Michigan is navigating one of the most consequential industrial transitions in the country. For more than a century, the state’s OEMs, supplier networks, skilled workforce and production infrastructure have anchored U.S. automotive manufacturing and shaped the broader American economy. During World War II, Michigan demonstrated this capacity most vividly by retooling its factories to become the “Arsenal of Democracy,” producing the material that powered the Allied war effort.
Michigan’s industrial foundation, however, has undergone significant strain. Decades of plant closures, job losses and population decline have forced the state to confront the limits of its manufacturing model amid intensifying global competition and offshoring. Today, a new set of pressures – shifting supply chains, trade volatility and EV transition uncertainty – is forcing Michiganders to rethink long-term growth strategies and explore new markets beyond automotive.
Meanwhile, Michigan’s engineering expertise and manufacturing capacity that support automotive production can also meet the growing demand in emerging critical industries. Let’s examine how the state can build on its automotive foundation to strengthen its industrial base and expand participation in emerging sectors.
Michigan’s supplier ecosystem is among the most robust and technically capable manufacturing networks in the world. Suppliers possess deep expertise in engineering, tooling, precision manufacturing and materials fabrication, supporting the state’s core automotive industry as well as a range of other critical sectors.
Automotive influence
Home to Ford, General Motors and Stellantis, Michigan’s manufacturing economy has long been organized around OEM supply chains that created stable demand for suppliers. Automotive and parts manufacturing accounts for 35 to 45 percent of the state’s manufacturing output (see Figure 1).
The industry’s influence, however, extends beyond vehicle assembly. Automotive parts manufacturers, alongside the fabricated metal and machinery sectors that support automotive production, represent nearly half of Michigan’s 12,000 manufacturing establishments. Across the state’s entire supplier landscape, small and mid-sized manufacturers account for more than 99 percent of all Michigan manufacturing firms, employ most of the manufacturing workforce and contribute more than half of the state’s manufacturing output (see Figure 2).
Today, Michigan’s automotive suppliers are facing growing pressure from global competition, supply chain disruptions, rising costs and slowing vehicle demand. The U.S. share of global automotive vehicle sales fell from 23 percent in 1995 to 14 percent in 2022, reflecting the continued globalization of automotive manufacturing. Supply chains have also become more globally dispersed: vehicles sold in the United States contained 38 percent American- or Canadian-made parts in 2007, compared to 18 percent in 2023. At the same time, shifting trade and tariff policies have increased costs and uncertainty for manufacturers.
Uncertainty around the transition from internal combustion engine vehicles to EVs has created additional challenges. More than 300 suppliers and 46,000 workers in Michigan are estimated to be directly at risk as electrification reduces demand for traditional components such as engines and transmissions while increasing demand for batteries, electronics and software. Slower than expected EV adoption and shifting policies have further complicated investment decisions.
Meanwhile, opportunities are emerging in defense, energy systems, semiconductors, medical technologies and other frontier industries. Since 2022, Michigan has attracted more than $26.6 billion in clean energy investments and yielded more than $5.5 billion in annual U.S. Department of Defense contract activity. The state is also emerging as a semiconductor hub, supported by the CHIPS Act award to Hemlock Semiconductor and by private investments.
While these investments are generating significant demand, much of the demand flows to large firms outside Michigan rather than the small and mid-sized suppliers that make up the majority of the state’s industrial base. To capture a greater share of this growth, suppliers need help accessing new markets, developing new capabilities and navigating complex industry requirements.
Supporting suppliers
Preparing suppliers to compete in today’s core and emerging industries requires more than individual programs or isolated investments. It requires an integrated ecosystem that helps manufacturers build new capabilities, access talent, secure capital and connect to new customers. Michigan possesses many of the foundational assets needed to support this transition, including a dense network of business support organizations, workforce institutions, research universities, economic development agencies and capital providers (see Figure 3).
Despite its strengths, there are gaps in Michigan’s supporting ecosystem in accessibility and specialization that make it difficult for manufacturers to navigate the resources available to them. Competition and growth, therefore, depend on how well business support, workforce development and capital systems work together.
Many small and mid-sized manufacturers possess deep technical expertise in machining, tooling, fabrication and systems integration, yet lack the internal capacity to redesign their business strategies, pursue new customers or navigate the organizational change required to evolve within core markets and enter new industries. As demand shifts across sectors, suppliers increasingly need support with strategic planning, market diversification, procurement navigation, and facility and production retooling.
The challenge becomes even more complex when suppliers seek to enter industries such as defense, aerospace, semiconductors and advanced energy systems. These markets often require certifications and compliance standards that require investments in systems, documentation and operational processes to achieve them.
