Fostering relationships
OEM customers are looking for quality parts at a competitive price, said John Wells, Toyoda Gosei's general manager of corporate planning/external affairs.
Toyoda Gosei's plan is to continue increasing the number of parts it makes in North America at its nine U.S. plants. However, it still has a need to purchase certain components and machinery offshore, Wells said.
"Customers require quality parts at a worldwide competitive price,'' he said. "Pressure to reduce automotive part cost is a common industry request, and Toyoda Gosei is improving planning initiatives to remain competitive in producing automotive parts in North America.''
Freudenberg-NOK serves the North American market predominantly from factories located here as well, but also from other global facilities when it best serves the customer's needs, Philippart said.
Generally a company looks at total cost, not just piece price, in determining where to supply from, he said, including available capacity, raw material availability, transportation costs to ship the goods and the cost of the inventory in safety stock and in the pipeline. Customers are willing to entertain supply from all over the globe as long as certain criteria-like quality and delivery-are met, Philippart said.
Pressure placed onto suppliers from customers to push down prices can cause stress in a working relationship, Andrea said. If a company's main OE customers are Ford Motor Co. or General Motors Corp., where sales have been flat and the number of suppliers is being rationalized, it's natural there will be more tensions than with customers that are increasing sales and working with fewer suppliers.
"There are a lot of pockets throughout the industry where there are very solid relationships, where the focus is on improving productivity and reducing cost,'' Andrea said.
He views the trend of boosting productivity and cutting costs, as opposed to just pushing prices down, as becoming more prevalent.
GM also is working more closely with its suppliers to address costing issues, he said. Three ways the auto maker is doing this include:
* reducing the cost of a supplier to do business with GM by reducing changes in design criteria as the bidding process progresses;
* making the interface between customer and supplier seamless, in terms of engineering; and
* helping improve productivity of the supplier itself.
"If you continually work with these three, that's where you drive cost out,'' Andrea said.
Locating capacity
The tremendous cost pressures throughout the automotive industry require a company, if it wants to grow or even survive, to continuously improve its cost structure to provide maximum value to its customer, Philippart said.
But producing locally does generally offer transportation advantages, reduced inventory and pipeline costs, shorter lead times and faster responses to changes, he said.
Novi, Mich.-based Cooper-Standard also supplies the vast majority of its products to North America from local plants, according to Von Lanken. The company's weather sealing products are not economically transportable and many of the rubber fluid components are part of a larger assembly and need to be made close to where the assembly operation takes place, he said.
But Cooper-Standard also has consolidated some North American operations in the past few years to reduce unnecessary capacity and associated costs, Von Lanken said. The company targets all key OEMs no matter where they are in the world, and has established manufacturing capacity in China, South Korea and Europe sites in recent years through expansion, partnerships and acquisitions.
"We believe for most of our products we will continue to manufacture where the OEMs assemble,'' he said. "We will import components or sub-components that make economic sense. We will consolidate manufacturing and continue our lean efforts to stay a cost leader.''
The cost-cutting push has led many suppliers to look abroad for less expensive production sources. Avon's Richards believes that unless you have a very specific, highly engineered product, you must have a presence in low-cost countries.
"Suppliers to auto makers are sending labor-intensive products to lower-cost countries to drive costs down,'' he said. "We did it, too; that's why we moved to Mexico 20 years ago.''
Avon has two plants in Mexico and seven in Europe to go with two in the U.S.-one of which is closing later this year, Richards said. About 55 percent of the company's revenues come from outside North America and volume with traditional customers has gone down in recent years, though "it seems to be stable now,'' he said.
Avon's business is growing in some sectors of the Big Three, but overall market share with those auto makers has diminished while it has increased with transplants. With the overall strength of its global supply base, the company has been and will continue to be wherever auto makers are located in order to service them, Richards said.
Toyoda Gosei's long history with Toyota and other transplant OEMs has given it an advantage as a preferred supplier. But the company also supplies domestic auto makers and has challenged itself to become a preferred supplier to them as well, Mannino said.
The road ahead
OESA's Andrea believes that three to five years down the road, the supplier base within the automotive market could be 30-percent smaller than today because of financial fallouts, mergers and acquisitions. But overall North American vehicle production probably will be increasing about 1 percent per year, the overall market will be stable and there will be a need for a ``strong, vibrant'' supply base, he said.
This year also could be an important one for several reasons, Andrea said. Some of the major auto suppliers will be exiting Chapter 11 and United Auto Workers negotiations will be taking place this fall, and there probably will be restructuring and buyout offers as a result.
If, as expected, close to 100,000 employees take early buyouts, financial burdens could be placed back on the suppliers. "If you're looking for reductions, you go to the biggest piece of the pie,'' Andrea said.
For Toyoda Gosei, its policy is to try to produce parts where they are sold, and therefore "we expect to continue our growth in North America, including the U.S.,'' Mannino said. The company also expects to be producing at or above current manufacturing levels in the future.
Avon's customer base will continue to diversify among the Big Three and transplants, with its U.S. and Mexican plants supplying North America, Richards said.
Like Andrea, Richards believes there is potential for the auto industry to be much healthier than it is now. Overcapacity will have to be eliminated, and "suppliers will have to be with the right customers,'' he said. "But there's a big opportunity for companies.''
Cooper-Standard's Von Lanken said the company expects the current trend of easy-to-transport components being sourced from low-cost venues in China and Southeast Asia to continue, along with more assembly done in Mexico or southern U.S. states.
The firm needs to remain competitive, and how its production balance will change depends on factors it can control to maintain that competitiveness, he said.
"Know-how and technical service to our customers will be important drivers, and our plants will remain operating as long as they meet these requirements, regardless of where they are located.''
Mike McNulty and Bruce Meyer, Rubber & Plastics News staff, contributed to this report.
