Why Detroit Is Going to Pieces

Modular outsourcing is gaining converts--even among unions

When Detroit executives a few years ago rolled out the idea of "modular manufacturing," Big Labor only saw jobs going out the door. For a while, unions managed to thwart this approach, in which the assembly of large chunks of cars is farmed out to suppliers. But momentum is building once again, and this time around labor seems willing to budge. The fact is, U.S.-made cars are losing market share, and for Detroit, it's sink-or-swim time. Auto executives figure that going modular is one way to trim assembly and engineering costs and get new vehicles to market more quickly.

If the United Auto Workers isn't being so rigid these days, it's because the union, too, can read the tea leaves. The glut of domestic capacity isn't likely to change anytime soon. Now, as Detroit mulls plant closings and cutbacks over the next few years, union locals may be willing to make concessions. "Increased modular flexibility is being negotiated in," says Michael Robinet, managing director of CSM Forecasting Inc. in Northville, Mich.

In a nutshell, modular manufacturing trims production expenses by shifting work to factories with lower labor costs. UAW members in Big Three plants make around $20 an hour. Their union brethren in supplier plants get paid about $13 an hour, and nonunion workers make even less. That's why the car companies are so eager to hand off more assembly work and are seizing every opportunity to do so. Even the engines and transmissions for General Motors Corp.'s (GM ) Saturn L-series sedan now get shipped as one assembly to the GM plant in Wilmington, Del., from a factory run by Toronto's Automodular Assemblies Inc. DaimlerChrysler (DCX ) is on the same tack: It used to assemble instrument panels in its own plant. Now, it's farming out the "cockpit" work for the Jeep Liberty models built in Toledo, Ohio. Six nearby suppliers, led by Johnson Controls Inc. (JCI ), assemble the plastic dashboard, mount the instruments, and deliver plug-in systems.

IT'S A SNAP. Labor is just one piece of the modular proposition. As auto makers farm out assembly work, they also engage the suppliers to do more design and engineering, which doesn't require separate negotiations with the UAW. Lear Corp. (LEA ), for example, brought together a dozen other suppliers to collaborate with a major carmaker on the design of an entire cockpit. That cut engineering costs by 10% and tooling costs by 40%, says Doug Del Grosso, Lear's senior vice-president in charge of operations.

Working with savvy suppliers has also driven some lessons home for the auto makers about the value of early collaboration with suppliers and simplicity in design. GM is currently working with suppliers to craft parts that are easier and cheaper to assemble in its new plants. Says GM manufacturing boss Gary L. Cowger: "You get labor designed out of the part."

Detroit's growing dependence on subassembly work has suppliers champing at the bit to get the big contracts, says Thomas Stallkamp, the former DaimlerChrysler purchasing boss who is now chairman of auto engineering firm MSX International. For many of its future cars and trucks, GM is taking bids now for whole interior modules, including the seats, dashboards, steering wheels, and associated parts. Ford Motor Co. (F ) is negotiating with about 10 suppliers who will move into a planned 155-acre industrial park that, in three years, will surround its Chicago assembly plant.

GM is the furthest along in harnessing modular assembly. Last year, it opened a large-scale modular operation at its "Blue Macaw" plant in Gravatai, Brazil. There, 17 suppliers assemble modules that snap together at the rate of 100,000 Chevrolet Celta subcompacts per year. GM brought a few of those tricks to its new Cadillac plant in Lansing, Mich. The plant, which will start turning out Cadillac CTS sedans this fall, is slated to crank out 150,000 vehicles a year with just 1,500 hourly workers. That's half the employees that Ford Motor Co. needs to build 200,000 vehicles at its Lincoln plant in Wixom, Mich. Later, GM's new Lansing plant will build a replacement for the Seville and an all-new, luxury SUV.

The Big Three still have to move slowly into modular assembly. To pull it off, they need new vehicles that are designed for modular construction and deals with UAW locals that allow it. The union locals have a big incentive. "[Those] that play ball will be assured of a product in the future," says CSM's Robinet. Either way, the modular approach is more than just a way to keep plants open. It's Detroit's best hope to build a better, cheaper car.

By David Welch in Detroit

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