It has been three years since German engineering firm IAV GmbH opened its North American offices in Ann Arbor, MI — a great location to cultivate relationships with domestic auto makers and with the University of Michigan.

At the time, the move appeared to be a no-brainer. The U.S. auto industry was humming — along with the economy — and record vehicle sales were just around the corner.

Everyone wanted a piece of the action in North America. IAV came along with its engine and drivetrain focus at a time when auto makers were giving suppliers more responsibility for powertrain development.

In retrospect, IAV probably should have located in metro Detroit a few years earlier, because an industry downturn also loomed on the horizon. By the end of 2001, companies that work on contract (e.g. IAV, in some cases) were facing cost-saving cutbacks from auto makers such as Ford Motor Co. and General Motors Corp.

We expected a steeper growth rate here in Ann Arbor, and now we're going on a slower slope,” explains Kurt Kirsten, managing director and the new chief executive of IAV, based in Berlin.

He says that difficult times for auto maker customers are impacting IAV directly. “Some advanced programs have been postponed, and some programs have been stretched out over a longer period of time.”

For now, IAV's investment in Ann Arbor is not exorbitant, with staffing of only 30 people. That was about the size of IAV when the company was founded in 1983 to foster improved cooperation between the auto industry and research-rich universities.

IAV has since grown to 1,950 employees, and half of them are registered engineers. A surprising12% of IAV's workforce is students, who later are groomed for full-time jobs within the company. Hence, the decision to locate near U of M, which has a highly regarded engineering college.

IAV seeks to serve the entire auto industry, as its unique ownership is evenly divided among both suppliers and vehicle manufacturers.

Its most significant stakeholder is Volkswagen AG, which owns 50%. Owning the rest are Siemens VDO Automotive with 20%, and ArvinMeritor Inc., Freudenberg Group and General Electric Plastics BV, each owning 10%.

IAV's primary mission is to provide engineering services in the area of engine and drivetrain development, like competitors such as AVL Powertrain Engineering and FEV Engine Technology.

IAV claims to have the world's largest powertrain calibration group, including 1,000 calibration experts and 60 engineers writing code for engine controllers. Unintended acceleration, for instance, is the type of problem IAV can help a customer eliminate in the early stages of product development. Another area of expertise is calibration for electronic throttle controls.

If diesel engines become as popular in the U.S. as they are in Europe, IAV will be ready to meet the demand. A key customer is Robert Bosch GmbH, the leader in diesel fuel injection systems.

Bosch comes to us to optimize the gearbox to the engine. That's our specialty,” says Andreas Greff, president and CEO of IAV's Ann Arbor operation.

The company likes to push the envelope in research. One of its latest developments is the world's first “Zero Emission Combustion Engine,” without the use of any exhaust after-treatment.

Plus, the company can provide turnkey manufacturing for complete engines. The company has 33 engine test benches for high-speed measurement, although none is in the U.S. And there are no plans for test beds in the Detroit area, as there already are plenty, Kirsten says.

Despite a stumbling industry, Kirsten says that IAV worldwide has been growing the past five years, thanks to new business with customers other than VW. In the 1980s, Kirsten says other auto makers were reluctant to source engineering to IAV because of its close connection to VW. That stigma is barely noticeable today, he says.

Listen to Tom Murphy and other Ward's editors Monday and Thursday on WJR 760 AM radio in Detroit.
tmurphy@primediabusiness.com