Last week, suppliers supporting General Dynamics [GD] Abrams tank spent time on Capitol Hill telling members of the House and Senate any temporary shutdown of tank production would cost more in human and economic terms than keeping the line ticking at a low level.
More than 200 suppliers from congressional districts in some 43 states visited Washington. For General Dynamics, small business suppliers comprise 64 percent of their industry base.
The concern for these suppliers is that the fiscal year 2013 budget requests a temporary shutdown of U.S. tank production, from 2014-2017, and at the same time the Army has not set funds for such a proposed shutdown and then restarting of the line.
Suppliers brought Congress the financial bottom line: they recommended increasing the Army FY ’13 budget request by $181 million only for the Abrams Tank Upgrade Production, which would support producing 33 more Abrams System Enhancement Program (SEP) tanks.
At a large meeting of 50 or so, Bruce Barron, president and CEO of Barron Industries, a supplier from Oxford, Mich., attended. Looking right at Sen. Debbie Stabenow (D-Mich.), he said, and tried to convey his sense of urgency.
In 2012, the government ordered 70 tank sets, he told her. General Dynamics put out its orders to suppliers almost immediately.
“I’m going to be done producing them in the next six months,” he said. “Then I’m done…if nothing is behind it.”
Ed Verhoff, whose father started Verhoff Machine and Welding Inc. in 1955, said: If the Abrams line goes dark, there goes “60-70 percent” of his business.
“If it shuts down, we’re closing our plant,” he said. “If we have to reopen in three years, we can’t sustain it. We would have to requalify workers like welders and parts to meet standards. That means every part on the tank has to be requalified. That’s expensive.”
Keeping the Lima Army Tank Plant open will maintain a level of readiness for the nation, but if it closes, technology will be lost and people who need jobs likely won’t be around when the plant reopens.
With a transition away from conflict in Afghanistan and Iraq, and pressures to reduce the federal budget, impacts to the tank industrial base are already being felt.
“Everyone we’ve spoken with has been very supportive and understand (the issue), Verhoff said, whose company is just outside Lima, Ohio where the tank plant produces the Abrams.
The company now has some 150 workers, and subs out some of their work to smaller companies, some employing only 25 or so people.
The company supplies various parts for Abrams that use aluminum or specialty steels. They manufacture, weld, and paint and send the parts on to the tank plant where they are put on the tanks.
To fill gaps, Verhoff has started to work on some platforms destined for foreign military sales. However, those programs are short term and usually only a few months.
“You can’t take a budget and cut this much without looking at the effects and what does it actually do,” he said.
The defense industry is different than most industries, he said. For example, “Everything goes on that vehicle (tank), has to be built in the U.S.,” he said. “I can’t buy a nut, bolt, or anything from overseas…it has to be made in America…that’s what’s truly different. It’s not like the automotive industry that can buy components in China.”
Ohio is a manufacturing state, and members of the Ohio delegation are big supporters, Verhoff said. He and his colleagues met and spoke with the delegation.
“We’ll lose jobs, no doubt, but we need to retain the talent pool,” Verhoff said. And while there were 200 suppliers on this trip talking about tanks, there are “another 200 in the background that no one sees,” he said.
When his company started working for General Dynamics, it “took us four years until we understood exactly what they want,” he said. The company has special equipment to produce components for the tank that will just sit there, if the line closes.
Barron and his brother Jeff also had a good visit with members.
His casting and machining company has been a family business for 89 years and 70 percent of it is dedicated to the defense business, he said. General Dynamics is his biggest customer.
As Abrams tank volumes ramped down, it means a significant reduction for Baron.
“There’s not much happening in ground-based vehicles,” he said, pointing to the proposed termination of Humvee Recap and low level work on the Joint Light Tactical Vehicle, Ground Combat Vehicle and Stryker.
At that large meeting, Sen. Carl Levin (D-Mich.), the Senate Armed Services Chairman, brought up sequestration and how that would be a much greater issue, “a nuclear bomb,” compared to what we’re here to talk about keep one tank plant open, Baron said, which puts things in perspective.
Barron and colleagues also met with a good reception from House leaders. “Nobody disagreed” on the need to keep suppliers and the production line going, he said. “We, as owners of companies are listened to.”
In one of their biggest meetings, Barron said they represented Michigan jobs from 15 districts and represented some $235 million in revenue, which was down from last year and the year before.
Looking to the future, Baron is engaging with the relatively healthier oil and gas industry in Texas, Louisiana and Oklahoma. “We’re undergoing certification for some of those components.”
All the suppliers are looking at decisions that affect the future of their businesses.
If Barron continues to support Abrams, he questioned how he’d sustain his business model “on hope” that the line reopens in 2017, or should he commit capacity and resources to the oil and gas industry that wants components.
Right now, Barron said, the business is undergoing certification for some of those components.
His company has equipment that is unique to Abrams production and if it is mothballed while Abrams production is temporarily shut down, it will all need requalification, the tooling and processes, which in itself is a significant expense. “It’s an onerous task,” he said.
Essentially, Barron has to know the final decision in the next six months.
Barron is one of the more fortunate suppliers, with the agility and processes to transition to another market if necessary.