Regional Report: Bioscience and Energy-Efficiency Repair Automotive's Crash in Midwest
The automotive sector's crash brought hard times for some Midwestern states, but the region sees new life in the biosciences and energy-efficient vehicles.
Mali R. Schantz-Feld (June/July 10)

The automotive sector's crash brought hard times for some Midwestern states, but the region sees new life in the biosciences and energy-efficient vehicles.

The Midwest states of Illinois, Indiana, Michigan, Ohio, and Wisconsin have weathered the recession and are ready for a sunnier forecast. While the future is still cloudy in some areas, key industries are glimpsing the first rays of cautious optimism.

In April the Chicago Fed Midwest Manufacturing Index rose in all four surveyed sectors, a continuation of previous gains in recent months. The region's steel sector output grew 2.9 percent after an increase of 2.2 percent in March. Machinery sector production rose 1.8 percent after March's 1.3 percent rise. All five subsectors of the resources sector output - food, wood, paper, chemical, and nonmetallic production - grew 1 percent in April after a 1.1 percent increase in March, and regional auto sector production inched up another 0.1 percent after rising 2.4 percent in March. The region's automotive output was up 15.8 percent in April, relative to last year's level.

Service Sector Revives Michigan
The recession took a toll on the Midwest, particularly in Michigan, Wisconsin, Illinois, and Ohio, says Michael J. Hicks, director of the Center for Business and Economic Research at Ball State University, but is beginning to rebound. "Manufacturing is showing signs of recovery," Hicks says. "Data shows job creation in manufacturing sectors, however statistics will reflect these gains before they are felt by the general population in these areas." Areas making headway towards recovery "are involved in service-intensive industries such as tourism, conventions, banking, and healthcare in such cities as Indianapolis, Milwaukee, Chicago, and Columbus that did not fare as badly during the recession." While some areas of Detroit still suffer greatly, the high-tech, health care, and financial services sectors are bolstering the city's economy.

Dana Johnson, senior vice president and chief economist at Comerica Bank in Dallas, follows Michigan's economic progress. In past business cycles the state's economy seems to fall harder and return faster than other states, he says. Reports of manufacturing's growth are particularly good news for Michigan, which houses a "larger than normal manufacturing sector," Johnson says. "Michigan has made a systematic effort to try to develop some new strengths in various parts of manufacturing sector, such as clean energy, batteries, and defense," he says. The state continues to cultivate and become less dependent on automotive parts and manufacturing.

Michigan Economic Development Corporation (MEDC) programs and incentives target high-tech industries including alternative energy, defense and homeland security, life sciences and medical instrumentation, and advanced automotive and materials. Newer programs offer funds to former auto suppliers and small manufacturers to diversify into other markets or expand product lines.

Renewed Outlook for Automotive
In December 2009 Illinois Governor Pat Quinn implemented the Economic Development for a Growing Economy (EDGE) tax credit for auto manufacturers. This allows the auto industry, among the state's largest employers, to retain employee income tax withholdings instead of EDGE corporate tax credits and reinvest the funds in employment-generating operations. Ford, the first automaker to use the credit, announced in January a preliminary investment of $400 million and a projected addition of 1,200 jobs at its Chicago manufacturing facilities that produce the next-generation Explorer SUV.

Indiana is ideal for automaker THINK North America's manufacturing plant in Elkhart, Indiana because of available facilities, a skilled work force, an established automotive supply base, and a central location, says Brendan Prebo, THINK spokesperson. More than 400 jobs are expected by 2013, and production will start next year. "State and local officials in Indiana were extremely supportive of our manufacturing plans and went out of their way to help bring THINK to Indiana," Prebo says. "The leadership in the state has a strong vision of creating Indiana as the Silicon Valley of electric vehicles." The state and local incentive plan for the project totaled $17 million. Indiana is also home to EnerDel, THINK's lithium-ion battery supplier, which will locate a new manufacturing operation in Hancock County and create 500 additional jobs, bringing the company's work force to 1,400 employees across three Central Indiana locations. "By locating in Indiana," Prebo says, "we'll be able to reduce the shipping cost of a major component of the vehicle," a zero-emission, highway-capable electric vehicle dubbed the THINK City.

Alternative energy is a strong vehicle for Midwest economic developers. According to Greg Main, CEO of MEDC, six battery cell manufacturing plants are under development in Michigan: Johnson Controls-Saft in Holland, LG Chem's Compact Power in Holland, Dow Kokam in Midland, A123Systems in Livonia, Xtreme Power in Wixom, and fortu PowerCell in Muskegon. A five-year, 75.26-acre Renaissance Zone in Romulus, Michigan will house A123 Systems' lithium-ion battery manufacturing facility, expected to employ 370 people. MEDC awarded the firm $25.2 million and $100 million in battery cell state tax credits. A123 chose Michigan for its cooperative and supportive business climate, labor and engineering capabilities, and access for facilitating projects, said David Vieau, president and CEO of the Massachusetts-based company.

