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Indiana an auto state? Now chemicals are king

Norm Heikens
October 2, 2008
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After 12 years of leading Indiana's bread-and-butter manufacturing industry, carmaking has taken a second-row seat.

Chemicals have grown to become the biggest segment within manufacturing, according to a new study by the Indiana Business Research Center.

Chemicals-defined by government statisticians to include pharmaceuticals-dislodged automaking in 2004.

Study author Timothy Slaper thinks the trend will last for a while.

"My suspicion is that it would continue," Slaper said. "Our economy continues to restructure."

Twenty-five percent of Indiana's gross state product is derived from manufacturing, a higher percentage than any other state. Other studies have shown that roughly half the state's 3 million jobs are directly involved in manufacturing or tied to the industry.

The business research center, which is part of Indiana University's Kelley School of Business, focused on the proportion of the gross state product generated by various segments of the manufacturing sector.

Over the years, various industries have risen to dominate manufacturing and then receded or been pushed aside by faster-growing segments.

In the early '80s, when companies like Thomson Consumer Electronics churned out loads of television sets, electronics was king.

In the late '80s and early '90s, as electronics companies pulled out of the state, steelmaking took the lead.

Automaking rose to prominence in 1992 and held the spot for 12 years.

It isn't that automaking is shriveling. The segment accounted for slightly more than 17 percent of the manufacturing portion of the gross state product in 1997 and 2006, the latest year for which figures are available.

Rather, the segment stagnated while chemicals continued growing. Chemicals accounted for nearly 16 percent of manufacturing gross state product in 1997 but had grown to nearly 20 percent by 2006.

Much of the growth came from pharmaceuticals, Slaper said.

That doesn't surprise Brian Stemme, a project director at BioCrossroads, an Indianapolis not-for-profit that promotes the life sciences industry.

The state is seeing waves of new pharmaceutical contract manufacturing, Stemme said.

In the past few years, Chicago-based Baxter Corp. has opened a contract manufacturing site in Bloomington that turns out vials and pre-filled syringes. Bloomington-based Cook Group has launched a unit called Cook Pharmica, which manufactures proteins.

In Indianapolis, Vesta Pharmaceuticals Inc. manufactures vitamins and other tablets.

Indiana will continue to attract manufacturers because the state is centrally located and has a plentiful supply of workers accustomed to operating in highly regulated environments, Stemme said. The state also has a plethora of consultants, vendors, building contractors and other networks that can support the segment.

Yet another factor in the state's favor is a trend underway among such drug giants as Merck & Co. to outsource manufacturing in order to free themselves to develop new drugs.

"We're going to get more contract manufacturers," Stemme said.

Much has changed in the state since 2006, the latest year for which production are available.

Toyota Motor Manufacturing Indiana expanded assembly of its Camry sedan through a partnership at Subaru of Indiana Automotive Inc.'s plant in Lafayette. And Honda Manufacturing of Indiana is opening its new assembly plant in Greensburg.

Still, Slaper thinks the overall trend toward chemicals will hold.

An Indiana Manufacturers Association lobbyist calls the shift toward chemicals insignificant.

Mark Cahoon, vice president of government finance and economic development, said automotive shouldn't be discarded in favor of chemicals, because the state still needs car manufacturing.

Indiana has taken hits as suppliers tied to Detroit car companies have closed or laid off workers, Cahoon noted, but other suppliers have held tight. And Japanese car companies and their suppliers have increased their activity.

"Indiana still needs to be very focused on attracting automotive investment," Cahoon said.

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