FORD MOTOR COMPANY TO BRING PARTS PRODUCTION IN-HOUSE
For as long as I can remember, Automakers have outsourced their parts production to a sub-manufacturer that built and assembled the parts off-site...adding to the complexity of the automotive manufacturing process. For so long, Ford has had Visteon and GM had Delphi...but thanks to recent concessions with the UAW...that is all about to change as Ford has decided to bring more of its parts production back home and do it in-house. For more details, see the following articles courtesy of Motive Magazine.com and The Detroit Free Press.
And also, the source article from The Detroit Free Press.FORD BRINGING PARTS PRODUCTION IN-HOUSE
February 15th, 2008
Once upon a time, automakers owned their suppliers. Plastics, steel stampings, interior parts, alternators, and their ilk were made by enormous, captive house brands like Motorcraft or Delco-Remy. Then automakers began looking for more money, so they spun off their accessories divisions into Visteon (Ford) or Delphi (GM), standalone companies that could sell their tech on the open market to other automakers, while allowing the Big Three to buy from Valeo, Bosch, Denso, or whichever other suppliers could source parts more cheaply. It's why Corvettes, the red meat of the American car industry, come with Valeo alternators that proclaim "Made in France" on their foil part-number tags.
But now, thanks to concessions by the UAW, parts can be insourced cheaper than they can be outsourced, leading automakers to, once again, build sub-assemblies on their own. The new UAW labor contract with the automakers establishes lower, second-tier wages for new hires, or non-core workers, at about $14 an hour — half of what existing workers are paid. Could we see a return to genuine Ford-designed parts on Ford cars and Chrysler-engineered pieces on Chrysler vehicles? It's too early to tell, but automakers are making those tentative first steps toward developing their own gear again: This spring, Ford is moving production of gauge clusters for the Taurus and MKS to its Chicago assembly facility.
So, based on all of this information...what do you think?FORD TO DO MORE PARTS IN-HOUSE
UAW labor deal may spur in-sourcing trend at Detroit 3
February 15, 2008
By SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
For decades, Detroit automakers have outsourced parts work -- from axles to cup-holders -- to suppliers that employ thousands of workers nationwide, and increasingly, in low-cost countries such as Mexico and China. The suppliers develop and build the parts. Then they ship them back to the automakers, where they are assembled into shiny new Ford F150 pickups and Chevrolet Malibu sedans. But this spring, Ford Motor Co. will start assembling its own instrument panels in Chicago for its Ford Taurus and new Lincoln MKS sedans. It's a small step in what is expected to be a dramatic shift to in-sourcing for all Detroit automakers -- but it's an ominous one for the already-struggling parts-making industry. "We believe that suppliers ... risk losing substantial business once their current contracts expire," John Murphy, an automotive analyst with Merrill Lynch, told the Free Press in an interview Wednesday.
He said the decision to start in-sourcing work is a direct result of the new 4-year labor contract with the UAW. The union negotiated several terms in the contract, such as a second, lower tier of pay that would protect the UAW from more outsourcing -- a trend that has diminished the union's membership and influence. "Due to recent UAW concessions," Murphy wrote in a recent note to investors, "these tasks can now be sourced to internal workers at comparable costs and without significant investment in infrastructure. ... We are convinced that an in-sourcing trend is emerging." As Joe Hinrichs, group vice president for global manufacturing at Ford, told the Free Press in an interview last week: "We are ... looking at every single part and every single plant and every single product over time to see what may be candidates" for in-sourcing, "as we committed to with the UAW."
Fritz Henderson, General Motor Corp.'s chief financial officer, told the Free Press on Tuesday that GM "might do some sub-assemblies" in-house in the future, but he was reluctant to discuss the company's in-sourcing considerations or plans in detail. "That needs to be evaluated on a case-by-case basis with the UAW," he said. Chrysler LLC officials could not provide immediate comment on what work they might be in-sourcing as a result of its new contract.
UAW fought to in-source
It's easy to see why bringing work in-house might begin to make more sense now. The new UAW labor contract with the automakers establishes lower, second-tier wages for new hires, or non-core workers, at about $14 an hour. That is about half of the salary of current autoworkers. Benefits are less lucrative, too.
More importantly, though, the lower pay level is about on par with what many suppliers pay their workers. In some cases, experts told the Free Press, suppliers even pay more. The new price differential alone would give automakers a strong incentive to consider making a variety of parts in-house with UAW labor. But the UAW also got Detroit automakers to agree to in-source a certain number of jobs -- 3,000 at GM, 1,500 at Ford and 1,025 at Chrysler -- and to explore in-sourcing thousands more.
Several of the automakers also promised the union access to confidential business information that informs their decision-making on whether to outsource or in-source a part. "The union will now have the ability to present all business cases related to in-sourcing opportunities directly to applicable company decision-making parties," UAW leaders at Ford wrote in a flyer to its members last fall. Similar language was sent out to workers at GM and Chrysler about in-sourcing.
That means suppliers essentially will be bidding for auto-parts work against the UAW, who will be making a tough, new business case using the automaker's own plants and assets. But even if the suppliers don't actually lose their contracts as a result of this new competition, several experts told the Free Press, they certainly will face increasing price pressure as a result of the new situation. With even more pricing pressure, and less work being outsourced by the automakers, the already-intense battle for business among suppliers only will get tougher. Over time, Murphy said he expects this new situation will result in a further restructuring in the supplier community and a shift of workers from suppliers back to automakers, where they are certain to be paying union dues.
Labor cost just one factor
Despite the focus on lower wages, Ford's head of manufacturing, Hinrichs, said the decision to in-source won't purely be based on labor costs. "There's a lot that goes into this. It's not as simple as chasing a lower labor cost," he said. Other considerations include the amount of capital investment required to develop and build the part; the amount of floor space required and available; the impact on material prices; the logistics of maintaining an inventory, and the value that suppliers add to the parts they create. "Where the supply base has the engineering and the technology knowledge and capability, those types of products will most likely stay with the suppliers," Hinrichs said. "The most likely candidates for in-sourcing are ... typically high-labor subassembly parts that are typically made in sequence, so they need to be made nearby or in the plant."
Maintaining a financially healthy base of suppliers also remains an important consideration in deciding what parts to in-source or outsource, Hinrichs said.
That way, the production of new vehicles is not disrupted for lack of parts.
Recently, for example, several Chrysler plants had to close briefly when the Dearborn-based supplier Plastech filed for bankruptcy, as a number of suppliers have had to do in recent years.
"It's a very high priority for us," Hinrichs said of a healthy supplier community. "The stability and success of our supply base is critical to our business."
Contact SARAH A. WEBSTER at 313-222-5394 or [email protected].
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