Idea a Departure From Industry Structure : Supplier Plans to Build Autos for Big 3 Firm
In an action that could have important consequences for the future of the auto industry, a major automotive supplier said Wednesday that it plans to develop and assemble finished cars for the major auto makers in its own “mini-assembly plant” outside Detroit.
If Southgate, Mich.-based ASC Inc. goes through with its proposal, it would mark the first time in the modern history of the American auto industry that a supplier would develop and build completed cars for one of the major auto companies.
ASC is a big, fast-growing supplier that, among other things, now designs, develops and converts hard-top cars into convertibles for both domestic and foreign auto makers. It already has 31 facilities around the world and nearly 3,000 employees, and has extensive contracts with auto companies from Europe, Asia and the United States.
ASC said it can go ahead with its plan within six months to a year if it can win a contract to build a car from one of the auto makers.
The company said its mini-plant would be designed to build just 20,000 to 50,000 specialty cars annually, far fewer than 250,000 the typical Big Three plant turns out each year.
ASC Chairman Heinz Prechter said he has already held discussions with Chrysler Chairman Lee A. Iacocca about setting up such a mini-plant for Chrysler.
“I think Mr. Iacocca’s words were, ‘Why don’t you do it?’ ” Prechter said. “He even suggested which (Chrysler) model to do it with.” Prechter, ASC’s founder, added that he has also held talks with other companies and is looking to work with either the imports or the Big Three U.S. auto makers.
Fighting to cut costs and compete with imports, the domestic auto industry has been steadily increasing its reliance on non-union outside suppliers, which generally can build components and handle engineering and development work more cheaply than the Big Three. Indeed, the in-house parts-making divisions of the major auto makers are now under intense pressure to remain cost-competitive with the smaller outside suppliers.
But auto suppliers have until now focused on building parts or providing engineering services; the idea that they could take over final assembly as well represents a radical departure from the traditional structure of the auto industry.
But Prechter said in an interview that it’s crucial for auto makers today to be able to develop specialty cars that can find a small niche in the increasingly congested auto market.
It’s not easy for a huge auto maker to invest in a low-volume product when it is saddled with enormous overhead costs, he noted. He said, for instance, that--including product development costs--ASC could build a car in its mini-plant for $120 million to $200 million, compared to costs of $500 million to $600 million to start production at a Big Three auto plant.
Yet Prechter said he would not need to flee unionized labor in order to beat the Big Three on assembly costs. In fact, he said he has already approached the United Auto Workers about hammering out a labor agreement if the mini-plant proposal is accepted by one of the major auto makers. “I would not want to do this against the union, I’d want to do it with them,” Prechter said.
ASC is not the only auto supplier in North America thinking about getting into final assembly. Magna International, a huge Canadian auto parts supplier, late last year created a new subsidiary, Vehma International, to explore the possibility. Like ASC, however, Magna is still “waiting for a deal with one of the auto makers,” a company spokesman said.