Michigan’s business support ecosystem offers a strong foundation to address these challenges, including organizations such as Automation Alley, the Michigan Manufacturing Technology Center and the University of Michigan’s Advanced Mobility Supply Chain Transformation Center. They offer support in lean manufacturing, quality control, Industry 4.0 adoption and industry transition.
The Michigan Economic Development Corp.’s (MEDC) Connex Michigan and other supply chain resiliency initiatives connect manufacturers to buyers across automotive, defense and adjacent industries. They also help suppliers navigate procurement requirements and build the compliance capabilities to compete for contracts.
Yet Michigan’s business support ecosystem faces challenges. Existing services often concentrate on improving business operations and production capabilities versus strategically supporting industry transitions. Advisory services focused on business model redesign, market strategies and multi-sector growth remain limited with support dispersed across dozens of organizations, making it challenging for suppliers to identify the right resources at the right time. As a result, the manufacturers most in need are often the least connected to the ecosystem designed to assist them.
Workforce development
Michigan manufacturers looking to modernize and compete require workers with specialized skills to operate advanced manufacturing systems and support production across multiple industries and product lines. They also need individuals capable of leading organizational change and implementing new production models.
Michigan possesses substantial workforce development assets to support industrial transitions, including nationally recognized research universities, a strong community college network, workforce development boards, apprenticeship programs and employer-driven training initiatives.
The University Research Corridor, consisting of the University of Michigan, Michigan State University and Wayne State University, ranks among the country’s leading research ecosystems and is a major source of engineering, technical and manufacturing talent. Community colleges provide a critical pipeline of workers while programs such as the Michigan Department of Labor and Economic Opportunity’s (LEO) Going Pro Talent Fund and Michigan Advanced Technician Training help employers train workers and expand talent pipelines. Federal programs, including the U.S. Department of Energy’s support for the MI Auto Workforce Hub, have further strengthened training capacity in advanced manufacturing and other industries.
Despite these assets, workforce challenges remain. Only 11 percent of auto suppliers nationwide report sufficient in-house expertise to operate and expand automation systems, while 62 percent report partial capability. Many training programs are designed for new workers rather than incumbent workers who need reskilling. Partnerships between employers and educational institutions also tend to be episodic rather than sustained, particularly for small and mid-sized manufacturers. At the same time, workforce and business support systems often operate independently, limiting their ability to align training with evolving operational needs.
Capital investments
Manufacturers seeking to modernize facilities, automate production, secure certifications or diversify into new industries often face substantial upfront costs long before new revenue materializes. These investments are essential to compete, yet the capital required frequently falls outside traditional financing. Michigan, however, benefits from access to a robust capital ecosystem – banks, alternative lenders, venture capital funds and private equity investors – that supports business and industry growth through business expansion, equipment purchases, technology adoption and new product development.
Government programs supplement private capital markets through direct funding and incentives that encourage private investment. MEDC’s Capital Access programs help reduce lender risk and expand financing opportunities for businesses that may not meet conventional underwriting standards, leveraging federal resources through the U.S. Department of Treasury’s State Small Business Credit Initiative. The Michigan Supplier Conversion Grant Program, administered by LEO and funded by the U.S. Department of Energy, provides auto suppliers with direct support for facility modernization and production retooling, helping finance large-scale operational changes associated with industry transitions.
Despite these efforts, access to capital remains one of the most persistent challenges facing suppliers. Michigan manufacturers face an estimated $4 billion annual capital gap, with an average financing shortfall of approximately $330,000 per business (see footnote). Many fall into a “missing middle” where their capital needs exceed the limits of conventional commercial lending but remain too small or operationally complex for private equity and institutional investors. Traditional debt products are often poorly suited to the long timelines and uneven cash flows associated with supplier diversification and modernization.
Promising models
Michigan’s leading industry initiatives connect manufacturers to identifiable demand in growing sectors, coordinate resources across institutions and build on the state’s existing industrial assets. Rather than treat supplier development, workforce training, capital access and procurement as separate challenges, these initiatives integrate them around specific industry opportunities (see Figure 4).
Demand-driven partnerships are among the most promising approaches to helping suppliers compete. Rather than offering generic business support, they begin with a clear market opportunity and align resources to help suppliers compete.
The Global Epicenter of Mobility, led by the Detroit Regional Partnership and supported by the U.S. Economic Development Administration, brings together business support organizations, workforce partners and industry stakeholders to help manufacturers participate in advanced mobility supply chains. Similarly, the partnership among Consumers Energy, DTE Energy and LEO’s Community and Worker Economic Transition Office combines supplier development with procurement commitments in energy supply chains, directing demand to Michigan-based businesses.
