Ford to Manufacture Some Parts In-house
02-15-2008, 11:54 AM
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Ford to Manufacture Some Parts In-house
From Detroit Free Press
DETROIT - 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 F-150 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 Detroit Free Press in an interview Feb. 13.
He said the decision to start in-sourcing work is a direct result of the new four-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 Detroit Free Press in a recent interview: "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 Detroit Free Press on Feb. 12 that GM "might do some subassemblies" 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.
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 Detroit 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 flier 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, which 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 Detroit 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.
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, MI-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."
DETROIT - 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 F-150 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 Detroit Free Press in an interview Feb. 13.
He said the decision to start in-sourcing work is a direct result of the new four-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 Detroit Free Press in a recent interview: "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 Detroit Free Press on Feb. 12 that GM "might do some subassemblies" 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.
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 Detroit 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 flier 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, which 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 Detroit 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.
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, MI-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."
02-17-2008, 11:50 AM
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if you like having a job sure, as they will be American workers who will start spending money (with our unemployment especially in Michigan the country needs the help)
02-17-2008, 09:11 PM
#5
FINALLY!! Bringing back some jobs to America!
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
02-17-2008, 09:34 PM
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Join Date: Dec 2004
Location: Everywhere
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Rep Power: 860 FINALLY!! Bringing back some jobs to America!
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
02-17-2008, 10:10 PM
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look at Michigan, they now have the highest unemployment in the nation due to the auto industry cutbacks (UAW screwed themselves with NAFTA) get those guys back to work, they start to buy the stuff they put off due to no money, the stores hire more people due to demand, where is the downside? Oh year I pay an extra 100 bucks for a car (that once you figure the freight, and customs crap on the foreign made junk probably evens out)
02-19-2008, 02:56 PM
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Join Date: Dec 2004
Location: vallejo, california
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Rep Power: 715 FINALLY!! Bringing back some jobs to America!
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
When did this country change, I remember buying something and it would have the American flag on it and say "Made with pride in the U.S.A". When did that become a bad thing, I have no problem paying a little more for stuff if it means Americans made it.
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