Reporting from the Traverse City automotive industry conference, The Detroit News said US suppliers are bending under pressure from car makers to cut parts prices and overall costs, and expanding their operations overseas, where labour is cheaper, in a move analysts say could cost the US thousands of jobs.
“I believe it is a trend with first-tier suppliers,” Nick Galambos, vice president and auto industry expert with consultant AT Kearney, told the newspaper, adding: “There is so much pressure to lower costs.”
Michael Wujciak, a vice president at consultant Cap Gemini Ernst & Young, told the Detroit News suppliers are not just going overseas to build factories: “They’re doing a lot of joint ventures and partnerships and teaming,” he reportedly said.
The Detroit News noted that the question of moving jobs overseas comes at a crucial point in the US economic recovery as major employers seeking to build profits in the wake of the recession are reluctant to expand US payrolls and consequently are sending work to countries such as India and China which, in turn, has kept US employment growth to a minimum in a “jobless recovery.”
But, the Detroit News noted, supplier executives and automotive experts contend new work overseas is not coming at the cost of US jobs while others point out that foreign suppliers move jobs to the United States as well, neutralising any potential loss of US jobs overseas.
Troy-based parts maker Delphi Corp. has based its “total cost strategy” on the use of a ready labour pool, low-cost suppliers and existing engineering and manufacturing plants outside the United States, a top Delphi executive said during a seminar presentation in Traverse City, the Detroit News said.
“As a result, Delphi is locating operations in low-cost countries that make sense, like Mexico, China, India, Eastern Europe and Russia,” José Maria Alapont, Delphi’s president of international operations and vice president of sales and marketing, said, according to the newspaper, adding: “These are countries where we can build and sell as well as build and export.”
The Detroit News noted that the Asia-Pacific area has been an especially lucrative market for Delphi, the world’s biggest automotive supplier but most top-tier suppliers, such as Visteon and Lear are expanding overseas as well.
The greater dependence on foreign suppliers is not aimed at transferring higher-paying union jobs offshore, Alapont said in an interview with the Detroit News. Rather, it is aimed at better serving the company’s foreign customers.
“We are not going to transfer our more complex systems, but we should find solutions to remain competitive,” Alapont told the newspaper, adding: “You have low-cost manufacturing facilities and engineering in areas where you have a local market.”
Nevertheless the Detroit News said, labour costs are a big issue for vehicle manufacturers and suppliers.
The 2003 average hourly labour rate including benefits is $US31 in the United States, according to Delphi, while in China it is just $2.13 and in North Africa $1.26, the newspaper added.