By Anne VanderMey
July 9, 2013

FORTUNE — Judith Walker used to have to drive more than an hour to get to her job at the General Motors plant in Lake Orion, Mich.

Now, she commutes about five minutes to get to her job in Detroit. But she’s not making cars, she’s assembling the near-microscopic components of $700 watches.

Walker works at Shinola, the high-end wristwatch company that is betting big on manufacturing — in Detroit. Shinola is run by Texas-based Bedrock Manufacturing, owned by the founder of Fossil Inc., and Swiss timepiece maker RONDA. It started operations in 2011 and has so far hired more than 40 people in Detroit. If all goes according to plan, it will hire many more. Factory output this year will be 45,000 watches. The goal is 500,000.

Nearly a century ago, the name Shinola (pronounced SHY-nola) referred to a brand of shoe polish, immortalized in the old-timey saying, “You don’t know shit from Shinola.” Defunct for years, the watchmakers bought the slightly irreverent brand name and are hoping to shine up its reputation. Shinola watches range in price from $475 to $995. It also makes luxury bicycles, $1,950 to $2,950, and leather journals. The brand’s other products include “Shinola Cola” and, as a throwback, actual shoe polish. With few exceptions and technicalities, every product is made in the U.S.

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Like most Shinola employees, Walker didn’t know anything about watch manufacturing when she started out. Not many Americans do. “We knew that no matter what city we picked there wasn’t going to be a strong labor pool for us to draw from,” says Heath Carr, Bedrock’s CEO. But she did have manufacturing experience at two of the Big Three automakers, and was eager to learn. So far so good, she says.

“I feel like I was placed here for a reason,” Walker said. She loves learning the intricacies of the assembly process, not to mention the commute, the air conditioning, and not coming home smelling like oil. “Having it right here in the city, everything about it is good.”

A common refrain from manufacturing companies is that U.S. workers don’t have the skills required for many factory floor jobs. Shinola was no exception, but instead of setting up shop overseas, the brand has another approach: fly in teams of expert watchmakers from Thailand and Switzerland and have them train new employees on each model, often for weeks at a time. Over the course of training, employees like Walker learn how to assemble several different types of watch, regardless of which piece they eventually end up working on. Swiss manufacturer RONDA brings in the watchmaking veterans, who teach the employees the nuances of the movements by putting their arms around trainees – a little like a golf lesson.

Though many companies have balked at the prospect of similar programs, Carr says the training is worth the considerable time and expense. Instead of going elsewhere for the cheap labor and low-cost supplies, Shinola believes the free shipping, easy communication, and quality employees will make the U.S. location pay off. And then there’s that “Made in Detroit” logo.

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“We wanted people to respond to the integrity of the brand,” says Shinola creative director Daniel Caudill. “‘Made in America’ is a little generic, it’s overused.” But Detroit, the storied and battered capital of American manufacturing, still has cachet. To help sell the story, Shinola has required that every would-be watch vendor make the trip to the city before placing an order. Why add an extra hurdle for potential buyers? “It just comes down to pure dollars and cents,” Carr says. “You’re taking some significant risks. You’ve got to be able to share that story.”

So far, at least, those risks seem to be panning out. Shinola launched its first storefront in Detroit two weeks ago at a grand opening with lines that snaked out the door as patrons crammed in to view bikes, watches, and other products (leather-encased bike locks, wallets, and footballs to name a few). A 2,500-piece test run of watches launched in March sold out online, as did early collections in Barneys. But it’s still unclear whether Detroit patrons will be willing to pay more than $500 for a watch. Or as much $2,950 for a bicycle.

Jim Kitchen, for one, thinks it’s possible. Kitchen, a Michigan native who runs a golf store in nearby Novi, bought three watches, two online and one in-person at the store’s Saturday opening. He pulled it out of his bag at a pizza restaurant across the street, showing off its sleek wooden casing — also made in the U.S., he points out. Kitchen grew up in Detroit, and he says he likes the Shinola story better than, say, Rolex (though he also owns one of those). And at $500 a pop, it’s more affordable, too.

Shinola’s watch factory is located in the famous former site of the General Motors (GM) research labs, the Argonaut Building, now owned by Detroit’s College for Creative Studies. Inside, workers wear hairnets, smocks, and blue booties designed to keep tiny particles of dust out of the inner workings of the watches. The factory floor abuts a trendy office space with cement floors and wooden desks that looks more tech startup than manufacturing facility.

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Shinola has big plans for the space. If it reaches its capacity of 500,000 units per year, it would be the largest U.S. luxury watch manufacturer by a long shot, Carr says. Then, ideally, he hopes other watch companies will move into the unused space in the building. Gradually, building up the industry in the area would give the company bargaining power, he says, and could make getting locally made parts easier. Plus, the near-bankrupt city could use the boost.

It may not be far off. Shinola isn’t the only upstart manufacturer that’s moved in recently. Detroit Bikes and Detroit Bicycle Co. are two of several bike makers (besides Shinola) that set up shop in Motor City. And Detroit Denim, which is also on sale in the Shinola flagship store, produces premium jeans in a nearby warehouse. These companies and more are capitalizing on the Detroit name and story, as well as the increasingly appealing value proposition for manufacturing stateside. Detroit lost 52% of its manufacturing jobs in the wake of the financial crisis, according to research by the Brookings Institution, but thanks to an automotive resurgence and a series of upstarts like these, the number has ticked back up in recent years.

It will be a long road back for the battered city, and for American manufacturing in general. But for anyone who says building in the U.S. is a non-starter: They don’t know shit from Shinola.

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