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MSNBC.com Continues Elkhart Examination

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April 30, 2009 by   Leave a Comment

Editor’s Note: MSNBC.com is conducting a year-long study of  Elkhart, Ind. This 2,300-word story, which appeared in The Elkhart Truth, is the latest installment in a series of stories from that project.

In the same way that people might speculate about a couple that could be heading for divorce, business leaders in Elkhart, Ind., sometimes talked about what could happen if the recreational vehicle industry took a serious turn for the worse.

They’d seen it happen before in the early 1970s with the energy crisis and in other recessions since. But this was back a few years ago, when business was booming, and such talk seemed more theoretical than practical, as you might discuss the need to get a new roof, eventually.

“Yeah, there may be a desire to implement change, or diversify,” said Brian Gildea, economic development director for the city of Elkhart. “But when it’s not broken, the impetus to change is not there.”

Now the so-called “RV Capital of the World” is seeing a scenario that even the most pessimistic didn’t think would come to pass.

A season of high gas prices, a deep and lasting recession, a drop in home and investment values and a severe shortage of credit have conspired to decimate the RV industry, which officials say once accounted for as many as one in four jobs here.

The unemployment rate in Elkhart County hit 18.8% as of March, up from just 5.8% a year earlier. That was the largest jobless rate increase of any metropolitan area in the country.

Many local companies, including RV makers and their vast network of small, independent suppliers, have either cut back or gone out of business entirely, leaving the community with millions of square feet worth of vacant manufacturing buildings and thousands of unemployed workers.

‘Diversification is easy to talk about …’
The hard fall for Elkhart’s economy shows the dangers of depending too heavily on one industry for economic health, but also the difficulties of diversifying away from the main engine of a community’s economic activity. As Elkhart struggles to recover, residents are seeing firsthand the monumental task of clawing back from such a massive economic hit at a time when virtually every city in the nation is also suffering from the  recession.

“Diversification is easy to talk about, but it’s not easy to bring about,” said Bill Johnson, who several years ago led an effort called the Horizon Project that aimed, in part, to draw a more diverse group of businesses to Elkhart County.

Experts point to success stories such as Akron, Ohio, which was able to create a niche in the polymer industry when the rubber industry began to decline. But they also offer up cautionary tales such as Gary, Ind., which has struggled for decades since the heyday of the steel mills.

The hard truth, many say, is that making an economy less reliant on one major industry can take a decade or more. Ned Hill, dean of the Levin College of Urban Affairs at Cleveland State University, said success often depends on politicians and business leaders who can help a community grow while not fighting too hard against market forces.

“The No. 1 rule is: Don’t allow yourselves to be a victim. You don’t want to do what Youngstown did and what Philadelphia did and say, ‘It’s always come back, it’s going to come back one more time,'” Hill said.

Youngstown, Ohio, has taken years to recover from the decline in steel, while Hill faults Philadelphia-area politicians for spending too much time and money battling cutbacks at its Naval Shipyard, which once employed thousands.

‘They will come back’
Many in Elkhart insist that the RV industry will revive, citing the allure of the open road and desire to be in the outdoors that stokes long-term demand. But even the most optimistic concede this recession has been deeper and more troubling than past downturns. If the RV industry emerges, it may look different than it did during the boom times just a few years ago.

“We don’t have an industry that’s no longer viable,” said Gildea, the Elkhart economic development director. “They will come back. It’s just a question of at what level.”

That leaves Elkhart, along with countless other communities across the Midwest, struggling with the question of what other businesses they can attract to the area. The additional conundrum for Elkhart – and many other communities in Indiana, Michigan and Ohio – is that they have continued to rely mainly on manufacturing for their economic well-being rather than transitioning to more service-oriented work.

Manufacturing accounted for about half of the Elkhart area’s jobs during the boom times. With the recession, that figure has dropped to around 43%, according to state statistics, still well above the national average.

“There’s a lot of diversity in this county in the sense of manufacturing. But that’s the issue: manufacturing,” said Richard Lavers, CEO of Coachmen Industries Inc., an Elkhart company that recently shed its RV business to concentrate mainly on modular homes.

“Is that a good or a bad thing? You play to your strengths,” Lavers said. “Unfortunately, manufacturing is becoming rarer and rarer and rarer.”

Even those who have long touted the importance of technology to the region concede that it would be hard to attract high-tech, white-collar jobs. Many manufacturing workers here have been able to make a very good living without a college education or advanced training. The area’s location, on a major interstate near the middle of the country, combined with its vast landscape of low-slung manufacturing facilities, make it ideal for such work.

“I see Elkhart remaining a primary manufacturing economy for the foreseeable future,” said Jim Walsh, vice president of the North Central Indiana Business Assistance Center. “I think the kind of manufacturing is going to change, (but) we’ve always prided ourselves: We make stuff.”

Walsh – who regularly runs workshops helping manufacturing operations become more efficient – still hopes technology will play a role in the area’s recovery.

“We’re still building things like we were 50 years ago, and we’re not going to last,” he said.

Elkhart’s woes may be more extreme than others around the country, but they are not unique. John Stafford, director of the Community Research Institute at Indiana University-Purdue Fort Wayne, said he’s watching many communities struggle with whether they can leave their manufacturing roots to evolve into more of a service economy.

“Every one of us is looking to answer that question,” he said.

Other Midwestern cities including East Peoria, Ill., a manufacturing hub for struggling Caterpillar, and Flint, Mich., once a mecca for auto manufacturing, are wrestling with a similar plight.

Diversity faded over the years
While it’s easy to judge such cities in hindsight, it can be almost irrestible to hitch the civic wagon to a single industrial star in good times.