"Our nation is coming out of what has been the worst economic time since the Great Depression," says John Dipko, communications director for the Wisconsin Department of Workforce Development. Wisconsin added 16,400 jobs in April, the largest one-month jump in more than 14 years. Governor Jim Doyle's economy-building and job-creating incentives include the CORE Jobs Act to strengthen successful programs for manufacturing, research and development, and worker training; expansion of the Enterprise Zone program; and creation of the Wisconsin Green to Gold Fund to help manufacturers reduce energy costs and create and retain jobs. Wisconsin has a lower unemployment rate than all other manufacturing-intensive Midwest states, Dipko says. In 2009 Wisconsin had the highest national percentage of its job base in manufacturing, followed by Indiana.

Biotech's Surge
Besides manufacturing and alternative energy, biotechnology is also growing. Ohio has more than 775 bioscience-related companies, including the headquarters of Fortune 500 companies Cardinal Health and Procter & Gamble, and Battelle Memorial Institute, an international nonprofit global science and technology group. More than 140 new bioscience companies developing innovations such as chemotherapy drugs, DNA analysis, and orthopedic screws, have been operating in Ohio since 2003.

"Northeast Ohio has a burgeoning collection of bioscience companies that influences the regional economic development planning focus," says Steve Norton, director of corporate communications and government affairs for the Steris Corporation. "Northeast Ohio is benefited by the area's educational institutions, research-oriented institutions that produce a high quality work force, and healthcare-oriented research partners. Our customers can see our technologies in use." Other projects continue the trend. US Endoscopy will add 150 positions over the next two years and the Cleveland Medical Mart & Convention Center project is growing in downtown Cleveland.

Steris will invest $11 million in its Mentor, Ohio campus and add 30 positions within three years. "A key consideration in selecting Ohio was the location of our research and development staff and customer access to company leadership," Norton says. "As a result of this investment, we will be able to bring customers to a central location, enabling them to engage directly with leadership, as well as the research and development."

Biotechnology is Wisconsin's fastest growing sector - an $8.7 billion industry with 400 companies, 34,000 employees, and an annualized growth rate of nearly 7 percent. Wisconsin welcomed eight companies last year: RJA Dispersions LLC, a custom manufacturer of nano-particle and pigment dispersions for digital imaging and ultraviolet curable ink jet inks; Rapid Diagnostek, a developer of portable, rapid diagnostic devices that analyze bodily fluids; Aldevron, a provider of plasmid DNA for research, diagnostic, and clinical applications; Flex Biomedical, Inc., a producer of treatments for musculoskeletal injuries and diseases; Inviragen, Inc., a manufacturer of emerging infectious disease vaccines; Exact Sciences Corporation, a molecular diagnostics company specializing in colorectal cancer; and NanoMedex, a producer of a nanotechnology formula for generic drugs.

"The biosciences industry has been growing in Wisconsin for over 30 years, during which people have been trained in and become aware of the commercialization opportunities of biosciences resulting in the creation of entrepreneurs and formation of companies," says Ralph Kauten, CEO of Quintessence Biosciences in Madison, Wisconsin. The sector has grown from local discoveries, the support of universities and licensing offices, and state tax credits.

Illinois' biopharmaceutical industry employs more than 40,000 people. Astellas Pharma US, Inc. will establish its new corporate headquarters for the Americas in Glenview, creating 150 new jobs and slated for completion in spring 2012.

Business Retention
Besides attracting new developments, states are retaining existing businesses. In December 2009 UPS received a $24 million business investment package that will help leverage $91 million in private investment and save at least 3,000 Illinois jobs at two facilities scheduled for upgrades.

"For decades, Illinois and the Chicago metropolitan area have played an important role in the UPS service network," says Ron Sinclair, UPS Central Region communications manager. "Illinois is home to UPS's Chicago Area Consolidation Hub (CACH) in Hodgkins, a regional air gateway in Rockford, and over 30 other facilities in the state that are critical to UPS's small package network and logistics capabilities. UPS employs over 20,000 people throughout the state and has enjoyed a mutually beneficial relationship with the state of Illinois and the communities in which it serves. Working together with the state and local communities, UPS's objective is to continue the pursuit of growth in its business throughout Illinois while maintaining and growing high-value jobs for its citizens."

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