Michigan Manufacturers Outlook Survey 2012 Key Findings

1. Michigan Manufacturers Outlook Survey 2012 Key Findings

2. For four straight years, the Michigan Manufacturers Association (MMA) and Baker Strategy Group (BSG) have partnered to conduct the annual Michigan Manufacturers Outlook Survey. This instrument has become a valuable tool for measuring year-over-year trends in the manufacturing industry and to gauge the collective outlook for manufacturers in Michigan. This year we received feedback from 400 respondents. The majority (59%) of the respondents are executives at their companies, but we also received solid representation from plant management, sales and marketing, human resources, operations, regulatory compliance, government relations, and accounting/finance. In conducting our analysis, we focus primarily on respondents representing companies who manufacture in Michigan. Some salient statistics on these companies include: 61% are family-owned businesses, 56% have 100 or fewer employees, 60% have only one facility in Michigan, 37% manufacture automotive products, 92% 6manufacture non-automotive products, and 80% have a non-unionized workforce. With four years of data, we are able to look back and see progress and changes over time. What follows are 8 Key Findings we observed in the data, along with some quotes from one-on-one interviews conducted by MMA staff.

3. Michigan manufacturers are enthused about their company’s prospects. Each year we ask respondents to gauge their company’s outlook by looking at three time periods: 6 months out, 1 year out, and 3 years out. Since 2009, scores for each of these measures has increased annually. The one-year outlook has jumped from 4.9 beginning 2009 to 7.2 beginning 2012. And while the outlook scores remain at moderate levels, the upward momentum is clear. • Sample comments: • “The next 3 years are very hard to project. But if the government can shrink and get a grip on the concept of fiscal responsibility and actually put it to work, then will we have a strong outlook for years to come, not just for three years.” – Executive, furniture manufacturer • “We have been here since 1957 and plan to be here for a long time.” – Executive, transportation equipment manufacturer • “We are conservatively optimistic. We did take a big hit two years ago and we are still trying to recover.” – Executive, automotive components manufacturer An Improved Company Outlook 1 (1 = “Poor”, 10 = “Excellent”)

4. According to respondents, Michigan remains an average state for doing business. But the good news is that we’ve improved over the past few years. In 2009, Michigan’s score for being a business-friendly state was 3.3. For 2012, that score has risen to 5.0. • Sample comments: • “Michigan is a great state and we are proud to call it home.” – Executive, tool and die manufacturer • “Michigan is a great state to bring people into for livelihood.” – Chairman, baked goods manufacturing and distribution company • “Under Governor Snyder, the business climate in Michigan is rapidly improving.” – Director of Business Development, commercial heavy equipment manufacturer A More Business-Friendly Michigan 2 (1 = “Strongly Disagree”, 10 = “Strongly Agree”)

5. Manufacturers in Michigan are committed to the state. The score for planning to remain in Michigan moved up from 7.9 in 2009 to 8.9 in 2012. And companies are not only staying, they’re planning to expand in Michigan, as demonstrated by the rise in scores from 4.4 in 2009 to 6.6 in 2012 for Michigan expansion. In contrast, manufacturers are less likely to look to expand globally, perhaps due to an improved business climate in Michigan. • Sample comments: • “This year we plan to increase our regional exposure, increase our Michigan customer base by 10-15%, diversify our customer base, and add 1-2 aerospace OEM or tier 1 customers.” – Executive, fabricated metals products manufacturer • “We plan to build on the new momentum in Michigan to help drive the state back to economic strength.” – Director, Government Relations, electrical equipment manufacturer • “We want to gain new accounts/customers drawn primarily from SE Michigan.” – Sales & Marketing, corrugated packaging manufacturer Plans Expand in Michigan 3 (1 = “Strongly Disagree”, 10 = “Strongly Agree”)

