In an environment where pricing pressures from automotive customers are only intensifying, firms are looking for any way they can to cut costs. When it comes to producing commodity components, like sun visors, and competing with overseas competitors, heading for the cheap labor market in an increasingly appealing option.
“To try to have the cost of our society compete with the cost of another society is rough,” said Dan Bourbon, interim executive director of the regional economic development agency Lakeshore Advantage and chairman of EST Testing Solutions in Holland. “We have a consumer mindset that everything must be for less and we make it happen it just moves down the food chain.”
In announcing the relocation of sun visor production to Mexico, a move that will lead to the direct loss of 885 jobs in Holland, Johnson Controls executives stressed that the decision had nothing to do with any performance issues at the Southview component plant on the city’s south side and was based on the need to make a “quantum leap” in lowering costs if the company is to remain in the product line.
Despite the high quality and high productivity at the Holland plant, and a “terrific” effort by employees to reduce waste, such as leap just wasn’t possible, said Jack Murphy, vice president and general manager of interiors operations for North America in JCI’s Automotive Group.
As a commodity component, contracts from automakers to produce sun visors are going to low-cost providers. Pricing pressures are intensifying from automakers, Murphy said, to the point where JCI needed to chase the cheap labor that Mexico offers in order to drive as much cost savings as possible to stay in the visor business.
“It just drives the market to the point where we can’t be competitive and can’t even bid on business unless we can lower the cost on labor,” he said. “We’re looking at pennies and nickels versus dimes and dollars. People are taking advantage of every opportunity to reduce costs and gain a competitive advantage.”
The kind of intense cost and pricing pressures that’s leading JCI to move sun visor production has the automotive supplier constantly weighing the best place to produce individual product lines, particularly commodity components. That consideration includes the potential of some day moving a new product line into the space that JCI, which in the most recent quarter grew automotive revenues by 26 percent, is vacating at the Southview plant, which will continue to employ about 420 people producing door panels for vehicles.
Johnson Controls executives hope they can eventually replace the production at the Southview component plant with new product lines in the future.
“We’re going to continue to look at manufacturing in Holland and look at opportunities to bring new business there that makes sense to be there,” said Bill Dawson, vice president of communication for JCI’s Automotive Group.
At the same time, and because of the global environment where someone elsewhere can build it for less and there are no assurances as the business evolves, there’s also the possibility that another product line could leave in the future.
“Every product has good reasons to be built in the places it is built,” Dawson said. “We continually review our operations to make sure that we meet all of our customers’ expectations, and cost is one of them.”
Johnson Controls has 265 automotive facilities in 28 nations worldwide that employ 77,000 people.
In Holland, Johnson Controls is the largest employer and the city’s largest taxpayer. The Southview plant is one of six production plants, plus a research and design center, that Johnson Controls acquired in the 1996 purchase of the former Prince Corp. for $1.3 billion. The company presently employs about 5,000 people in Holland, producing visors, headliners, interior trim and electronic components.
Word of the pending job losses, which will occur in phases over 18 months, sent shockwaves through the community.
Losing the work represents the largest job loss ever in Holland and will cause further pain to a local economy coping with deep job losses during the last three years in the struggling office furniture industry, the closing two years ago of the former LifeSavers plant that at one time employed 1,100 people, and the recent decision by Baker Furniture to close its Holland plant that employed 180 people.
Holland Mayor Al McGeehan said he was “saddened” at the news but “not surprised,” given the decline in American manufacturing.
“I find these to be very troublesome times. America can’t continue to afford these kind of hits to our local job markets, certainly not Holland,” McGeehan said.
Business and political leaders immediately began talking last week about formulating a financial package of tax cuts and tax breaks to keep the production in Holland.
JCI’s Murphy quickly doused that idea, saying there was no way a public package could generate the kind of cost reductions needed to remain competitive in the production of sun visors.
“We looked at every element that goes into the manufacturing of visors. In order to stay in this business, we needed to make a quantum leap in our cost structure,” Murphy said. “I don’t know what they could have done to lower the cost structure in visors. There are limits to what a community can and should do.”
Neither Murphy nor Dawson would say how much Johnson Controls will cut costs by moving visor production to a plant in Ramoz Arizpe, Mexico, where the company plans to consolidate work from Holland and a facility in Glasgow, Ky., other than it’s “significant.”
Johnson Controls’ move reiterates the need for communities, both on the private and public fronts, to do everything possible to create and sustain a healthy business environment for employers and to seed and nurture the next generation of entrepreneurs that can create the jobs in the future to replace those that are now disappearing.
“I’m a realist and it’s a changing world. As a community, we have to be forward-thinking and always anticipate changes and look for new opportunities,” said Jane Clark, interim president of the Holland Area Chamber of Commerce. “The world is changing and it doesn’t stand still.”
In emphasizing that point, she reminds people that even with the pending job cuts, Johnson Controls remains a major employer in Holland and has to compete in a global marketplace. And communities like Holland need to adapt accordingly to keep that production in town.
“It’s a global economy and we appreciate they have to make business decisions and business decisions can be difficult,” Clark said. “What we have to do is make our communities, our companies and our people so valuable that it doesn’t become a good business decision to leave a community like ours.”