Filed under: Trends, China, Plants/Manufacturing, GM, Earnings/Financials
GM demanding suppliers must outsource from low cost nations?
Oh, the
peril of being a company in a global economy" that has survived in part by virtue of its customers' "Buy
American" attitude. Gneral Motors is clearly stating that it has no official plan to force suppliers
to go to low-cost countries (LCC; also known by the euphemism "leading cost countries"),
despite the fact that recent bid packages were accompanied by a list of "approved" countries. Suppliers were
told that at least 30 percent of their content must come from such countries, regardless of cost. Needless to say, this
has stirred up a bit of controversy in the auto industry.
Bo Anderson, GM's head of purchasing, claims that such bid packages were simply the result of a renegade employee, who earned praise for "creativity" and was not disciplined. The company immediately launched an investigation and issued a missive stating that it isn't the automaker's policy to direct suppliers where to do business. However, the General continues to emphasize the importance of a strong "global footprint" to its suppliers, and critics argue that GM is exerting pressure on suppliers to go overseas for cheaper production, with approximately 20 percent of North American automotive parts production going to LCCs by the end of the decade.
What do you think? Have your say in 'comments.'
[Source: The Detroit News]
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Reader Comments (Page 1 of 2)
Richard Warren 5:19PM (4/08/2006)
Well, it's already happening DEPO lighting parts packaged with a GM packing tag, a GM mark on the lens, open shipping box, inside.
DEPO parts:http://www.depoautolamp.com/
Funny thing about the bullshit global economy? The retail list price is 47 dollars more than before. Low cost to whom? Not the consumer.
Of course jobs in America are not important, righhhhhht
It's not about low cost it's about how much you can put in your pocket.
Remember that old song? 'Get Ready cause here I come?"
How about "Bend over cause here we come!"
Oh and don't give me the bullshit about better quality, I've seen the 2 parts side by side more than once.
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Finished.Law.School 6:59PM (4/08/2006)
Bullshit. From personal experience with one of their OEM suppliers, GM is requiring that more and more parts are manufactured in countries with low production costs so that GM can pay less for what they want. The cost of noncompliance is a big fuck you, a breached contract and GM stating that you will get blackballed. And despite common sense implying otherwise, being blackballed goes farther in the Michigan manufacturing community than antitrust laws would imply...
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Razib Ahmed 7:35PM (4/08/2006)
It is not fair to blame GM for this as it has become a trend for many auto makers. The car market outside of USA is growing at a good pace. For example, this year, 250,000 cars will enter into the Pakistani market (http://www.southasiabiz.com/2006/03/amazing_turnaround_by_pakistan.html) or record number of sales in India last month. I guess other companies will start to walk in the road of GM soon.
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Igor 7:46PM (4/08/2006)
Interestingly, this was reported the same day Ford announced they will require all of their suppliers (domestic or foreign) to uniform labor standards in all of their manufacturing venues, including off shore locations....
I think we can see the two Auto mammoths splitting paths... and I like Bill Ford's philosphy better
http://detnews.com/apps/pbcs.dll/article?AID=/20060406/AUTO01/604060372/1148
Igor
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Dave Lawson 8:17PM (4/08/2006)
This is true of recent sourcing packages issued by GM. While they have not directed the suppiers to manufacture in Low Cost Countries, there is no doubt (of any kind) that this is the expectation.
Recent work on the new Epsilon program demonstrates the focus on China, in particular.
Ultimately, it's about the total price (including logistics and taxes) that comes into play here.
Traditional North American suppliers will need to adjust their mindset to compete.
As much as folks can complain, whine, or otherwise object, this is the future that we must consider. China will have a labour competiveness advantage for the next 20 years. It will take that long for their cost structure to catch up with North America.
In comparison, we saw the same thing happen with Japan and South Korea in the past.
The lesson to be learned is that we are no longer alone. It's a real big world out there and we need to understand how to compete. If we don't....we won't exist and neither will our jobs. But then, this isn't new to us, we've been here for many years.