Michigan’s industry-workforce partnerships offer another promising model. Rather than developing talent in isolation from industry needs, these initiatives align training investments with specific employer demand and sector opportunities. The Michigan Maritime Manufacturing Initiative brings together employers, workforce organizations and educational institutions to provide accelerated training aligned with the requirements of maritime manufacturing and naval supply chains. The Michigan Semiconductor Talent and Technology for Automotive Research initiative applies a similar approach over a longer time, coordinating universities, industry partners and public agencies to build the state’s semiconductor talent pipeline.
Moreover, capital programs are most effective when they reduce risk and attract private investment. Programs such as MEDC’s Capital Access initiatives expand financing opportunities for manufacturers that may not meet traditional underwriting standards while encouraging lenders to invest in local manufacturers and suppliers. The Make It in Michigan Competitiveness Fund uses a comparable model, matching public resources with federal and private investment opportunities to help businesses, universities and economic development organizations compete for investment in strategic industries. These programs demonstrate how public capital can be used to unlock larger pools of private investment and support industrial development.
Even well-designed programs, however, often fail to reach manufacturers when resources are dispersed across multiple agencies and organizations. Platforms like the MI Hub for Manufacturers address this challenge by providing a centralized entry point to capital, business support and workforce programs, helping suppliers more easily identify and access available support.
The most promising initiatives begin with a specific market opportunity and designate a coordinating institution to align public and private actors to integrate supplier development, workforce training, capital access and procurement support around a shared objective. The opportunity is to expand and better connect these models across additional industries and regions. These initiatives offer practical examples of how supplier-centered ecosystems translate industrial investment into long-term competitiveness.
Lessons learned
Michigan’s experience offers several lessons for the country’s reindustrialization and regional manufacturing ecosystems navigating economic change. The state demonstrates that industrial transition is not simply a workforce challenge or a technology challenge; it is also a business challenge. As industries evolve with automation, reshoring and shifting supply chains, manufacturers require coordinated support to adapt business models, modernize operations and compete in new markets.
- Build from existing industrial assets: Legacy manufacturing capabilities are transferable across a variety of critical sectors and industries. Industrial strategies are most effective when they build on existing supplier capabilities and regional strengths.
- Wraparound support matters: Reindustrialization requires high-touch advisory support, particularly for the small and mid-sized manufacturers that possess strong engineering and production expertise but lack the capacity to redesign business strategies, pursue new customers, retool production lines and identify sites for new facilities and growth. Sector-specific assistance and strategic planning are as important as workforce training and capital.
- Business and workforce development must be integrated: Manufacturers adapting to new markets often need corporate strategy support, production planning, worker retraining and recruitment support, all simultaneously. These systems are most effective when they align directly with the operational needs of small and mid-sized businesses rather than operating independently.
- Flexible capital remains a major opportunity: Traditional capital markets often fail to meet the needs of manufacturers, particularly those seeking to retool or diversify their businesses. Many suppliers require patient, flexible financing for equipment upgrades, facility modernization and working capital before new contracts materialize. Regional industrial strategies will likely require more innovative financing models and public-private vehicles to support access to capital.
- Regional competitiveness is a long-term strategy: Industrial transitions should be viewed as a regional competitiveness challenge. Regions that pair strong industrial capabilities with public-private partnerships will be best positioned to compete in evolving industries. Long-term competitiveness depends not only on attracting major investments but also on ensuring that local suppliers and workers are positioned to participate in and benefit from those investments over time.
Footnote: The capital gap estimate is calculated as the estimated financing demand from Michigan manufacturing small businesses less the available debt and equity capital. Demand is based on the number of manufacturing small businesses, financing application rates and average Small Business Administration (SBA) 7(a) loan size; supply is based on CRA-reported bank lending, SBA lending and private equity/venture capital investment data.
References: American Investment Council (2019 and 2020). Top States and Districts in 2019 and 2022; Fed Small Business (2024). Small Business Credit Survey; Federal Financial Institutions Examination Council (2019 and 2022). Community Reinvestment Act Data; Michigan Venture Capital Association (2023). Impact Report; U.S. Census (2023). County Business Patterns; U.S. Small Business Administration. (2024) 7(a) Lending.
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About Next Street
For more than 20 years, corporations, governments and philanthropies have partnered with Next Street to strengthen the small businesses they rely on. Focusing on data-driven strategies, proprietary technology, national networks and implementation expertise, Next Street delivers end-to-end solutions to support small businesses in their communities and suppliers across their value chains.
This case study is part of Next Street’s “Building America’s Industrial Base: Strengthening Economic Competitiveness and Resilience Across Critical Industries,” a research series examining the dynamics that shape how suppliers and their workers participate and scale within U.S. industrial supply chains. Michigan is the first regional case study, selected because it illustrates the opportunities and challenges of industrial transition: deep legacy capabilities, significant market demands and systemic gaps between the two.
