Sorry suppliers, Ford and other automakers set to insource more parts
In this blustery economy, we often hear of jobs being outsourced to save money. The auto industry, however, and in particular Ford, is set to start a new trend: insourcing. Rather than contracting with suppliers to build certain components or sub-assemblies, automakers are now considering doing that work internally with union employees. The Detroit Free Press reports that Ford will be one of the first this spring when it begins assembling its own instrument panels for the Ford Taurus and Lincoln MKS sedan at its plant in Chicago.The motivation to insource is the same it is for outsourcing: saving money. The United Auto Workers union signed new contracts with Ford, General Motors and Chrysler LLC. that allow each automaker to hire union workers at a new second-tier wage of around $14, or about half of the previous starting wage. Coupled with lower benefits, it's now cheaper in some cases to have the union do what was previously outsourced to a supplier.
It appears that the UAW had this in mind all along. The Big 3 actually agreed in writing with the UAW to begin insourcing a certain number of jobs – 3,000 for GM, 1,500 for Ford and 1,025 for Chrysler. The UAW even secured the right to effectively bid for future work along with the suppliers, for whom all of this does not bode well. Automakers, however, are not out to destroy their supplier base, as there'll still remain plenty of parts that make more sense to outsource and plenty that need to still be produced in the mean time.
[Source: The Detroit Free Press]
Reader Comments (Page 1 of 1)
BC 5:13PM (2/15/2008)
Except for a much more limited set of specialized parts, this is the way automobiles were built until the late '70s or early '80s. There's nothing magic about suppliers vs. vertical integration, it's all an issue of cost/benefit.
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Jeff Gilleran 5:14PM (2/15/2008)
And to think, if they (and other manufacturers) had started this trend much sooner than now...?
If its easier to build something in house, but outsource?
Wouldnt one think this would be considered "common sense"?
Sheesh.
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stang_fan 5:48PM (2/15/2008)
If this weren't so sad, it would be funny.
Once again, Detroit sets about re-inventing the wheel.
What next? Ford buys a steel mill so it has control of the raw steel source? Or it buys a big rubber plantation so it can control the source of tires? (For those not old enough to remember, Ford did this up until the late '40s to early '50s.)
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Duan 5:44PM (2/15/2008)
and this is how they snare them...a few years from now they'll renegotiate contracts as the workers complain of not being paid enough...bait and switch
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M 6:13PM (2/15/2008)
One of the benefits of working with suppliers is that they develop technology that can be used for more than one OEM. There's less risk in developing "ground breaking" ideas because if Toyota doesn't want it, maybe Mazda will use it, or GM, or Ford.... How is the UAW going to address this? Unless the OEMs plan on hiring a whole bunch more staff to figure out the new widgets that make interiors competitve, for the UAW to build, I think that suppliers will always have an advantage.
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sledge 6:36PM (2/15/2008)
I'm surprised nobody has pointed out that Visteon and Delphi were basically Ford/GM (respectively) units that built components such as instrument panels. At some point they reached a large enough volume where their parent companies felt (probably rightfully so) that there was value in spinning them off as independent companies. Then the Big 3 outsource parts for while while they remain cheaper. Now it's back to square 1.
Lather, Rinse, Repeat.
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Richard 8:56PM (2/15/2008)
@sledge,
Most people who are more than seven years old know that GM, Ford, and Chrysler owned many, if not most, if not all of their parts suppliers. In fact, they are still in the process of divesting their old in-house suppliers. The shift to outsourcing and the divestiture of in-house suppliers has several causes, but the most important reason is to save money. Auto manufacturer-owned suppliers pay wages pegged to those of the UAW. Independent suppliers have a much lower wage structure. But there are other reasons.
Having an in-house supplier is no guarantee that a manufacturer will get what it wants to build its cars. GM's Fisher Body was a case in point. It built all bodies GM in North America. However, Fisher Body vexed the engineers and designers in the operating divisions with with its "can't do" attitude. The result was compromised designs that helped GM lose the quality edge to the Japanese. GM eventually folded Fisher Body, but the damage had been done.
I could be wrong, but I don't see this trend toward in-sourcing as anything other than a temperature response to current market conditions. The long-term trend in recent corporate history is toward doing only those things that the company does well and contract-out the rest. I know of nothing that will reverse this trend.
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Jimbo 9:23PM (2/15/2008)
I think we're going to see more of this in many industries, not just the auto industry. As the dollar weakens, there is less incentive to go overseas. Sure, it might still be cheaper to use China, Thailand, or Mexico. But there's something to be said about working with people that are just a few hour's flight away and speak your language fluently. The convenience factor may sway companies. Plus, I predict that as the dollar tanks there will be a new wave of "Buy American" fever among consumers.
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big L 10:20AM (2/16/2008)
The instrument panel seems to me to be a very complex component. There are a lot of things going on inside the panel in a very confined space. So is it a good idea to dump 10 yr, 15 yr, 20yr experienced workers that build them? REplace them with $14 an hr tyros just inside the door?
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Mr. Oak 1:26PM (2/16/2008)
Yes, because the assembly is a "color by numbers" exercise. The pros will be retained for design and engineering, the peons can handle the assembly.
Peter 7:45AM (2/16/2008)
Will there be a quality control benefit also?
David Halberstam wrote a book called "The Reckoning" about the rise of statistical quality control and the Deming method that examined this in depth at Ford and Nissan. If you have time, read it. It was one of the best books about the auto industry I've ever read.
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