“The reality is that if you’ve got an industry that’s paying good wages and good returns, the best bet is to go start working for them,” said Hill, the Cleveland State professor.

It also hadn’t always been this way in Elkhart. When Angie Recchio was growing up here, she figured she’d have her choice of three industries for a career: pharmaceuticals, band instruments and the RV business.

But by the time Recchio had grown up, earned a college degree and returned to her hometown, her choices had narrowed. The pharmaceutical and band instrument companies that were once such a major presence had mostly been sold to larger companies, who in turn sent thousands of those white-collar and factory jobs elsewhere.

For her and her peers, it seemed like the options were to go into the RV industry or get a service job, perhaps at a car dealership or restaurant.

Recchio, 33, chose the RV industry. Now she works as a sales representative for Valley Screen Process Co., which makes decals, mostly for RVs. She believes the RV industry will revive but says the downturn has prompted her company to look more aggressively for other customers.

“Maybe it’s a wake-up call,” she said.

‘Way too deep in one industry’
Some in the community have been working for years to recruit new industries.

“There were a lot of people who lived here who said, ‘Hey, we’re getting way too deep in our one industry,'” said Tom Stark, a vice president at Lake City Bank in nearby Goshen.

In part to address that concern, county leaders formed an Economic Development Corp. in 2000. A few years later, the community began work on the Horizon Project, an ambitious effort to expand educational opportunities in the county, deal with infrastructure problems and grow the county’s economic base.

But they hit roadblocks.

Stark, a member of the EDC board, said many businesses were reluctant to come to Elkhart County because the bustling RV industry kept the unemployment rate extremely low, making it hard to find workers.

For the same reason, some in the RV industry were unhappy with diversification efforts, said John Letherman, president of the Elkhart County Council.

“You bring in more companies, that just makes the labor pool that much smaller,” Letherman said.

Johnson, who headed the Horizon Project after selling his own rubber business, also said some companies were looking for a more highly skilled workforce than Elkhart had to offer.  But over the years, many of the other companies that had once employed engineers, chemists and other highly skilled workers had left town, and the RV industry does not generally require those types of advanced skills.

Some workers are heading back to the classroom now. About 600 former RV workers have enrolled in retraining programs through the area’s Ivy Tech Community College, where overall enrollment is up. But efforts to educate a workforce can take years.

“Retraining’s a wonderful thing, but it’s not going to happen overnight,” Johnson said.

Reasons for optimism?
Despite the difficulties, community leaders see reasons to be optimistic. People at the EDC and the city of Elkhart say they are fielding hundreds of calls from people inquiring about doing business in the county. That’s thanks in part to President Barack Obama, who drew national attention to Elkhart’s plight in his three appearances there.

Still, with the rest of the nation also in recession, it’s tough to say when, or if, that attention will translate into new business and jobs. The county also is facing stiff competition from other communities hungry for new industry.

Boosters say Elkhart has several competitive edges. Where once potential businesses fretted about not finding enough workers in Elkhart, now the county can point to a willing workforce that is accustomed to hard, physical labor in the RV factories, which often pay according to production.

And they say Elkhart has a long history of entrepreneurship, pointing to the many businesses that have sprung up in recent years to supply the RV business. The community, they say, is a resilient one.

“We’ve been in a hole, but we’re trying to look up and see out of it,” said Dorinda Heiden-Guss, head of the county’s EDC.

Elkhart officials say their community could be a hub for other business, such as storage and distribution facilities. And many are hoping that a recent decision to locate a major nanotechnology research facility in nearby South Bend eventually will bring work to Elkhart.

Robert Dunn, managing director of that facility, the Midwest Institute for Nanoelectronics Discovery, said there is potential for work there to lead to manufacturing in Elkhart, but not for three to seven years.

Meanwhile, many small businesses that have supplied the RV industry also are seeking to diversify.

Promens’ Elkhart facility once did the bulk of its plastics processing for the RV industry. Now, the bulk of the work is for other industries. But Jack Welter, vice president of Roto North America, a division of Promens, said that is largely because the company closed two other factories elsewhere and shifted that work to the Elkhart facility.

“I don’t want to take too much credit on diversification,” he said.

When Kirk Veer started seeing business slip at American Stonecast Products, which supplies sinks to the RV industry, he tried to get retailers interested in his products. But Veer, who is president of the small company, said he quickly found he didn’t have enough of a product line to interest big stores.

Now, instead of pursuing business outside the RV industry, he’s hoping to stay afloat in part by adding lightweight countertops and tabletops to the roster of things he supplies to RV makers. 

Many businesses interconnected
Another issue for communities tied primarily to one industry is that even other companies in town are often linked to the primary industry. Goshen Coach, a division of Thor Industries Inc. that makes small buses, is by some measures one of the bright spots in Elkhart’s struggling economy.

So far, the manufacturing facility has lost employees only through attrition, said Troy Snyder, Goshen Coach’s president. Executives hope federal stimulus money will help business, because local governments will have more money to buy vehicles.

But Goshen Coach relies on about 300 suppliers, including many in Elkhart County that also supply the RV industry. About a dozen of those suppliers have gone out of business because of the RV industry’s troubles, leaving the bus company to find new suppliers.

The company gets its chassis primarily from troubled U.S. carmakers GM and Ford. Because both of those companies are periodically shutting down their manufacturing lines to save money, Snyder said the company has been forced to keep more chassis on hand than it would like so it doesn’t get caught without the much-needed base for its buses.

On the plus side, many in the RV business say they are starting to feel hopeful that things won’t get worse. They talk of a good week here or there, and say the RV industry typically picks up in the spring and summer months.

“We think we’re at a point where we can ride it – we’ve hit bottom,” said Derald Bontrager, president and chief operating officer of the RV company Jayco Inc.

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