European crisis a headache for some Michigan exporters [Detroit Free Press]

July 08--Michigan companies that export products to Europe or manufacture them there are hurting as sales in the troubled overseas economies have slowed and an even-deeper recession looms.

According to a Free Press analysis, Michigan's Fortune 500 companies, such as Ford, Kellogg and 18 others, took in more than $100 billion in revenue last year from European business, or about 22% of their total sales.

Smaller firms are exposed, too, including NuStep, an Ann Arbor-based manufacturer of exercise machines. The slowing European economies "are impacting our sales," said Steve Sarns, NuStep's vice president of sales and marketing. He anticipates the company's revenue growth in Europe will be half of last year's total.

Terry Kalley, chairman of the East Michigan District Export Council, said U.S.-made products are now much more costly to Europeans because of the plunge in the value of the euro compared with the dollar.

The good news is that Germany, the strongest economy in the 17-nation eurozone, is the only major European destination for the state's exports.

Germany ranked fourth on Michigan's list of leading export partners last year, with $1.8 billion worth of products shipped there. The state's top three export countries are Canada, Mexico and China.

When it comes to agricultural exports, Europe is also a relatively small market for Michigan. Last year, Europe accounted for 4.3% or $57.3 million of the state's $1.3 billion in total worldwide agricultural exports.

Even so, the European financial crisis "is definitely going to have an impact on Michigan and the country as a whole," said Noel Nevshehir, director of international business services for Automation Alley, Michigan's largest technology business association. "Europe is going to really be a difficult market to grow and prosper in for the foreseeable future."

Individually, some of Michigan's corporate giants derive a hefty portion of their revenues and earnings from European customers. The auto supplier Visteon, for example, relied on Europe for 36% of its $8.1 billion in sales last year. For medical device maker Stryker, 17% of its $8.3 billion in sales came from Europe last year.

And Whirlpool's operating profit from its European region plunged to $5 million in the first quarter of 2012 from $25 million in the same quarter last year.

Many companies have been trying to offset the slowdown in European sales by capitalizing on opportunities in other markets, particularly in Asia.

That's the case with NuStep, which has seen big orders come in from Japan and China even as it copes with weaker demand from customers in northern Europe. NuStep manufactures a cross-training exercise machine for rehabilitation centers, hospitals, senior living facilities, private homes and other locations. The machines are exported from Ann Arbor and sell for $3,595 to $6,000, depending on the model.

This year, NuStep, which employs 85 workers, expects its sales in Europe to grow by 30% instead of the 60% rate seen last year.

International sales account for 15% of NuStep's revenues, so whatever happens in Europe won't cripple the company. But slower sales growth in the eurozone makes it more difficult for NuStep to expand its overseas revenue to 45% of its total sales, one of its key goals.

For now, many companies with significant exposure to Europe are monitoring the situation closely.

Executives at BorgWarner, an Auburn Hills-based auto supplier, are ready to act if the European crisis escalates. "We have plans in place to quickly trigger depending on the scenarios we see happening in Europe," said Erika Nielsen, the company's director of marketing and public relations. The company would not detail those plans.

Last year, 56% or $4 billion of BorgWarner's $7.1 billion in net sales was generated in Europe, including $2.2 billion from Germany. Nielsen said that since 2008, the auto supplier has been trying to increase its work force flexibility in the eurozone by using more temporary employees.

But so far, the crisis has not soured many companies on doing business in the European Union. A market with 495 million residents is simply too big to ignore, trade experts said.

"Despite the challenges, opportunities exist in Europe for many American companies, including Michigan ones," said Richard Corson, director of the U.S. Export Assistance Center in Waterford. "There's still room for good, high-quality products."

Orchid Orthopedic Solutions in Holt, for example, still sees Europe as a growth market and so far the crisis has not affected its sales, said Paul Hewitt, the company's regional sales manager for Europe, the Middle East and Africa.

Orchid operates a manufacturing facility in the U.K. that produces orthopedic castings and forgings, but it also exports many of its products to Europe.

"There is a lot of growth available to us that we have not extracted from the market yet," Hewitt said.

Contact Katherine Yung: 313-222-8763 or kyung@freepress.com

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