Dave
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Stoneman 9:26PM (4/08/2006)
By outsourcing to China GM assures it's quality will remain low and costs low. Consumers will not put up with crappy, ill-fitting cars anymore. 2005 proved that when Foreign cars out-sold domestic cars. Personally speaking, I am tired of GM vehicles. My next car will be an import - likely Toyota or Honda.
Stoneman from
Stoneman Auto Review
http://www3.ns.sympatico.ca/sar
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Mike 9:43PM (4/08/2006)
Stoneman,
Toyota (and the other imports) already do the same thing that GM is doing. Matter of fact they have been doing it longer. Toyota also employees a heavy contingent of "foreign" labor in their manufacturing plants in Japan. It's a myth that the Japanese are building their vehicles. Mostly people from Thailand, Africa, Korea, and other countries with cheap labor are willing to travel to Japan.
It's not entirely clear that where a component gets manufactured determines it's quality. It's more and more likely that every thing you use is made in China.
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all about price... 11:40PM (4/08/2006)
Choice A: Make your customers pay more for cars.
Choice B: get assemblies for less.
You know your competitors will do B, so which company is going to do A?
As to the Ford statement, it means nothing. It's plausible deniability. So they can offshore even more production and them claim their suppliers weren't authorized to employ 8 year olds and as a matter of fact, no, they didn't ever stop to think that perhaps suppliers would do that in order to meet their demand that they don't pay over $1.00 for a car seat. Think of Nike.
It's amazing what you get now in a car. Look at a 70s cheap car (Chevette, Vega, early Hondas or Toyotas, etc.) and look at the low-end cars now (Kia, Chevy Aveo, Scion). You sure get a lot more car now for your money. People are used to it, they demand it. So the cost of subassemblies must go lower, and that means offshoring.
Look at the shakeups in suppliers right now. Read up on how Japan did it in the 70s and 80s. They outsourced everything (they contracted out all subassemblies) and told each supplier they had to cut the price of the subassemblies 10% a year until the supplier couldn't afford to make it anymore. Remember the stuff about jobs for life in Japan? That was only with the top companies. And the top companies subcontracted everything out. The people actually making your car parts (in the companies BELOW Nippondenso) were lucky to be employed for 12 months out of a year, let alone for life.
Everyone has adopted these principles now. GM was actually late to the game because their murderous contracts with the UAW limit their ability to outsource production. Toyota didn't make spark plugs or dashboards (AC or Delco), they contracted it out. GM is just following suit.
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XJ 12:04AM (4/09/2006)
I'm not criticizing GM for telling their suppliers to do the inevitable to remain in competition. But you have to wonder how long the big 2 can play the "buy American" card and give it merit.
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Jim P. 2:57AM (4/09/2006)
Hey Richard, good to see your posts again. Couldn't have said it better myself. This whole offshoring for global competition bullshit and the excuse to "lower operation costs" is only beneficial to 2 parties. 1. is to the company and 2. is to the shareholders of that company.
I am in the retail big/tall mens apparel here in N. Michigan. Palm Beach was a very good, respectable name in men's suits. A few years ago, Hart, Schafner & Marx buys them, has their suits made in Mexico and Columbia. The quality went down and the fit was awful. Now you would think that having them made in these countries, HMX would pass the savings onto the retailer so they could pass it to the consumer? Nope, they charge the same amount for the item as if it were still made here in the USA. Needless to say, I don't do business with them anymore. It's like I've been saying, our standard of living is declining while India and China's are rising. The dumbing down of America seems to be working well.
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Rene Curry 5:44AM (4/09/2006)
Auto manufacturing is now becoming a commodity and will be following the same path as the electronics industry. Competitive pricing will continue to push prices & margins down.
You will need to create continuous hits for margins or you will be extinct from market share competition.
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Richard Warren 12:17PM (4/09/2006)
Jim you are right on. I'm not against global trade, it does work both ways, what I'm tired of of is "being sold" on it's importance to stay cpmpetitive. competitive with who? Face it you can't compete with slave wages, we can't the British can't, the French can't the Germans the Italians can't pick up 2 issues back of Time and read about chair making.
Then ask yourself this when a product is made and a large protion of it is resourced out do you see the price drop? No, we simply have most of the time the same price.
