Gov. Bill Haslam, Tennessee College of Applied Technology (TCAT) student Chris Chambers and Smyrna Vice Mayor Marc Adkins talk about the new Nissan Training Center at the TCAT across the street from the company’s automobile factory in Smyrna.
Tennessee experts warn robots could take half the 2.8 million jobs filled by people throughout the state
Tennessee has bet big on automotive manufacturing.
But even as auto plants now account for one of every three industrial jobs statewide, a new era has taken hold.
Automakers are leading the way in factory automation. Robots are coming — but slowly.
If a rising wave of robots is going to carry away millions of jobs in factories and warehouses, the flood will first reach into shops like DBT Inc., a robot builder east of Nashville.
When Kinion Dunn opened DBT in the early 1990s, he focused on making machinery for Tennessee’s fast-growing auto industry. Today, his plant in Sparta employs about 20 workers, counts a long list of auto parts suppliers as customers and has steady orders for industrial robots.
What it lacks is a flood of robot orders.
Year after year, the U.S. automobile industry leads the nation in spending on capital equipment. But capital budgets hardly suggest a robot wave soon will swamp Tennessee’s all-important automotive jobs.
“Robots help you lower your production costs by reducing labor costs, but they are fairly capital intensive,” Dunn said. “Most of the smaller manufacturers still find it hard to afford them.”
Only a year ago, Tennessee’s Department of Economic and Community Development warned robots could take half of the 2.8 million jobs filled by people throughout the state, eliminating almost $50 billion worth of annual wages, not only in auto plants, but jobs ranging from restaurants to stores.
It was a collective “oh, no!” moment.
“Report suggests gloomy future for state job market,’’ said the headline in the Knoxville News-Sentinel, one of the many newspapers and broadcasters that mentioned the Tennessee study.
One year later, few people are prepared for the robot revolution, although East and Middle Tennessee rely on manufacturing and West Tennessee on logistics — sectors the study says are wide open to labor disruption by robots.
“Recent conversations with several local and state legislators as well as education leaders and policy advocates points to an unfortunate lack of awareness and strategy to help our workforce prepare for the new economy,” Memphis employment expert Austin Baker wrote in a recent edition of HR Professional magazine.
Baker, president of HRO Partners, a human resources consulting firm, said this lack of awareness is itself a crisis, particularly after all the scholarly studies. Each concludes America — really, the world — faces disruption.
“Almost half the activities people are paid almost $16 trillion in wages to do in the global economy have the potential to be automated … ,” researchers for the think tank McKinsey Global Institute say in a study released in January.
If workers are going to be displaced worldwide, why the complacency in the face of the storm? One reason: The storm isn’t here yet.
Industrial robots have been on America’s horizon ever since engineers in Japan early in the 1980s explored what they called lights-out manufacturing — why turn on lights if machines do all the work?
Back then the isolated island nation regarded the lights-out idea as a solution. Japan faced a future worker shortage and the immediate need to precisely make world-class quality goods, like Sony televisions and Toyota gear boxes, for export to the United States.
Automation was embraced in Japan, but considered less necessary in America, especially after border controls were eased in the 1980s, alleviating the United States’ worker shortage. Several million immigrants sought lower-wage jobs. Then trade accords opened the way for manufacturing in Mexico and China, where pay scales trail U.S. minimum wages.
Many U.S. companies moved work abroad. Others automated U.S. plants to help compete against their low-wage rivals abroad, but the robot talk only simmered — until something happened: the 2008 financial crash.
Tens of millions of Americans decided to retire rather than try to hang on in the slow economy. In Memphis and Shelby County, for example, annual Social Security outlays surged almost 50 percent to $2.2 billion between 2008 and 2015.
With baby boomers leaving the labor force nationwide, the problem soon was evident — talented workers were scarce. This skills shortage, and the interplay of sophisticated electronic controls and new gains in machine intelligence, moved the talk of lights-out manufacturing to front and center in America.
Now there’s fear robots will slice away the wage base.
“I say it’s hogwash,” manufacturing analyst Steve Klein said.
If robots and other automated machines were about to take over, layoffs would rise in automotive states such as Tennessee, home to more than 100,000 autoworkers. Yet the Tennessee jobless rate measured 4.7 percent in April, compared with 6.5 percent in April 2014.
