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Nexteer Lands Major EPS Contract, Earmarks $70 Million Investment

Executive Summary

The contract calls for the company to supply its industry-exclusive 12V rack-mounted EPS system to a range of an unnamed auto maker’s vehicles, from a midsize car to a fullsize truck.

Nexteer Automotive, a Saginaw, MI-based supplier of electric- and hydraulic-power steering systems, announces today a $70 million investment at its headquarters to accommodate a new contract with one of the Detroit Three auto makers.

Mike Gannon, chief operating officer of Nexteer’s Saginaw Div., says the funding will be spread through 2014 and create 325 new jobs at the 106-year-old parts supplier. The site currently employs 4,200 salaried and hourly workers.

Gannon does not disclose the value of the contract making the investment possible, nor does he identify the auto maker, but the deal calls for Nexteer to supply its industry-exclusive 12V rack-mounted EPS system to a range of the manufacturer’s vehicles, from a midsize car to fullsize truck.

The news comes one year after Nexteer said it planned to invest $150 million in the Saginaw operation to support a long-term contract to supply an advanced EPS system to General Motors’ next-generation fullsize trucks. Those pickups and SUVs launch production in second-quarter 2013.

“This is proof that hard work and a continued commitment to being competitive really pays off,” Gannon tells journalists on a conference call to discuss the investment.

Gannon cites cooperation with the United Auto Workers union representing the Saginaw hourly workers for building a globally competitive workforce, where a 2-tier pay scale brokered in 2010 reduces labor costs. He also acknowledges Nexteer’s skilled labor capable of manufacturing the complex EPS systems.

Nexteer has traveled a long, winding road to becoming a $2.2 billion supplier of steering systems, columns, drivelines and halfshafts.

GM owned the former Saginaw Steering Gear plant for many years, which at one point employed 10,000 people. The facility became part of Delphi when GM spun off the parts maker in 1999.

After Delphi went bankrupt in 2005, GM bought back the operation to ensure a smooth supply of parts. But employment dwindled to 3,800 as the industry weathered the U.S. recession.

China’s Pacific Century Motors acquired Nexteer in 2010 and went on a hiring binge. Since then, the supplier has grown to 10,000 employees worldwide, booking $12 billion of new steering-system business.

The latest contract runs through 2022, and the fresh investment will cover site development and tools and machinery to support the new business. The plan is to remake one of the site’s oldest and most underutilized plants, dating back to 1953, into a high-tech producer of steering systems capable of reducing fuel consumption by 3%-4%.

U.S. auto makers are marching to federal fuel-economy rules of 35.5 mpg (6.6 L/100 km) by 2016 and upwards of 54.5 mpg (4.3 L/100 km) by 2025, and efficiency-boosting technology such as EPS will play a key role in hitting those bogeys.

Gannon tells WardsAuto the Saginaw manufacturing location, one of 20 Nexteer facilities worldwide supplying global auto makers, retains capacity for additional work.

“We’ll have the ability to add new work here in Saginaw, and we’re in the hunt for some other new business, as well, so we’re very optimistic about our future here,” he says. “We’re growing here, and we’re growing in every one of our regions around the world.”


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