As the economy improves, several manufacturers will have to make some tough decisions about reopening idled facilities. The auto and steel industries have already begun restarting many of their operations. In late November Severstal North America announced plans to reopen a cold rolling mill in Yorkville, Ohio. Around the same time, Chrysler had been considering bringing a Dundee, Mich., plant back online after being idle since 2007.
The decision to reopen an idled facility isn't always cut and dry and can present formidable challenges. Companies in traditional manufacturing centers, such as the Midwest, may look to plants in the South or other regions where they can gain some tax incentives, says Van Conway, a turnaround and restructuring consultant and co-founder of Birmingham, Mich.-based Conway MacKenzie Inc. The ultimate decision rests on whether the costs of reopening a plant are worthwhile. For instance, plants that have been idled for a longer time period may require significant capital investments that could make them too costly to restart, Conway says.
In June when Chrysler began restarting plants, suppliers expressed concern that they wouldn't have the cash to meet demand. "Some of the changes in production schedules have been rather sudden without a heck of a lot of notice, so it's been quite a challenge for suppliers to get restarted," says Neil De Koker, president and CEO of the Original Equipment Suppliers Association (OESA).
In some locations manufacturers may find themselves struggling to fill skilled labor positions, Conway says. "If you're a plant in an isolated area and need 400 workers, some of them might not know what they're doing because they're not the same 400 you had before," he says. "You have to think it through if you need skilled labor, even with so many people out of work."
Employees at Ford's Cleveland Engine Plant No. 1 went through extensive training before returning to work in February 2009 when the facility restarted to produce EcoBoost engines. The plant had been idled since 2007.
A Ford engine plant in Cleveland partnered with a local community college to prepare furloughed employees for the facility's reopening when it began building the EcoBoost Engine in February 2009 (See "Ford Plant Restarts Engines with Skilled Training," June 2009). In addition, new plant employees are required to attend a six-week orientation, says Mike Gammella, the plant's union president. "It's not like it used to be when you could just pull someone off the street," he says.
The labor challenge means highly automated facilities may have an easier time getting back on line than plants with more manual operations, Conway says. "A high-tech assembly process is probably easier to start than an operation with 40-year-old equipment," he says. "This stuff may not be reliable, so instead of turning on old equipment, you may have to look at buying new."
Compounding auto suppliers' labor issues is the tight credit market. Without access to loans, suppliers have a difficult time paying for more labor and other capital expenses to meet demand, De Koker says. "We typically have to pay for materials in a matter of weeks and pay employees every week or every other week, and customers are paying every second month or longer," he says.
Some suppliers have been able to work with banks to obtain increased lending, De Koker says. In some cases they've received help from their OEM customers to meet their volume demands. But with automakers struggling across the board, De Koker says their generosity is limited.