City Attractions

Dec. 21, 2004
After years of fleeing to the suburbs, manufacturers are beginning to locate again in inner cities. A big reason: labor availability.

When Ampere Automotive Corp., an auto parts remanufacturer in inner-city Chicago, decided to build a new plant four years ago, it did what most expanding companies in depressed central-city areas have done for the last 30 to 40 years: It looked for a greenfield site in the suburbs. "It was cheaper out there -- a lot cheaper," reflects Eric Cohen, vice president of business development for the family-owned business. "Our competitors were moving there. And we had concerns about crime and other problems of an inner-city location. Moving out seemed the thing to do." But after considering sites north and west of the city, Ampere wound up staying in Chicago. It built a new facility on the north side of town near famed Wrigley Field, and increased employment from 200 to 350. Why the change of mind? For one thing, the city offered industrial-revenue bonds, training help, and assistance in overcoming the firm's problems in building on a brownfield site, the abandoned home of an International Paper Co. plant. But there was a bigger reason. "We liked the workforce in the city," says Cohen. "For our type of work, which involves a lower skill level, there is a much larger pool of workers in the city than in the suburbs. The labor force is tight out there." For the same reason another growing Chicago manufacturer, Gatto Industrial Platers Inc., also resisted industry's flight to suburbia. When the metal-finishing company decided to expand in 1998, the lure of lower taxes caused it to seriously consider relocating in suburban Bollingbrook, Ill. Ultimately, though, it built an addition to its existing facility on the city's south side, boosting employment from 130 to 160 (slated to rise to 190 next year). "The main reason I stayed put is because the employee base I draw from lives nearby," explains George Gatto, president. That was a greater factor, he says, than the property tax relief he received from the city, the cost of moving his capital equipment, or retaining his good relationship with the city's water authorities (important in his business). To be sure, the mere fact that two small manufacturers have elected to build in inner-city Chicago doesn't mean that industry's decades-long exodus to the suburbs has ended. But more companies are making the same sort of decisions as Ampere and Gatto, indicates Paul O'Connor, executive director of the Chicago Partnership for Economic Development, an agency created last fall by Mayor Richard Daley. "The traditional out-migration of industry from inner cities is reversing," proclaims O'Connor, whose office cites other examples of industrial firms moving into or reinvesting in Chicago. In their efforts to attract or retain industry, he says, "cities traditionally haven't been able to compete with the suburbs on a straight-cost analysis because of property taxes. But the pendulum has swung. Other factors are now coming into play." No factor is more important than workforce availability. Not only are manufacturers finding that inner cities provide a source of increasingly hard-to-get workers, but also a source of the type of workers they need. As Rob Hoffman, the partnership's business-development director, observes: "Many companies still use unskilled or semiskilled workers. They're available in cities. So are immigrant workers who often have good metalworking and machining skills attractive to many companies." Moreover, adds O'Connor, cities are becoming a growing source of younger professionals whose technical skills employers increasingly require. "Young people now want to live in the city," he notes. "They're refusing to get in their cars and commute to the suburbs." The rebirth of interest in inner-city manufacturing isn't limited to Chicago. It's evident throughout the U.S., asserts James A. Schriner, director of location strategies for Fantus Consulting, a site-location consulting division of Deloitte & Touche LLP. (Schriner also is an IndustryWeek contributing editor.) Besides the availability of labor, he says, companies like the fact that employees can use public transportation and that wage scales are lower than in the suburbs. Data from the National Assn. of Manufacturers further confirm the trend. The Washington-based trade group reports that of some 40 site-selection searches conducted for members in the last year by its Site Selection Network, 35 have included inner-city areas. "Manufacturers are willing to locate in inner cities," attests Ellen Davis, the network's executive director. "They have two criteria in selecting a site. First is workforce availability, and second is whether the site meets size, infrastructure, and other requirements." Inner-city sites, she says, often fulfill both. Nowhere is the revival of inner-city manufacturing more apparent than in Detroit -- a city that, like Chicago, epitomized the term "Rust Belt" during the last few decades of the 20th century. "We're seeing growing interest by companies in locating in the city," declares William Bassitt, senior vice president of economic development for the Detroit Regional Chamber of Commerce, which represents not only the city of Detroit but also a surrounding 10-county area in Southeast Michigan. "One reason is that