
• Microline, founded in Traverse City, makes “smart pigs,” a device that
runs through oil pipelines, which are tracked by satellite. The pigs’
purpose is to flag any cracks or other problems in oil pipelines that span
thousands of miles.
• An offshoot of the company is IonEarth, which uses a satellite to track
competitors in long-distance races, such as the Baha 1000, the
bone-jarring cross-country race. Last year, the company garnered the media
spotlight for its role in tracking sled dog racers in the Iditarod race.
IonEarth’s Jerry Miller said that three sled dog teams were saved, thanks
to the new technology.
• Great Lakes Carbon, a 19-year-old company in Kalkaska, specializes in
environmental clean-ups using carbon. “Carbon is a great absorber for
organics such as benzene, a carcinogen. It soaks it up, and then we send
it to a kiln and it’s flashed off into carbon dioxide and water,” said
Bill Pierce, company president.
The company is switching over from coal to burned coconuts. “It’s now
price competitive, a renewable resource—it’s actually a negative carbon
footprint. We’re getting coconuts from Indonesia in a fair trade
agreement. So we’re green in a number of ways, and the customers like to
hear that,” he said.
• R.M. Young Company, which moved to Traverse City in 1970, has enjoyed a
great run of success. With 35 loyal employees, it manufactures
meteorological instruments, which measure things like wind, temperature,
atmospheric pressure, and rainfall. They sell to government agencies like
the EPA, manufacturing plants, TV and radio stations for forecasting, the
marine industry, and agricultural companies to monitor rain frost.
“I hear all the time, ‘We’re so surprised you’re here. We had no idea
you’re sitting up in the woods,’” said Tom Young, company president. “We
are very conservative. When we have an upswing, we cover it with existing
personnel so we can absorb the downswings. Some of the automotive
suppliers hire when they get a contract and lay off when business is slow.
That’s pretty typical with a larger manufacturer. Our view is more long
term, and as a small business, we can manage it more easily.”
• Petoskey Plastics, which makes plastic covers to shield car seats during
the assembly process, was hurt by the downturn. But it, too, is surviving,
in part, because the company is adapting the technology developed for the
auto industry to new markets. One is an industrial trash bag, Greencore
Can Liners, which uses plastic otherwise destined for the landfill. The
other is Grip-N-Guard, which acts like a cling wrap to protect furniture
and walls during construction, drywall and painting jobs. “And the neat
thing is the plastic holds paint and dust,” said Chip Lee, vice president
of sales. Both products are new to the marketplace and getting a great
reception, Lee said.

TRANSPORTATION COSTS?
The cost of transportation was a key factor in shutting down Tower
Automotive in Traverse City. Most of its machinery was moved to Bardstown
Kentucky at an existing manufacturing facility close to the Toyota plant.
And Melvin said the one-day delivery delay was a constant issue with Cone
Drive.
Yet there are many small companies here for which transportation costs
don’t weigh as heavily, Young said.
“Traverse City actually has very good transportation for smaller and
low-bulk items. We have a fine airport, and foreign shipments have regular
pick-ups in Traverse City. Typically, it’s not a problem for small, high
value items like ours,” Young said.
Manufacturers said that in the long run, health care costs, which have
soared up to $14,000 a year per employee, are not sustainable.
Manufacturing wages are lower than downstate, but not as low as Alabama or
Louisiana. But Young said what’s kept him—and others in the area—is the
integrity and loyalty of employees, along with the beauty of the lakes,
the close-knit community, and the outdoor lifestyle.
“I heard people say they know if they go to Tennessee they can hire people
at $6 or $7 an hour and not pay this Michigan business tax. Ultimately
they stay here because they like the lake.”

ADVICE
Wes Arrington, vice president of Tellurex’s operations, was recently hired
to help guide Tellurex into new markets. A veteran consultant, he’s done
the same for many other companies and has this advice for small companies:
“Don’t get involved with the auto companies, or if you are already
involved, diversify. A small company doesn’t have deep enough pockets for
the market swings. It’s not for the faint of heart,” he said.
Not only are there deep swings in market demand, it also takes months to
get an invoice paid.
“You have to be really, really well financed,” he said.