Posted on 02/17/2004 8:55:12 PM PST by Revel
U.S. auto parts makers see more jobs moving abroad Reuters, 02.17.04, 11:33 AM ET
By Susan Kelly
CHICAGO (Reuters) - U.S. auto parts manufacturers, under pressure from automakers to match the lowest prices of global rivals, expect to reduce domestic production in the next several years as they open more factories abroad.
Suppliers are following their customers to emerging markets not just because of cheaper labor, but also because of rapidly growing consumer demand for automobiles in these markets.
U.S. parts makers see no letup in the shift of manufacturing capacity and jobs away from the United States, according to a soon-to-be-released study by Roland Berger Strategy Consultants in conjunction with the Original Equipment Suppliers Association.
"Suppliers feel increasingly pressured to move manufacturing abroad," said Antonio Benecchi, a Roland Berger partner and study author. The consultants surveyed more than 70 parts makers, with combined annual sales of about $72 billion.
Excluding Mexico, where more vehicle components are expected to be produced due to the country's lower labor costs, suppliers in the study forecast a 17 percent drop in North American parts manufacturing capacity by 2010. Production in the Midwest is seen falling faster, down 22 percent by 2010.
Smaller manufacturers will follow the lead of larger, top tier suppliers that have already set up shop in Mexico.
"There will be a second wave pulling the small and medium-size companies into Mexico as they follow their customers," Benecchi said in an interview.
In one example of the changing factory landscape, Tower Automotive Inc. last week said production of frames for Chrysler's Dodge Ram pickup will move to a joint venture in Mexico from Tower's Milwaukee, Wisconsin, plant. A Chrysler spokesman said price pressure played a role in the decision.
Companies are also looking beyond the sizzling China market, where many larger manufacturers first established themselves in the early 1980s, to expand in India, Thailand and Vietnam, the Roland Berger study found. In Europe, factory jobs will migrate to Eastern Europe as trade restrictions ease.
Production of components that require more labor and less sophisticated technology will grow fastest abroad, the study suggested. Examples include batteries, wheels, plastics, electronics and some powertrain components.
Automakers are turning up the heat on their suppliers to reduce costs.
Ford Motor Co., aiming to return its auto business to profitability, has asked suppliers to shave another 3.5 percent off the price of components this year. General Motors Corp. in October began inserting a clause in its long-term vendor contracts that gives a supplier 30 days to match a competitor's lower price or risk losing GM's business.
"The automobile manufacturers still need to reduce price to stay competitive with the foreign transplants," said Richard Hilgert, equities analyst with Oppenheimer & Co.
While Mexico offers an obvious labor cost advantage to manufacturers, China's lure is its booming domestic market and not necessarily the promise of low-cost exports because of its distance from the United States, some analysts said.
"What the automakers are doing is they are using the threat of China to exert more price reductions from their suppliers in North America," said David Leiker, equities analyst with Robert W. Baird & Co.
Benecchi said global shifts in production location ultimately should reduce worldwide industry overcapacity, but he predicted a lag in which the rush to create capacity outside of the United States will outstrip the reduction of excess capacity here.
Copyright 2004, Reuters News Service
Only 13% of America's jobs are union. And for today's history lesson, consider that Henry Ford paid his workers a healthy salary because he wanted them to be able to afford to buy his automobile; which they did.
If there were no unions in America, offshoring/outsourcing would still be a problem because CEOs have found a way to cut labor by 90%. That's all they can see. The fact that their patents and technology are being stolen doesn't phase them yet. The fact that America will lose its technological edge doesn't phase them.
At some point, our government had better step in and stop this or our national defense will be compromised beyond the point of no return.
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