I have a friend who owns a gift and craft store, the crafts and many other items were made locally, she now buys nearly 100% from China, she can triple or quadruple the price and sell the items. She loves the Chinese! The consumer sees this great little gift that looks like it's a local craft and buys it. No more help, in fact less, more money in the owners pocket. Same in the consumers.
Did anyone watch "Sunday Morning" today? It had a story about the Chinese "Painting Factories" they take great works of art and assembly line them, they are good at it too, the best customers? Americans on trips to Europe thinking they are buying original art work from local French artists.
But, it's all believed, yes, the dumbing down of America is in full force Jim
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Richard Warren 12:22PM (4/09/2006)
Sorry that should have been same in the consumers?
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Andy 4:31PM (4/09/2006)
GM is the most pathetic excuse for a company. Surely the worst management for a large company on planet earth. How f*cking stupid is this rationale? If I can provide innovative and high quality solutions at the price point GM wants, why in God's name do they give a shit where I make them. Their behavior is so f*cking stupid, as an American, I wouldn't buy their products if Rick Wagoner personally kissed my ass. I'll buy a Toyota and Honda. They've both created over 250,000 jobs in the US while GM continues to ship jobs overseas.
My God, is anyone really this f*cking stupid? I am just livid.
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Andy 4:35PM (4/09/2006)
Btw, STONEMAN,
YOU ARE TOTALLY WRONG about Toyota in Japan. TOTALLY! TOTALLY! I have been to Japan many, many times and my wife is Japanese. You are spewing bullsh8t.
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all about price... 7:13PM (4/09/2006)
Dumbing down of America? I don't see that angle. People think they're getting one thing at a price they are used to and you sell them another, inferior product instead? Well, that's great for you, but does it make the buyer a fool to be fooled once?
And as to where the money is going, you're all talking out of both sides of your mouth while saying you're agreeing. One time you say the profit is being taken by the middleman, then you say it's China getting rich.
Sometimes the profit goes to the middleman, sometimes they actually do drop the price (just look at the price of a tube TV or microwave lately and say it didn't drop, sometimes the profit goes to the retailer.
And I don't see how this necessarily makes Americans poorer overall. Sometimes the Americans are getting ripped off, sometimes not. Again, look at the car you got for $10K in the 80s and an inflation-adjusted $10K now. The new car is much better.
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JZeke 7:38PM (4/09/2006)
Why do we worry as a nation about the loss of manufacturing as a primary resource to our economy?
The transferrence of unskilled labor to nations that are still developing their own economies is a necessary step for the developed world to take. The difference is, what are we doing to take our next step?
What worries me more is not the loss of jobs in widget and gizmo factories, or losing subassembly contract work... its the utterly devastating lack of interest in pushing creative boundaries through education. I hear phrases like "the dumbing down of America" and I get scared. We still pin our hopes on antiquated notions of the Victorian industrial age. What we dont embrace is the spirit of innovation that made industry possible.
If we are to move forward we need to not worry about the transferrence of these jobs, but instead focus on maintaining a competitive edge in creativity, innovation and exploration. The only thing we can do is stop this "dumbing down" and pour energy into education and exploration and generally learn to foster enviroments of creativity everywhere we are.
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Toyota and Honda are communists. 7:46PM (4/09/2006)
If you dont like Gm, Buy a Ford.
And Andy, GM has over 1.1 MILLION jobs in the Us. Toyota has 250,000.
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Andy 8:29PM (4/09/2006)
Hey "brilliant",
You need to look at GM's annual report. Your statistics are off by about 250%. GM employs 350,000 people GLOBALLY! That includes massive operations in Europe, South America, Korea and China. I see your IQ is about the same as your shoe size.
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Dennis 8:38PM (4/09/2006)
I bought a Ford after driving a 1990 S10 for years. I loved most of those years of driving but when I wrote to GM because the S10 kept blowing the right rear bearing. Their answer, was go talk to your dealer. I wanted a answer from them not my local dealer.
I feel that both GM and Ford should really be ready to keep their present customers happy. They spend thousands trying to get new buyers and forget those of us who have already purshased their vehicles.
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