Ypsilanti's American Broach seeks tax incentives for $25M R&D, manufacturing expansion
A $25 million investment in the expansion of an Ypsilanti tool manufacturer will result in up to 43 new jobs and a new research and development center.
American Broach, based at 575 S. Mansfield, hopes to use state and local tax incentives to help fund the expansion and job growth, company president Ken Nemec said.
American Broach was based on Jackson Road for several years in a location that Home Depot had sought for a new store. Those plans were dropped.
AnnArbor.com files
Ypsilanti City Council also will weigh real and personal property tax abatements at its meeting tonight.
The state and local tax incentives will help the longtime local leaders in a struggling U.S. industry maintain its hold on the marketplace and also pursue innovations expected to help it grow.
“We think of ourselves as survivors,” Nemec said, describing American Broach’s efforts over recent years.
The company produces intricate cutting machines that produce gears, with the auto industry making up 65 percent of its $4-5 million revenue base. The defense industry accounts for up to 15 percent of sales, while agricultural and general use comprise the rest.
But it’s also an industry that’s making parts similar to the ones generated decades ago, even as innovations grow in the sectors that make up its customer base. Cost pressures from customers have driven margins to the edge, Nemec said, and the credit crisis erased lines of credit, killing American Broach’s international sales.
In that climate, Nemec said American Broach's parent company, QC American, owned by a Chinese investment firm, sought to create an R&D facility in Toronto with the goal of building the end products in China.
Nemec saw the opportunity to bring both the research and manufacturing to his Ypsilanti facility, and said he lobbied for months and wrote a business plan, urging the corporate officials to put the R&D center “in the heart of the gear industry.”
“We lead the world in gearing systems,” he said. “…It would be better to do it all in one facility.”
With the expansion, the company will be able to build prototypes and test cutting tools, eventually creating new products at a lower cost per product.
“The demand is tremendous and growing,” Nemec said. “… None of the (other American) suppliers have had the wherewithal to invest in innovation.”
But the company that can produce new products that aid automakers to produce transmissions that run smoother and longer on less gasoline will emerge as an industry leader, Nemec said.
The investment in the Ypsilanti R&D center should put American Broach in that position, he said.
American Broach moved in 2008 from its decades-long home on Jackson Road to the 22,580-square-foot facility on South Mansfield.
At the time, it hoped to grow its revenue from $4.5 million to $6 million, and it hoped to grow its workforce from about 28.
Today, it’s showed a profit for the last three years - and Nemec said he’s fought during the downturn to keep his workforce, which today numbers 31 full-time and 7 part-time.
The average wages at American Broach are $19 per hour, $21 per hour for skilled trades, Nemec said, and employees get full benefits.
Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.
Comments
Tony Dearing
Mon, Feb 21, 2011 : 8:45 p.m.
A comment was removed because it violated our conversation guidelines. Please do not post comments based on rumors or speculation. Thanks.
Edward Vielmetti
Mon, Feb 21, 2011 : 7:31 p.m.
@sig.melvin - After some digging, I found the 2002 Economic Census page for broaching companies, as part of the classification of "Machine tool (metal cutting types) manufacturing" <a href="http://www.census.gov/econ/census02/data/industry/E333512.HTM" rel='nofollow'>http://www.census.gov/econ/census02/data/industry/E333512.HTM</a> 89 employers in 2002 with 3036 employees. The corresponding 2007 numbers (which have a more complicated search path) are 61 employers in 2007 with 2,365 employees.
sig.melvin
Mon, Feb 21, 2011 : 8:45 p.m.
thank you news in the street american broach doesnot pay there surpliers etc.etc. chinia or canada
sig.melvin
Mon, Feb 21, 2011 : 7:16 p.m.
so how many broaching companie do we have in michigan? really like to know
Thomas
Wed, Feb 16, 2011 : 1:17 p.m.
Maybe give the tax abatement a thumbs up if these 43 new employees live in the city. We know there are houses they can buy.
LC
Tue, Feb 15, 2011 : 9:03 p.m.
This is going to cost the city almost $800,000 in revenue for these tax abatements. When the city starts laying off cops and fire fighters, we can all blame city council for giving away so much money to create 30 jobs. Way to go city council! Maybe you could lay off a couple cops now and give this company even more tax breaks.
murph
Wed, Feb 16, 2011 : 12:59 p.m.
Not correct. The tax abatement will not reduce the city's current revenues at all, nor is the city handing cash to the company. The abatement applies only to the expected value of new buildings and new machinery on the site, and the city's tax revenues WILL STILL GO UP with the abatement: some immediately, more in 6 years, and more still in 12 years. If it's a choice between giving the tax abatement, getting some new revenue now, more new revenue later, and having an international company locate new jobs in Ypsilanti, vs not giving the abatement and getting nothing, because all of that goes to Toronto or China, then the abatement is the right choice for the city.
Andrew Jason Clock
Tue, Feb 15, 2011 : 8:11 p.m.
Dcam, you might want to read the article. They want to build a $25M R & D center and want a tax break of around $600K over seven years. This company is part of a conglomerate, and the president of this wing of the conglomerate fought to bring the R & D center, and production work that comes with it in Ypsilanti, as oppose to a R & D center in Toronto creating designs to be produced in China. Looks like a net gain for the local economy to me. Now the question is are those 43 jobs, and the possibility of more production jobs in the future, are worth a $600K tax break. I really don't see how the fact that the parent company is Chinese has to do with it, either. Its an international world we do business in now days.
Dcam
Wed, Feb 16, 2011 : 4:13 p.m.
I let the headline skew my thinking, but the point being is that R&D is a write-off expense, regardless of a $25m investment in facility improvements, and I presume those are the investments. Ford/Visteon received a $25m tax abatement some years ago from Milan, but today there is no Milan Ford/Visteon plant. There is, however, another owner - the name escapes me - who received similar abatements. Metaldyne received a 12 year tax abatement from Hamburg Twp, and weeks later sold themselves to a Japanese holding company which was funded by the same people who owned Metaldyne. And one became co-chariman. You're probably aware of Ripplewood Holdings and David Stockman and Thomas Stallkamp. Two names who've cut a huge swath from the heart of Michigan manufacturing, while enriching themselves. There's too much history of deals like this that don't pan out. But, if you get your money it will be of little importance to me. I'm much too old to be affected by the eventual consequences government handouts to private industry that's owned by a Communist government. The Chinese owned Saginaw Gear is the biggest employer in Saginaw, why shouldn't they be an employer in Ypsi?
Dcam
Tue, Feb 15, 2011 : 5:27 p.m.
A $25m tax incentive for a firm with annual revenues of $4.5m doesn't seem to justify adding 43 new employees to me. Unless that $25m is cash handed out to them, from where does the money to make payroll come? R&D is not direct labor, so its costs must be paid from production that produces $4.5m in revenues - not a lot to cover labor, overhead and incidental costs. In fact, I'd guess 31 heads, at say $40 total pay package, pretty much accounts for $2.6m of the $4.5m right now. Not much room for another 43 heads on the payroll.
Soothslayer
Tue, Feb 15, 2011 : 3:42 p.m.
>"said his parent company, QC American, based in China" >based in China So we make considerations and abatements to spur innovation so China again can ultimately profit from it and capture the bulk of the efforts of our innovation? We've seen this pattern time and time again. They will just move this somewhere else to follow the next big tax incentive. No.
sig.melvin
Mon, Feb 21, 2011 : 8:48 p.m.
MADE IN MICHIGAN COMPANIES COME FIRST IN LINE ....newcomer stay at your country.