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FCA's Detroit plans could spur more supplier investments

DETROIT -- With the deal finalized to bring a new Fiat Chrysler Automobiles plant to Detroit, Mayor Mike Duggan is looking to move down the supply chain.

Duggan hinted last week that the city was in talks with at least four logistics and supplier teams to expand in the city of Detroit, promising an additional 1,000 to 2,000 jobs on top of the 4,950 promised by FCA.

"You're gonna see several more projects related to FCA all located, with hundreds of employees each, on this side of town," Duggan said at a media event Wednesday.

While experts agree that Detroit is now more attractive for locating a plant thanks to the $4.5 billion FCA deal, existing overcapacity, fear of a looming recession and existing plants in the region could dampen hopes for a major Detroit manufacturing renaissance.

As part of the deal in Southeast Michigan, FCA will invest $1.6 billion to convert the idled Mack Avenue Engine Complex to build the next-generation Jeep Grand Cherokee and a new three-row full-size Jeep SUV, starting in late 2020, creating 3,850 new jobs; and will invest $900 million at Jefferson North Assembly Plant in Detroit to update the plant for Dodge Durango and the Wagoneer, creating an expected 1,100 new jobs.

Logistics is the immediate beneficiary near the sites and Duggan said last week existing providers in the area will announce expansions in the coming weeks.

"All you gotta do is take a look at who we swapped land with and look at where the large chunks are and you'll probably figure it out," Duggan said.

The closest logistics providers to land swapped in the city's deal are DHL Supply Chain North America, dba Exel Logistics, at Huber and Mount Elliott streets, and Imperium Logistics at Miller and Sherwood streets. Neither Exel nor Imperium responded to requests for comment.

Penske Corp. Chairman Roger Penske told Crain's Detroit Business, an affiliate of Automotive News, that his logistics firm will "look to see if there's opportunities" as the FCA plant gets closer to coming online.

The I-94 Industrial Park, which Duggan has aimed to fill with auto suppliers, is also near the proposed FCA site. The Detroit Economic Growth Corp. spent $8.6 million to assemble the land to form the park, which is just north of I-94 and bounded by Mount Elliott Street to the west, Miller Street to the south, Huber Street to the north and St. Cyril Street to the east.

Last year, Flex-N-Gate Corp. opened a $160 million, 480,000-square-foot plant in the industrial park — the first major win for the park.

Existing capacity

Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research, said while Detroit is now a more attractive investment location, the metro region's already full of manufacturing plants that could support FCA in the city.

"There's a better chance of having auto suppliers move to Detroit now than there was before the FCA deal was completed," Dziczek said. "Contracts are already being let out for the new product, but a lot will go to existing suppliers who may be able to retain current employment levels or might need to hire and expand (where they are). Note that many of these suppliers are in Michigan, Ohio, Indiana, Ontario already."

For example, Canada's Magna International Inc. already supplies the seats for the Grand Cherokee and has secured the contract for the next-generation vehicle and it's likely it could supply that program from its current Sterling Heights facility. Faurecia won the contract to supply seats for the Wagoneer and could supply from its facility in Sterling Heights.

"If they have capacity nearby, they are going to use it," said Julie Fream, CEO of the Original Equipment Supplier Association. "So much of what is driving the supplier community right now is managing investments and volumes."

Possible recession

The reason suppliers may be reticent to expand in Detroit or elsewhere is because global productions are slowing down and automakers are already cutting jobs ahead of a potential recession. 

Ford Motor Co. announced a week ago it planned to eliminate 7,000 jobs, or 10 percent of its white-collar workforce nationwide, by September. In November, General Motors announced a plan to lay off 14,000 salaried and hourly workers across North America and close several plants. The automaker represents 1 million of the 3.2 million units of underutilized capacity in the U.S. through October, according to the Center for Automotive Research.

"The industry is right now staring down the barrel of what we think is going to be a significant downturn," Bank of America Merrill Lynch analyst John Murphy said at a forum in Detroit last week, Bloomberg reported.

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