In U.S., a New Model for Auto Industry
In the ever-more competitive global economy, China is now in the driver's seat -- literally.
The world's most populous country is setting the price these days for automotive parts. And that is raising questions about how long auto parts manufacturing can continue successfully on American soil.
One answer may lie in an unusual venture taking place in Toledo, Ohio, at DaimlerChrysler's Chrysler division.
The company announced last week that it was erecting a new factory on the site of one of its oldest U.S. plants. Its aim is to build new models of the Jeep and other vehicles. But notably, it is not doing so alone.
Three suppliers, two from Germany and one from South Korea, are investing $300 million to join Chrysler, which is sinking $900 million into the endeavor.
Meanwhile, the United Auto Workers union is negotiating contracts with the newcomer firms. They will feature lower wage rates than those in the master labor agreements that have been signed with Chrysler and other giant car manufacturers.
The arrangement is nothing less than "a modification in the business model" that the industry has followed for decades, says J Ferron, senior analyst at PricewaterhouseCoopers' automotive consulting practice. The setup, he adds, has the potential to forever change the way American car companies finance their factories and develop their products.
Indeed, the venture is unprecedented in a couple of significant respects. First, suppliers have never before invested alongside their customer in putting up a U.S. factory complex, although they have been called on in recent years to assume responsibility for making more parts for vehicles.
In Toledo, Kuka Group and Durr of Germany and Hyundai Mobis of South Korea each will own and run a major operation -- the body shop, the paint shop and the manufacturing line for chassis, respectively.
"Suppliers want to be involved," says Jeff Schuster, a consultant to auto parts companies for J.D. Power & Associates. "Pressure to reduce their costs won't go away, but having ownership can be a stabilizing factor in their business."
In other words, buying into the place should help ensure that they'll be around for a while.
About 1,100 Chrysler workers will become employees of the three supplier firms. Chrysler will retain 2,900 employees to work on the Jeep.
"This is 'insourcing,' not outsourcing," notes Chrysler spokeswoman Mary Beth Halprin.
