Automotive R&D thrives in Michigan, but will it stay?

FARMINGTON HILLS, Mich. - Michigan's automotive future doesn't lie in the sprawling plants and smokestacks of the Detroit area, but in scores of nondescript office parks.

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Past well-manicured entrances and tight security, engineers are already driving pollution-free fuel cell cars, testing collision-avoidance systems and developing U.S. Army tanks that can recycle water from exhaust for thirsty troops.

Every automaker has some R&D operation in Michigan, whether it's Ford Motor Co.'s 1,200 R&D employees in its 600,000-square-foot scientific research labs or the ten Honda Motor Co. employees researching industry trends in Southfield.

"If you're somebody who's interested in designing or engineering to advance the automobile, this is the place to be," said Kim Hill, assistant director of the Ann Arbor, Mich.-based Center for Automotive Research. "We have gasoline in our veins."

Greasy garages have given way to gleaming labs filled with high-tech equipment. At its Farmington Hills lab, Takata, a Japanese seat belt manufacturer, has specialized chambers where researchers can make sure radio waves don't interfere with a vehicle's air bag sensors.

The National Science Foundation said $10.3 billion was spent on automotive research and development in Michigan in 2002, the latest year available. That's more than five times the spending in its closest rival, California.

Michigan's amount keeps growing; 43 auto-related companies have either opened facilities in Michigan or expanded existing ones, since August 2004, according to the Michigan Economic Development Corp.

The money isn't just coming from the Big Three U.S. automakers. Japan's Nissan Motor Co. opened a gleaming design center in Farmington Hills in March and South Korea's Hyundai Motor Co. is close to completing a $117 million, 190,000-square-foot R&D facility near Ann Arbor. Parts suppliers from Germany are here. So is a Swiss robot maker.

With that level of investment behind it, Michigan is in little danger of losing its dominant position in automotive R&D. But the state's history has taught it that it can't get complacent in the highly competitive auto industry. In the last 10 years, Michigan has lost more than 78,000 auto manufacturing jobs.

"We need to continue to make the case that Michigan is where you ought to be," Democratic Gov. Jennifer Granholm told attendees at an August auto conference.

Michigan has been the center of automotive R&D since the late 1890s, when Henry Ford was tinkering with automobiles in a Detroit garage. Its automotive R&D industry got a major boost in 1971, when the newly formed U.S. Environmental Protection Agency built its national fuel-emissions testing lab in Ann Arbor. Foreign automakers opened facilities nearby so they could ensure their vehicles were meeting EPA standards. By the late 1990s, a boom time for automotive R&D, the state was raking in $13.5 billion in investments, Hill said.

Tim Healy, executive vice president of Takata's U.S. subsidiary, TK Holdings Inc., said automotive suppliers must locate in Michigan if they want to attract business and talented workers. Takata, which makes safety products for every major U.S. and Japanese automaker, started making seat belts in Michigan in 1984 and now has 750 employees in the state.

"Our customers are close here. This is the knowledge base for our products," Healy said.

Granholm traveled to Japan this summer to make that case to other manufacturers - the kind of personal attention that can yield results.

But Michigan officials say it will take far more than foreign visits to attract and keep automotive R&D. The state needs to make sure its universities are turning out skilled workers and its tax climate is attractive to businesses. And it needs to show that it's moving beyond its Rust Belt past.

"What Michigan is in the 21st century is not what Michigan was in the 20th century," said Gary Krause, director of emerging business sectors for the Michigan Economic Development Corp. "We need to be more effective and creative with that message, so people don't feel bad about coming here and staying."

One reason Michigan desperately needs automotive R&D is the highly paid jobs it creates. The average worker at a Toyota R&D center scheduled to be built near Ann Arbor will make $1,588 per week, according to the state. That's more than double Michigan's average weekly wage of $758 in 2003, according to the Bureau of Labor Statistics.

But Michigan isn't turning out as many engineers as it used to. In 1995, nearly 10 percent of all university degrees awarded in Michigan were engineering degrees; in 2004, that number was 8.1 percent, according to the Michigan Department of Labor and Economic Growth.

"We've got a real disconnect right now between our market and our educational system," said David Cole, chairman of the Center for Automotive Research.

Toyota, GM and other automakers are trying to boost students' interest by sending engineers to school classrooms. Granholm also has proposed student aid incentives and the governor and state lawmakers have proposed cutting the state's Single Business Tax, a complex tax based on sales, property values and payroll.

Hill, of the Center for Automotive Research, warns that Michigan can't rely too heavily on automotive R&D, since it's often the first thing companies cut in difficult times.

The state is trying to attract investment in life sciences and other areas for that reason. But state officials say the case Michigan can make for automotive R&D remains its strongest.

"At the end of the day, it's a business case. It's not sentimentality," Krause said.

On the Net:

Michigan automotive R&D Web site, http://michigan.org/autotech