Automotive factories are at the tip of the automation discussion for a single reason. The United States tends to shield major industries such as airplane makers, aerospace companies and defense contractors from stiff global competition.
Detroit automakers, however, have faced Asian and European imports and transplants head on for 40 years. Automakers from around the world manufacture in the United States. The rivalry has pushed the industry to cut costs and design better automobiles, a reason today’s average car has run for 11.6 years, the longest span ever recorded.
Robots have been part of the push, especially on vehicle assembly lines — the typical plant contains more than 1,000 robots — and among the big component makers. These big suppliers, known as Tier Ones, compile parts into complicated systems such as axles and mirrors.
Smaller parts manufacturers, the Tier Twos and Threes that supply the component makers, have not rushed into automation. Most of the equipment is too expensive for them, a reason Vanderbilt University recently joined a U.S. Department of Defense initiative centered in Pittsburgh to figure out how to make less costly robots.
“The Tier Twos and Tier Threes can’t easily afford it,” said Ashley Frye, head of the Tennessee Automotive Manufacturers Association, a trade group in Nashville representing more than 900 members.
Capital spending falls
Because these smaller manufacturers make up the bulk of the auto industry, their reluctance to spend on machinery influences the data used to track manufacturing.
Capital spending on machine tools nationwide peaked in 2012 at $7.4 billion and this year is expected to total $6.7 billion, down 1 percent from last year, reports the annual survey by Gardner Business Media, publisher of Modern Machine Shop, an authoritative trade journal in Cincinnati.
Gardner’s survey does not single out spending on robots, although machine tools are often used in automated settings. So a grinding or cutting tool might be manipulated by a robotic arm run by a computer program monitored by a technician.
Klein, Gardner’s market intelligence director, doubts the capital spending budgets will sharply increase in the next few years.
“If you look at the trends in manufacturing over the last 40 or 50 years, you begin to see certain patterns play out in broad brush strokes,” Klein said.
One brush stroke, perhaps the biggest, is consumer spending. It has soared.
Lenders reported $1.2 trillion worth of new-auto loans on the books last year, 9 percent more than the previous year, and the most ever recorded by the Federal Reserve Bank of New York.
Even as consumer spending rose, many factories ran with little or no overtime. Indeed, all the factories in the country currently produce only about 70 percent of what they are capable of turning out. This capacity utilization rate is far below the near 90 percent level common in other times, Klein said.
The problem isn’t the machinery. Factories are stuffed with well-made machine tools used to cut, grind and shape metal. Some equipment was acquired years ago to take on rivals in low-wage nations. A lot was bought when interest rates plunged after the 2008 financial crash.
“There was an undue shift in spending by business to the point where so many machine tools are out there the capacity utilization is well below what it was 40 years ago,” Klein said.
‘It’s just inevitable’
So factories are stuffed with underused machines. Why all the worry about robots?
Because they are eventually going to displace jobs.
“It’s just inevitable. We’re going to see more automation,” said industrial consultant Dennis Cuneo, head of DC Strategic Advisors in Reno, Nev., and former senior vice president of Toyota North America in Georgetown, Ky. “We’re going to have to improve productivity to survive.”
What’s begun in the auto plants mostly likely will spread to other industries, said Michael Held, a director in the automotive practice at AlixPartners, the suburban Detroit consultant that oversaw the liquidation of General Motors’ idled plants after the automaker’s 2009 bankruptcy.
Eventually more robots will come to Tier Two and Tier Three manufacturers, Held said, but most companies want to make sure the technology can reduce labor costs and bring other benefits such as improve quality in places where humans could be splatted with hot metal shavings.
“What I’m seeing that’s really healthy is people are not going through large-scale automation projects without understanding the true cost of implementation,’’ Held said.
True costs include hiring engineers able to install, calibrate and fix the machinery as well as technicians trained to maintain and monitor the robots.
Any city able to ramp up schools for technicians will have a competitive advantage that attracts high-tech factories, said Baker, the human resources executive in Memphis.
While factories do need technicians, Klein said, he figures the progression into robotics will be so orderly we’ll look back in two decades and wonder at all the fuss in 2017.
“We have a lot more technology now than in 1997,” Klein said. “But we have even more jobs.”
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