NEW TROY — After a large bet on the oil and gas industry went south several years ago, Vickers Engineering Inc. struggled to position itself for growth.
But recently, the New Troy-based contract manufacturer, located in Southwest Michigan’s Berrien County, caught a break, winning two substantial automotive contracts that will put it on track to achieve “impactful growth,” according to President Matt Tyler.
“We placed a pretty big bet in oil and gas a few years back and we experienced a pretty significant dip,” said Tyler, attributing the company’s struggles to a plunge in domestic fuel production. “We’ve been in a wait-and-see mode. … (Now) we’re back on track to being a growing company.”
The manufacturer, which specializes in precision machined components such as suspension knuckles, engine brackets and transmission housing brackets, recently won contracts to make driveshafts for a variety of automakers and transmission components for Honda.
With the new contracts, Tyler expects the company to grow at a compound annual growth rate of up to 25 percent over the next three years. Vickers Engineering currently generates roughly $45 million in annual sales.
That revenue forecast spells a welcomed break for the manufacturer, which up to the first quarter of 2015 derived approximately 25 percent of its business from the oil and gas industry. At its peak, the company dedicated five automated robot cells working two to three shifts for its oil and gas customers.
But in mid 2015, a global oversupply of oil began steadily tamping down prices of the commodity, ultimately driving prices to a low of $28 per barrel in the first part of 2016, according to reports.
During that time, domestic production of oil and gas slowed, forcing Vickers Engineering to redeploy and idle the majority of its machines working on that segment of the business, Tyler said.
Now Vickers Engineering plans to build on the momentum it’s drummed up with its new automotive contracts by filling a niche as a small, but capable company.
“We’re getting to the size where we can actually do some things that only larger companies are involved with,” Tyler said. “We feel that we’re in a sweet spot where we are small and nimble, yet we have that big-company capability when it comes to production.”
STICKING TO ITS ROOTS
To support its two new automotive contracts, Vickers Engineering plans to invest approximately $5 million in facility upgrades and new capital equipment in the coming years at its 120,000-square-foot plant.
Tyler notes that the company considered opening up a facility in North Carolina to support the contracts, which would put it in closer proximity to its customers. While the company did receive $160,000 in a performance-based grant from the Michigan Economic Development Corp. (MEDC) to help it create 52 jobs, Tyler said the decision to stay in Michigan ultimately came down to talent concerns.
“The incentives certainly helped finalize the decision, (but) it came back to workforce,” he said. “We didn’t want to replicate the talent base in critical positions that we already have. We didn’t want to take for granted that we could find the same level of talent. What we have in Southwest Michigan is pretty special.”
Vickers Engineering has hired roughly half of the workers required under the MEDC grant, Tyler said. The company currently employs 175 people.
In the past, the company has struggled to find skilled workers in Southwest Michigan. As a result, Vickers Engineering partnered with Lake Michigan College, a community college based in Benton Harbor, to source some workers, while it also has relied on an internal “farm system” to train employees from within the organization, according to Tyler.
PLANNING FOR FUTURE GROWTH
Despite its previous troubles with the oil and gas industry, Vickers Engineering has begun to “see signs of life” in the sector, something Tyler hopes will reinforce the company’s growth trajectory in coming years.
In November, the Organization of the Petroleum Exporting Countries (OPEC) announced it had struck a deal to cut oil production by 1.2 million barrels a day and is targeting prices between $55 and $60 a barrel, according to a report in The Wall Street Journal. OPEC members currently produce 33.6 million barrels a day.
Rising oil prices could spur U.S. producers to increase domestic production, leading to more business for companies such as Vickers Engineering.
Tyler called the agreement a “beautiful thing,” and global markets seemed to agree. On the day of the announcement, the price of crude oil jumped 9.3 percent to $49.44 a barrel.
Although both industries have experienced volatility in past years, supplying both the automotive and oil and gas sectors allows Vickers Engineering to diversify its risk.
“The beauty of having some focus in both automotive and energy, from what we gather, is there’s no correlation between the two,” Tyler said. “Automotive has a tendency to lead the economy, where oil and gas are dependent on a lot of global factors, not necessarily related to the U.S. economy. We feel that is a nice offset.”
Made in Michigan: New Troy-based Vickers Engineering Inc. plans to capitalize on two new automotive contracts to jumpstart its business after struggling with growth over the past 18 months. The contract manufacturer had invested heavily in the domestic oil and gas industry before demand in the sector fizzled out because of a global oversupply. Now, the company aims to invest $5 million in facility improvements and new capital equipment to prepare for the automotive contracts, which should position it to grow up to 25 percent in the coming years. Vickers Engineering currently generates approximately $45 million in annual sales and employs 175 people.
