The head of Delphi Corp. operations in Europe, the Middle East and Africa, Volker Barth, reportedly is pushing price-driven commodity manufacturing into low-cost Eastern bloc nations, while keeping high-value technical operations in the West, particularly France and Germany.
The Detroit News said the strategy mirrors a trend among US-based suppliers, who are slashing expenses by outsourcing more and more work to low-cost countries like India and China.
The paper noted that shifting production to countries where automotive parts can be made more cheaply offers economic benefits, but also comes with political risks – suppliers face the ire of western European governments eager to keep employment at home despite the European Union’s expansion, which has removed trade barriers between east and west.
The Detroit News said France’s recently appointed finance minister, Nicolas Sarkozy, in his first press conference last month, said French jobs should be protected from outsourcing.
“(Sarkozy) needs to just understand how he wants to do that,” the peppery but genial Barth told the newspaper in an interview. “This is a key question.”
David Cole, chairman of the Ann Arbor-based Centre for Automotive Research, reportedly said weighing national employment worries against competitive industry pressures is delicate but necessary.
“The question is, how do you maintain the maximum flexibility to do what you need to do?” Cole said, according to the newspaper.
The Detroit News said automotive suppliers must offer carmakers cost advantages at a time when retail rebates, rather than product features and performance, seem to sell vehicles – keeping innovation and core technology close to corporate centres is vital to safeguard competitive advantages, but when demand for a product is driven by little more than price, it can make sense to move production where labour is cheaper.
Barth told the newspaper that half of Delphi’s European employment is in low-cost nations, many of them former Iron Curtain countries, while just 35% of its European revenue comes from those operations.
“What we do is find technologies that make it worthwhile to have our traditional footprint, and move those (other) things further east,” Barth reportedly said, adding: “I’m not going to do Magneride in Russia. I’m not going to do common rail piezo injectors in Russia. I’m doing that where I have the competence, knowledge and experience.”
The paper said Delphi has operations across Europe to support carmaker plants in such places as Russia, Poland and Turkey – the expanding European Union, which just added nine nations and 100 million inhabitants in May, is removing barriers to trade and export that previously hampered efficiency.
As those barriers come down, it becomes easier to shift production away from high-cost centres and into lower-cost areas, the Detroit news said, noting that, in Poland, it’s possible to hire an engineer with a master’s degree for approximately one-fifth what the same person might cost in France or Germany.
In Romania, unskilled labour is inexpensive enough to compete with Asian nations on assembling wiring harnesses — one of the most tedious, time-consuming and low-tech jobs in the automotive industry – the report added.
Barth reportedly hopes for a let-up in the cut-throat practice of purchasing by lowest component cost alone – he thinks carmakers could get better systems if they concentrate on buying whole sections of vehicles based on performance rather than costing out each tiny component. Still, he admitted to the newspaper, purchasing departments continue to squeeze suppliers very hard.
“Everybody is pressing on price,” Barth told the Detroit News, adding: “(My customers) even tell me I’m in a much better position than they are, because I have an annual contract. They don’t.”