ROCHESTER HILLS, MI – The evolution of American Axle & Mfg. Holdings Inc. continues here, where the finishing touches to a second and final expansion to the drivetrain supplier’s technology center are well under way.

This newest addition to AAM’s 8-year-old facility – 37,000 sq.-ft. (3,437 sq.-m) that will be used to house a full-vehicle road load simulator among other test equipment – will bring the lab to 120,000 sq.-ft. (11,148 sq.-m) and max out available space at the site when fully completed in 2005.

This latest $12 million investment is a key piece of AAM’s game plan to move its product portfolio toward higher-tech components and into the cross/utility vehicle market.

AAM says it can simulate six months of track testing in two to three weeks inside its tech center.

AAM began as a collection of General Motors Corp. castoff plants but has been transformed under co-founder, Chairman and CEO Richard E. Dauch into one of the auto industry’s top-performing and fastest-growing suppliers.

AAM’s core business, truck axles, was viewed by GM as a low-tech, commodity-type sector when it agreed to sell to outside investors 10 years ago. But Dauch didn’t see it that way, and the company’s now $49 million tech center here is a testament to that vision.

“We’ve increased research and development funding 10% in dollars every year,” Dauch says, adding that after some initial lean years, R&D spending has totaled about $300 million since AAM’s inception. “We’re in a high-tech business, so we support it with high-tech R&D. This is a sophisticated company in a sophisticated industry.”

It wasn’t that way when Dauch and partners started AAM in 1994. At the time, GM was by and large the axle operation’s only customer, quality was atrocious and the labor force poorly educated and trained.

Since then, Dauch says, quality has improved from 13,444 defective parts per million made to less than 10 ppm at AAM’s plants worldwide. Thanks to onsite training and education programs, the workforce that once averaged a ninth-grade education now boasts two years of college on average, he says.

New-technology-related sales, which made up 3% of AAM business when the company was formed, now account for 80% of revenues, Dauch says.

The expanded R&D center is seen as taking AAM the next step as it looks to add electronics capability to its product line and become more of a technology-driven solutions provider to a broader customer base both in North America and overseas.

The expansion is centered on application development of several new products due to appear on production vehicles by 2005, including a variety of all-wheel-drive power-takeoff units (PTUs) aimed at the emerging CUV segment, plus AAM’s new TracRite traction-enhanced differential, SmartBar automatically adjusting stabilizer bar and I-Ride independent rear-suspension module.

I-Ride was featured on two GM concepts, the Cheyenne pickup and Cadillac Sixteen supercar, shown at the Detroit auto show in January and will get its first high-volume application on GM’s next-generation ’06 fullsize pickups and SUVs (the GMT900 program) due in 2005 and expected to run through the ’14 model year.

I-Ride can be supplied by AAM in modular form that can be installed with as few as four bolts. It is designed to accommodate current 4-wheel steering systems on the market. More importantly, it is engineered to work with platforms designed for a solid-axle rear suspension. That means I-Ride can be offered as an optional upgrade on some truck models or can be used as standard on higher-line versions of trucks that share platforms with lower-priced models. GM, for example, could make I-Ride standard on the next Cadillac Escalade but opt for a solid axle on the Chevrolet TrailBlazer, its lower-priced cousin. I-Ride also is being developed for CUV applications.

The supplier says it already has an application for its TracRite differential and SmartBar stabilizer on an upcoming niche vehicle. TracRite distributes power to the wheel or wheels with the most traction to ensure solid footing. SmartBar electronically controls the amount of vertical wheel travel, allowing a wide range under offroad conditions but minimizing travel on the highway for a better, safer ride.

The components needed for this first application will be produced in Guanajuato, Mexico, with annual volumes expected in the 10,000-unit range.

Meanwhile, AAM, which has relied heavily on the light-truck market for its survival and growth, is looking to branch out into the unibody sector with a full line of new PTUs designed to work with most vehicle platforms and AWD configurations on the market. Officials won’t say, but indications are one of its first applications will involve a small GM CUV in Brazil.

“We had zero PTU capability four years ago,” says Dauch. “Now we have the complete portfolio to work with all Asian, European and domestic architectures.”

AAM has made some progress in diversifying its business away from GM, but Dauch says those efforts are just beginning. “First we focused on fixing the business, rather than trying to diversify,” he says.

Currently, about 85% of AAM’s $3.5 billion business is focused on GM, down from 98% prior to the spin-off. Dauch’s goal is to take that to 60% over the next five years. He says AAM currently is bidding on $900 million in new contracts, of which 55% is with customers other than GM, Ford Motor Co. or Chrysler Group. Last year, non-GM sales rose 23% to $498.5 million.

Growth in non-truck-related business will reflect the market, Dauch says. He predicts CUVs will account for about 10% of vehicle sales within the next five years. But with new players coming to the truck market in the form of increasing offerings from Nissan Motor Co. Ltd. and Toyota Motor Corp., Dauch isn’t concerned AAM’s core business will dry up any time soon.

“There’s a monstrous shift to truck-based vehicles still going on,” he says. “More people are coming to the party.”

Even so, American Axle recently laid off about 30 plant supervisors and reportedly plans to cut another 20 as part of what it says is a routine realignment of its workforce. The moves come as the supplier nears the start of labor talks with the United Auto Workers union, which is slated to kick off in December. The current labor contract expires in February.

Once the expansion’s fully operational in 2005, AAM’s tech center will employ some 270 people. It operates around the clock, seven days per week and does everything from rapid prototyping – used to go from design to drivable prototype in 53 days for Dodge Ram Heavy Duty axles – to extensive durability and fatigue testing on machines that can be programmed to duplicate an auto maker’s own proving grounds test cycle. The lab can perform the equivalent of six to eight months’ track testing in one to three weeks, AAM says.

The center also houses an anechoic chamber for noise, vibration and harshness testing, a $1.8 million materials analysis lab complete with an electron microscope and the new state-of-the-art road load simulator that can test complete vehicles up to 13,000 lbs. (5,897 kg) gross vehicle weight.

AAM says it now has a leading 36% share of the North American driveline market. About 72% of its business is axle-related. It produces 19,000 axles per day, some 35% of which are for 4- and all-wheel-drive vehicles.