'Outsourcing' is at heart of GM strike Union wants to keep parts-making in house

March 20, 1996|By Ted Shelsby | Ted Shelsby,SUN STAFF

When the first Chevrolet Deluxe rolled off the assembly line at General Motors Corp.'s plant in Baltimore after World War II, the automaker proudly pointed out that nearly every part in the car was genuine GM.

In 1946, it was to GM's advantage to produce the bulk of its parts in house.

It could make them more cheaply, and the company had more control over its operations and more importantly its profits.

But those days have gone the way of the rumble seat and the running board.

GM is moving aggressively in the opposite direction.

It wants to limit the number of parts it makes in favor of buying from outside suppliers, a system the industry calls outsourcing.

And this is at the heart of the 15-day strike by 2,700 United Auto Workers union members at two GM brake plants in Dayton, Ohio, that has nearly halted the world's largest automaker's North American production and resulted in the layoff of an estimated 500,000 workers, including more than 150,000 GM employees.

"General Motors still makes about 70 percent of its parts internally," said Michael Flynn, associate director of the University of Michigan's Office for the Study of Automotive Transportation.

"By comparison, Ford and Chrysler are more in the order of 30 percent to 40 percent.

"If you go to an outside supplier, even a union supplier, you often have a direct wage rate that is something like one-half to two-thirds the cost of GM making the parts itself.

"If you go to a nonunion supplier, you may be talking about people whose wages are only 25 percent to 30 percent of that of the GM workers."

The strike against GM's Delphi Chassis division was sparked by the automaker's decision to buy anti-lock braking systems for its 1998 Chevrolet Camaro and Pontiac Firebird sport coupes from Robert Bosch GmbH, a German company that has a parts plant in Charleston, S.C.

Bosch, according to Automotive News, pays nonunion workers an average of $13.15 per hour at the Charleston plant, plus benefits averaging $3.68.

UAW workers at Dayton earn an average of $18.58 an hour and have fringe benefits costing the company another $25 an hour.

"That's tough to compete with," said Mr. Flynn. "You are looking at $5 difference in wages and $22 a hour difference in benefits. And it really isn't that UAW workers are benefits fat.

"This may or may not be the case, but that is not the issue," he said.

"The issue is, these benefits have been around for a long time and they reflect an aging work force with health costs that are more expensive, plus pension costs.

"Bosch has hired a younger work force.

"Their medical burdens, their health history, their retiree pensions a whole bunch of costs, primarily in the benefits area are considerably lower."

General Motors has been particularly quiet on the subject of outsourcing since the Dayton strike began.

"It's a matter of being competitive," Harry Pearce, GM's vice chairman said last week. "We have to cut costs to stay competitive."

Union officials have been locked in round-the-clock labor negotiations at Dayton and could not be reached for comment yesterday.

"GM has the highest vehicle production costs in the industry," said James Harbour, president of Troy, Mich.-based Harbour & Associates Inc., an automotive research company, "and that doesn't take into account its parts production."

Looking only at such things as the assembly of the vehicle, engine, transmission and stamping of body parts, Mr. Harbour said that GM's costs are 24.8 percent higher than Ford's.

According to David Healy, an auto analyst with Burnham Securities, GM's cost of building a car, including the use of its own parts, was about $1,500 more than at Ford and Chrysler in 1992.

"I'm not sure what the exact number is today," he said. "They have narrowed the gap, but I think they have only cut it in half."

In addition to wanting GM to limit purchases from the outside, the UAW wants the company to hire 125 more workers to make the Camaro and Firebird brakes.

"From the union perspective," Mr. Flynn said, "they are trying to protect their jobs."

He noted that GM has not been laying off mass numbers of workers in recent years but has been cutting its ranks through attrition and retirements.

"The problem with this is that the union is losing its membership," said Mr. Flynn. "They are not talking about you and me losing our jobs. Their concern is that when you and I retire, these jobs will go away and not be available to our kids, nor will there be new union members."

Cutting parts costs is not a new issue at GM.

During the early 1990s, a successful, although controversial, part of GM's restructuring involved the reform of its auto parts purchasing operations under J. Ignacio Lopez de Arriortua, the vice president who oversaw GM's $50 billion purchasing budget before defecting to Volkswagen.

With the backing of GM Chairman John Smith, Mr. Lopez reorganized 27 separate purchasing units into a single entity that could take greater advantage of the company's enormous purchasing power.

He demanded double-digit price cuts if outside suppliers wanted to keep GM's business.

Although Mr. Lopez upset many outside suppliers with his brash manner and demands, he was credited with slashing about $4 billion from the company's purchasing budget.

The head of one Baltimore area company that makes parts for General Motors was reluctant to criticize GM's handling of its suppliers.

"GM is a very valued customer, and I do not want to discuss the issue," said the plant manager, who did not want to be identified.

Pub Date: 3/20/96

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