Gm: Modular Plants Won't Be A Snap

What works for rivals in Brazil may not for the U.S. giant

Auto executives have a dream. They envision a super-efficient factory where premade chunks of a car roll in to be bolted together into a finished vehicle by a handful of assembly-line workers, the way a child snaps together Lego blocks. The result: spectacular savings on capital investment, payroll, and per-vehicle costs.

The dream, or at least some attempt to reach it, is slowly nearing reality. So far, low-volume versions have appeared, mainly in emerging markets like Brazil, where Volkswagen, Chrysler, Ford, and GM are jumping in, or for niche products like Mercedes-Benz's tiny SMART car in France. General Motors Corp.'s first modular plant, the cutting-edge Blue Macaw factory in Brazil, will open next spring. But GM, in a plan called Project Yellowstone, also intends to roll out several more such plants over the next few years to replace inefficient plants in the U.S. Rust Belt.

GM's effort will be the most ambitious test of the futuristic factory. No other carmaker plans to go modular in so many plants. Ford Motor Co. and Chrysler Corp. won't risk a falling-out with their workforces in the U.S., where the United Auto Workers (UAW) is sure to oppose shifting thousands of jobs to lower-wage, often nonunion suppliers. Critics warn that the whole idea of modular assembly is overblown and unlikely to achieve big savings. But if GM can pull it off, carmakers around the globe will likely rush to follow suit. Suppliers can "come up with better solutions [than GM's] and take costs out with smart designs," says GM President G. Richard Wagoner Jr., who adds that GM will decide in early 1999 which vehicles Yellowstone will make first. One likely candidate, say analysts, is the Chevrolet Cavalier, now built at aging plants in Lordstown, Ohio, and Lansing, Mich.

Modular assembly is, at heart, an extension of outsourcing, the common practice of buying parts from outside suppliers. For years, auto makers have been shifting away from producing most of a car's 5,000 components by contracting parts, or even groups of them, to suppliers. The module approach goes further, handing off engineering and production responsibility for entire chunks of the car, such as the chassis or interior. Suppliers design a module, making some of its hundreds of parts and subcontracting others. They set up plants next to--or even inside--the auto maker's and deliver modules right to the assembly line, where carmaker employees bolt them together.

The idea looks great on paper. Suppliers shoulder more risk and investment, allowing auto makers to cut the size of an assembly plant by two-thirds. A carmaker can slash its workforce and capital investment in new plants--often $1 billion a pop--by half. It also can slice its engineering and testing budget. Auto makers say such cost-sharing is essential. "It is impossible for any auto company to have all the resources in-house to do all of the R&D and technology investment needed today," says Chrysler Chairman Robert J. Eaton.

DESPERATE. Advocates say the result can be more efficient designs with fewer parts. "It's easier to handle complexity if you break [cars] into modules and enlist your suppliers," says Daimler Benz marketing chief Dieter Zetsche. Adds Mike Laisure, vice-president for modules at auto parts maker Dana Corp.: "We can get the job done quicker."

For GM, modular's appeal is particularly strong; the auto giant desperately needs the promised savings for its small cars, on which analysts estimate GM loses at least $1,000 each. GM's Wagoner says small cars and compact pickups are likely modular candidates.

But the pitfalls are many. For one, the idea won't please GM's union workers, with whom relations still are frayed after crippling strikes. While GM says it will shrink staff by attrition, the UAW won't like outsourcing thousands of jobs.

GM is pressing ahead anyway. Small-car chief Mark Hogan, who launched the Blue Macaw project and is spearheading Yellowstone, says he discussed GM's plans with Richard Shoemaker, head of the UAW's GM unit, on Oct. 14. "We're going to have to find some middle ground," was all Hogan would say afterward. The UAW declined comment. UAW officials may seize on a possible silver lining, though: the chance to recruit lower-wage supplier workers, who will work side-by-side with higher-paid union ones. "That's a perfect opportunity" for UAW recruiters, says Wayne State University labor historian Steve Babson.

Chrysler and Ford, whose plants already are efficient, don't feel the urgency to follow GM. They already have modular operations or plans in Brazil: Chrysler opened a $315 million modular truck plant there this summer, and Ford's Project Amazon aims to build a Brazilian car plant by 2001. But neither plans a modular U.S. plant. "You can't lay people off and pay somebody else to do" the work, says Chrysler's Eaton.

Supplier relations could be another stumbling block for GM. Modular assembly requires auto makers to work closely with key suppliers. But General Motors still hasn't mended all the rifts created in the early 1990s by the heavy-handed cost-cutting tactics of then-purchasing czar Jose Ignacio Lopez de Arriortua. GM's Hogan says its supplier relations are improving but concedes they still aren't perfect.

Naysayers of modular note Daimler's rocky experiment with the SMART minicar. Earlier this year, the German auto maker launched its micro-car in a joint venture with SMH, the Swiss maker of Swatch watches, in a plant in eastern France. Quality problems were rife, delaying the car's introduction by six months. "We had to learn that what makes sense in theory has headaches in real life," says Daimler's Zetsche. Although he says modular assembly now works well for the $9,200 SMART car, Daimler doesn't want to entrust suppliers with big pieces of its more complex Mercedes luxury sedans.

EXTRA VALUE. Some critics see the module concept as little more than a shell game. "All it does is shift labor from one facility to another, without reducing the labor involved," says ING Baring Furmam Selz auto analyst Maryann Keller. The only real gain comes if suppliers can build parts better than the carmakers. If not, they'll try to recoup by raising prices. Japanese auto makers are leery in part for this reason. With modules, "Toyota's labor cost is just transferred to suppliers, which has no meaning for cutting costs," says Toyota spokesman Koki Konishi.

GM is betting that the module approach can wring big efficiencies out of its U.S. factories. But rocky relations with suppliers and blue-collar workers make the difficult job of turning an untested dream into reality even tougher.