phenomenal growth in this area has begun to consume available green space," he says. "That's causing companies to look inside the city. But labor availability is a factor too. Unemployment is somewhere between 5% and 5.5% in Detroit, compared with 1% to 1.5% in some suburbs." One new arrival to whom these considerations were important is Johnson Controls Inc., a Milwaukee-based automotive supplier. Although the company operates plants throughout metropolitan Detroit, it never located a facility in the city itself. Now it has. Last fall it opened a 230-employee plant just east of the city's seedy (but improving) downtown to build seats for General Motors Corp.'s Cadillac Assembly Plant in Hamtramck, Mich., an inner-city municipality surrounded by Detroit. Johnson Controls created the facility, called Bridgewater Interiors LLC, as a joint venture with Epsilon LLC, a Detroit-based minority business group. "We considered sites for the plant throughout the region," says Larry Fieroh, Johnson Controls' executive director of sales who helped make the siting decision. He admits that the company was concerned about the problems of an inner-city location-notably crime and the possibility of having to spend more for workforce training. But the firm wanted to locate near the Cadillac facility. And it liked the workforce availability: 98% of its employees -- 96% of whom are African-American -- are from the surrounding neighborhood. The company also was eager to join the push by both GM and the city to promote minority business. "We wanted to build the plant with a minority partner and put the plant where it belonged," explains Fieroh. It didn't hurt that, because it was located in one of the state's Renaissance Zones, the facility received tax breaks from the state and city, or that it also got training credits by virtue of being in a federal Empowerment Zone. But these incentives, Fieroh insists, "didn't factor into our early decision-making." Another Detroit auto supplier is so enamored with an inner-city location that it actually moved there from the suburbs. SBF Automotive Inc., a producer of seat components, pulled up stakes from outlying Livonia, Mich., in 1997 and moved its 52 employees into a renovated warehouse in a new industrial park, also in a Renaissance Zone, on Detroit's west side. A key reason for the move: The firm employed several people from the neighborhood and had been busing them to Livonia. The moves of these and other small manufacturers into depressed areas of Detroit, however, are overshadowed by the inner-city commitments of major auto manufacturers. DaimlerChrysler AG, after years of downsizing, has poured more than $5 billion into rebuilding its manufacturing operations in the city and has added jobs. Meanwhile, GM has purchased the once-forlorn Renaissance Center on the downtown waterfront, is spending $500 million to renovate it, and is in the midst of moving its world headquarters there from the city's New Center area. GM also is transferring employees there from several suburban locations as part of a consolidation of its Southeast Michigan operations. "The business driver of our decision to move our headquarters was our desire for consolidation," says Matthew Cullen, general manager of GM's Enterprise Activities Group. "Only after we made that decision did we decide where to put [the facility]." Cullen points out that GM is receiving no tax breaks from the city for its move. Nor is the move coming at the expense of the New Center complex, which GM had occupied for 75 years and is in a blighted part of the city. The company has donated the property to the state, which will use it as a state office building. Despite industry's obvious renewed interest in investing in inner cities, however, the trend isn't likely to gather major momentum until companies become more comfortable building on brownfields. By some estimates, as many as 600,000 brownfields -- abandoned or underutilized commercial and industrial sites that are or are perceived to be contaminated -- exist in the U.S. Yet companies owning the sites often prefer to keep them idle, rather than selling them, because they fear they'll be exposed to cleanup liability. The same fear deters many companies from building on brownfields. More than 40 states offer incentives to redevelop brownfields, including assurances that companies won't be subject to liability. Firms often consider these assurances meaningless, however, because of federal legislation that allows EPA to overrule state plans. But industry's fears are easing, claims Linda Garczynski, who runs EPA's brownfields program. "It's true that we can overrule state programs," she says, "but we never have." Besides, she points out that EPA has reached agreement with 13 states to fully accept their programs. And nine insurance underwriters now offer companies protection against third-party lawsuits, which have been another major impediment to brownfield redevelopment. As a result, she contends, "the marketplace is transforming." How extensive will the transformation be? Even if brownfield redevelopment surges dramatically, it's still doubtful that manufacturers will be as ubiquitous in inner cities as they were in the first half of the 20th century. It's apparent, though, that they'll also no longer be a dying breed.

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