6. A full 84% of Michigan manufactures say they anticipate hiring additional workers in 2012, compared to 71% last year. • Sample comments: • “What I see most lately are manufacturers I call on for tooling looking for experienced CNC operators. Finding these people seems to be the biggest problem with the companies that are growing.” – Owner, automotive supplier • “Our Challenge is in finding enough skilled labor to staff the plant at the current workload, and beyond to the projected levels.” – Sales & Marketing, automotive manufacturer • “We are struggling to find qualified employees. We have plenty of plant and capital equipment capacity; we simply need more qualified people.” – Business Development, fabricated metals manufacturer Plans to Hire 4 Do you anticipate hiring additional workers this year? No Yes No Yes

7. While the picture has improved for manufacturers in Michigan, there are still areas of concern. As manufacturers strive to remain competitive in a global market, healthcare costs are still a big concern. Consistent with last year’s findings, manufacturers’ score for the impact of healthcare costs on operational performance eclipse the scores for several other cost categories—labor, energy, tax, regulatory, and capital—as the costs that have the highest impact on company operational performance. • Sample comments: • “Healthcare costs continue to increase, and are painful to pass on to our employees.” – Executive, machinery manufacturer • “The cost increase in Medical coverage is explosive. Our increase this year was larger than the past few years combined. This is with a healthy workforce with a favorable claims experience.” – Controller, paper products manufacturer • “Health care cost increases are greatly surpassing our ability to cover those increases.” – Executive, non-automotive manufacturer The Impact of Healthcare Costs 5 (1 = “No Impact”, 10 = “Very Strong Impact”)

8. Michigan manufacturers scored business income tax (7.6), unemployment compensation (7.5), and personal property tax (7.3) as the most important tax issues impacting their company’s overall competitiveness. This is consistent with the findings from the 2011 outlook survey results. • Sample comments: • “Companies will finally be able to adjust to a more stable state tax system!” – Director, Government Relations, electrical equipment manufacturer • “We have high taxes with no help. Small business is growing but lost in the automotive picture in Michigan.” – Executive, plastics and rubber products manufacturer • “What the Snyder administration has done regarding the simplification of the business tax system in the State of Michigan is a huge step forward.” – President and CEO, machinery manufacturer The Impact of Taxes 6 (1 = “No Impact”, 10 = “Very Strong Impact”)

9. Among a list of management emphases that companies can emphasize, Michigan manufacturers score strategic planning (8.4) as the most important for their company’s success. According to the respondents, the importance of strategic planning is even greater than a number of other critical components of a manufacturer’s success, such as market diversification, employee training, product innovation, and market research. • Sample comments: • “My goal for 2012 is achievement of operational and technical improvements and developing and implementing a strategy for growth.” – Director, Continuous Improvement, pharmaceutical ingredients manufacturer • “I’m focusing on customer relationship building and execution of our strategic business plan.” – President, transmission and power train parts manufacturer • “We are working to increase sales and profitability, refine our market position, exploit our market strengths, review strategic partnerships, and push the speed of product development.” – CEO, machinery manufacturer An Emphasis on Strategy 7 (1 = “Not at all Important”, 10 = “Extremely Important”)

10. Organizations like MMA, the MEDC, local manufacturing groups, and colleges and universities can be rich sources of assistance for Michigan manufacturers. And while manufacturers give low scores overall for the importance of these organizations for a company’s success, the numbers are up from 2011. Greater collaboration within the state is on the rise, though there is clearly much room for improvement. • Sample comments: • “Better university collaboration on technology transfers would be helpful.” – President, transmission and power train parts manufacturer • “We are developing a training curriculum ‘university’ for new and existing team members. And we’re working with local high school administrations, career counselors, etc. to help students see the opportunities for jobs in manufacturing.” – Executive, fabricated metals products manufacturer • “MMA is a key facilitator between manufacturers and the regulators. Their contributions are very much appreciated.” – Director, energy equipment manufacturer Increased Collaboration with Michigan Organizations 8 (1 = “Not at all Important”, 10 = “Extremely Important”)