Mann+Hummel Bucks Low-Cost Trend

DETROIT – Claude Mathieu would like to ease some of the panic that seems rampant here lately.

His message: Not all parts for U.S. cars will come from China, and not all the growth in the mature North American automotive market will occur in the southern U.S. or in Mexico.

As president and CEO of supplier Mann + Hummel USA Inc., Mathieu speaks from experience. His company has two plants in the industrial Midwest – in Portage, MI, and South Bend, IN – and each has amassed new contracts with Big Three and non-domestic auto makers.

Together, the plants will launch five new programs this year for Ford Motor Co., the Chrysler Group, General Motors Corp. and Toyota Motor Corp. The plants produce intake manifolds and air cleaners, which are difficult to cost-effectively ship long distances. The plants also have contracts with BMW AG and Nissan Motor Co. Ltd. for the near future.

Air intake manifolds, like this Audi A8 unit from Mann + Hummel, are difficult to cost-effectively ship long distances.

“Think of intake manifolds and air cleaners – you're transporting air,” Mathieu tells Ward's. “So this is why we will continue with those products to be (manufactured) in the U.S. close to Michigan, close to the OEMs.”

In Portage, which serves as Mann + Hummel's U.S. headquarters south of Kalamazoo, the supplier started producing a new intake manifold for GM in March, and the facility has added engineering support as part of its North American growth strategy.

The company says it is on track to meet its North American sales target of $200 million by 2008, reflecting anticipated 13% annual growth for the next four years.

The South Bend plant also has expanded its product lineup to include air/oil separators, which Mann + Hummel had manufactured previously in North Carolina. Although most recent growth in the U.S. auto industry has come in the lower-cost southern states, Mann + Hummel is bucking the trend.

“Each time I have a new program, I make an economic calculation to see where it is better to produce it,” Mathieu says. “Logistics costs are very important for our product line.”

And for several new contracts, it made good financial sense to keep the work in the North, despite a higher cost of doing business. The Portage and South Bend plants, incidentally, have non-union labor forces.

“I don't believe you can make and get everything from China,” Mathieu says. “That will never happen.”

In Mann + Hummel's product portfolio, labor content as a percentage of total cost is relatively small – Mathieu estimates between 5% and 15%. With labor costs being low, logistics figure into the price equation more prominently.

“In a lot of cases, additional logistics costs from Mexico or from China offset completely the labor savings,” he says.

In some cases, however, Mexico is attractive. Mann + Hummel, for instance, has designated its Mexican facilities in Queretaro as the company's North American center of expertise for automotive oil and air filters, which are compact and easily shipped. Plus, the Mexican facility feeds components to nearby vehicle-assembly plants for Volkswagen de Mexico SA and Ford.

Mann + Hummel has invested $18 million in new equipment and a new manufacturing plant in Queretaro to take advantage of the lower labor rates.

Mann + Hummel considered sourcing from Mexico a product for BMW's plant in Spartanburg, SC. “We did the calculation, and it was close,” Mathieu says. “But at the end of the day, the difference was not big enough to justify making it in Mexico.” The South Bend plant got the nod. Production starts later this year.

“China and Mexico make sense (for sourcing) when you have a high labor content and low logistics costs,” Mathieu says.

That is not to say the German-based Mann + Hummel is uninterested in the rapidly growing Asia/Pacific market. The supplier recently has entered two joint ventures in China and one in Japan, and another is planned for India, says Wilfried Lehr, senior executive vice president.

Mann + Hummel also is planning for a new manufacturing facility in Russia, Lehr says.

In the U.S., despite concerns about the long-term viability of the Big Three auto makers, Mathieu isn't buying in to the panic.

“We continue to believe in the Big Three,” he says. “We continue to expand our business with the Big Three and with the others, too.”

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