December 7, 2004
Two days after Magna International announced that it planned to open a North American assembly facility, Dieter Zetsche, CEO of the Chrysler Group, revealed that its new ME Four-Twelve concept car would be assembled by one of its supplier partners.
Magna International is an excellent example of a supplier adapting to OEMs' demands for suppliers to increase their capabilities. Magna not only provides parts, but also currently assembles the Jeep Grand Cherokee® in Graz, Austria.
In August Magna announced plans to open a facility to assemble vehicles for North American OEMs. While no location was specified, the factory is expected to be completed by 2008. While it's tempting for lower-tier stampers to dismiss such a bold announcement, there is ample reason to take it seriously.
Using a supplier to assemble vehicles is not a new concept on this side of the Atlantic. ASC currently assembles the Chevrolet SSR® in Lansing, Mich. ASC uses a GM facility, with GM employees represented by the UAW. If rumors are true, the operation is not running smoothly, and it's doubtful GM will work with ASC on another vehicle assembly project. Therefore, Magna's supremacy in vehicle assembly looks secure.
Days after Magna's announcement about opening a North American assembly plant, Dieter Zetsche, CEO of the Chrysler Group, announced that the automaker is planning to build its ME Four-Twelve® concept car and will use supplier partners for vehicle assembly. Because DaimlerChrysler is Magna's biggest customer and Magna already assembles several of Daimler's vehicles, it appears likely that the stamper's future North American assembly facility has its first product.
Magna's likely future role as vehicle assembler may create substantial changes for stampers that make components for certain vehicle programs. Stampers may find themselves in a lower tier in the supply chain, because they would be supplying to a supplier, not an automaker. It also has the potential to undermine longstanding relationships between stampers and automakers.
Magna's ascendance to the role of vehicle assembler is not the only dynamic that is changing the landscape of automotive stamping. In 1998 General Motors and Ford Motor Co. spun off their parts divisions as Delphi and Visteon, respectively.
By being independent, Delphi and Visteon are free to pursue business with other automakers, something that wasn't possible when they were part of a rival OEM. The divisions now specialize in the role of supplier—free of the encumbrances that go along with being part of a huge corporation whose main focus is making cars, not parts.
But what often isn't discussed is how the spinoffs affected labor and supplier relations.
On the labor side, the results are clear. The UAW consented to the spinoffs only after securing a guarantee that UAW members would continue to be technically employed by the automakers and not Delphi and Visteon, and that they would retain their benefits and the right to transfer to other GM and Ford facilities.
The picture isn't as rosy for employees hired by Delphi and Visteon after the spinoffs occurred. Earlier this year the UAW agreed to a two-tier wage structure, which means OEM and supplier employees with the same job do not earn the same wage, even though they are members of the same union.
The two-tier wage structure also has a potential application for Magna. Instead of just supplying components, Magna will be supplying vehicle assemblies, which makes it possible for vehicles to be assembled by UAW members at wages considerably lower than those typically paid by automakers. Although no one dares give this possibility as a reason for Magna to assemble vehicles, it's certainly a tempting carrot.
Lower-tier suppliers have seen another effect of the Delphi and Visteon spinoffs. Both Delphi and Visteon continue to be predominantly owned by their former parents. Likewise, their biggest customers continue to be GM and Ford, respectively.
This opens up the possibility for GM and Ford to use Delphi and Visteon to put price pressure on suppliers. Some stampers have found themselves supplying Ford and GM assembly facilities, but dealing with Visteon and Delphi purchasing departments to get the work.
The Big Three are known for poor supplier relations. Some suppliers are so fed up they are now turning down their business. Bo Andersson, the head of GM purchasing who previously held the same post at Saab, made a favorable impression on suppliers by speaking of improved relations and partnering for mutual gain.
However, recently Andersson's image has tarnished in the eyes of suppliers because of his hardball tactics. Enforcing GM purchasing policies through an intermediary such as Delphi would be a clever money-saving tactic, given the situations GM, Ford, and Chrysler now face.
Chrysler's parts operations are considered too small to spin off in the manner of Delphi and Visteon. A vehicle assembly deal with a supplier such as Magna, however, could result in similar cost reductions.
Spinning off a parts division as a new supplier or using an automotive parts supplier for vehicle assembly will add a new tier to the automotive supply chain. This will move engineering and purchasing responsibilities from automakers to suppliers.
Stampers have found themselves in an increasingly challenging environment with complexity, responsibility, and price pressures increasing every year. This new development in the automotive supply chain is yet another sign of challenges on the horizon.