The Great Trade War : Driven to Think Globally
The engines are built in Cleveland, Chihuahua and Cologne. The taillights come from Europe. The seats are made in the United States. A Canadian supplier makes the moon roof. And the car itself, already rolling off Ford Motor Co.’s assembly line in Genk, Belgium, will be produced simultaneously in Kansas City, Mo., starting next year.
The small sedan, aimed at buyers in both the United States and Europe, is what Ford calls its first “world car.” Designed by an international team of Ford engineers, the $6-billion experiment is the auto maker’s answer to the challenge of intense global competition.
As the world’s major auto makers try harder to sell their cars and trucks on each others’ home turfs, they are increasingly looking beyond their domestic bases for the cheapest and most efficient way to build them. As a result, the national boundaries that have traditionally defined where a vehicle is developed and produced--and who supplies its parts--are growing less distinct.
While Ford may have stretched the farthest toward globalizing its car development (even the European name of the new sedan, Mondeo, is derived from the word for world in several of the Romance languages), other auto manufacturers have been moving in a similar direction.
Faced with higher labor costs at home and anxious to gain a surer foothold in the lucrative U.S. market, European auto maker BMW began construction of an assembly plant in Spartanburg, S.C., earlier this year. Rival Mercedes-Benz has announced plans to follow suit at a U.S. site not yet selected. Both manufacturers will probably export part of their U.S.-built vehicles to Europe and Asia.
The Japanese auto makers have stepped up their search for North American parts makers to supply their U.S. assembly plants, both to ease trade tensions and because it is often cheaper and more efficient to work with local suppliers than to ship parts across the ocean. Honda, for example, now boasts that 75% of the parts in its Accords built in Marysville, Ohio, are U.S.-manufactured.
A radical shift in parts purchasing strategies also is key to the attempt by General Motors Corp. to reinvent itself. Thousands of longtime GM suppliers were informed last year that the troubled auto giant was throwing up for grabs the $50 billion it spends annually on parts and materials. Now, European suppliers are free to bid on contracts that have traditionally been reserved for U.S. companies, and vice versa. The company says its goal is to save money by slashing its supply base and forming long-term partnerships with a handful of high-quality, low-cost producers around the world.
And with the North American Free Trade Agreement pending, many auto makers and suppliers see Mexico as a potential source of cheap, high-quality production. Nissan, Volkswagen and Ford already have substantial operations there.
This blurring of national borders in the face of international competition is not without its critics. U.S. auto workers fret that the lure of low-wage Mexican labor will cost them their jobs. Parts makers worry that the so-called global sourcing will put them out of business. And auto manufacturers universally complain that unfair trade barriers give the advantage to their foreign rivals.
The quest for that elusive level playing field has been under way for some time, as have the efforts to globalize auto production. Ford tried to turn the 1981 Escort into a world car, but after much conflict between the company’s European and U.S. operations, Escorts from the two sources ended up with only two parts in common.
But now, consumer tastes on the two continents are converging, and competition in both markets is mounting. Auto executives say the national diversity under the hood will continue to grow.
“The Ford culture 10 or 12 years ago was not conducive to global manufacturing,” said Kerry Caliman, a U.S. purchasing project manager on the Mondeo program. “Now, we’re acutely aware of the international economy. We’ve gone through a big change in attitude, and there’s no going back.”
A Working Model Blurs The Borders
* DESIGN
A group of about 100 Ford engineers from the auto maker’s North American and European operations, working near the company’s Dearborn, Mich., headquarters, began toying with the idea of making two cars out of one in early 1986. Ford, like its chief rival GM, has traditionally developed separate models for its two largest markets. But with consumer tastes merging and the pressing need to conserve costs, the auto maker decided that the sedan that would replace the American Tempo/Topaz and the European Sierra would be the same. In 1987, the engineering team moved across the ocean to Brentwood, about 30 miles northeast of London.
* ASSEMBLY
The Mondeo was launched in Europe this spring at Ford’s assembly plant in Belgium. The engineers who handled the European rollout will soon fly to Kansas City to ready the Ford plant there for the car’s mid-1994 launch. Together, the European and American factories will produce about 700,000 of the sedans annually--though they may not all be called Mondeo. Ford has yet to decide on a name for the U.S. version.
* ENGINES
A hefty portion of Ford’s $6-billion investment in its “world car” project was devoted to the development of two new families of modern engines. Ford of Europe, which has more expertise with smaller cars and engines, developed the new four-cylinder Zeta, which is manufactured at the auto maker’s factories in Chihuahua, Mexico, Cologne, Germany, and Bridgend in Britain. All of the V-6s, developed by the company’s North American operations, will be built at Ford’s plant in Cleveland. European and American customers will have a choice between the two engines.
* GLOBAL SOURCING
The major components for the Mondeo--engines, transmissions, power steering and suspension--are supplied by Ford’s internal parts-making operations. But that leaves thousands of smaller parts for which Ford’s purchasing staff had to choose suppliers. Traditionally, U.S. auto manufacturers have contracted with five or more suppliers for a single part, on the theory that competition drove prices down. But recently, each of America’s three auto makers has begun to winnow its supply base, arguing that building a small number of productive partnerships would help achieve greater economies of scale for the suppliers, allowing them to invest in the costly process of designing and developing parts. The end result, the auto makers say, will be greater cost savings and higher-quality parts. Nearly 40% of the value of the Mondeo’s parts is coming from single-source suppliers, chosen from an intense international competition. While company officials admit to some partisanship among Ford’s European and American purchasing staffs, they say they ensured objectivity by asking each side to submit its first choice of a supplier for every part. The final choice was debated until both sides agreed. In the end, U.S. firms won contracts for parts such as suspension arms and brake systems while European suppliers landed most of the car’s electronics, lighting and wiring systems.
* TRANS-ATLANTIC JOINT VENTURES
The auto manufacturers are not the only ones to recognize the benefits of economies of scale: Their suppliers know it too. And in the case of the Mondeo, several pairs of manufacturers on opposite sides of the Atlantic have pooled resources to produce parts more efficiently. German parts maker Keiker teamed up with Ford’s longtime Canadian supplier Magna Corp. to build the window controls, for example, while Seeber, a traditional Ford of Europe supplier, formed a joint venture with U.S.-based Molmec to make the Mondeo’s hoses.
To Kansas City, Missouri
* 1. Engine
Zeta: Chihuahua, Mexico
V6 Diesel: Cleveland, Ohio
* 2. Transmission
Manual: Cologne, Germany
Automatic: Batavia, Ohio
* 3. Power Steering
Gear
Right-hand drive: Not applicable
Left-hand drive: Indianapolis, Ind.
Pumps: Indianapolis, Ind.
* 4. Air Conditioning
Controls & Heater A/C: Charleville, France
Radiators: Plymouth, Mich.
Condenser: Connersville, Ind.
Compressors and Accumulators: Connersville, Ind.
Evaporative Cores: Connersville, Ind.
Heater Cores: Charleville, France
* 5. Suspension
Control Module: Site not yet determined
Dampers: Site not yet determined
Front Struts: Berea, Ohio
Front Subframe: Farmington Hills, Mich.
* 6. Miscellaneous
Electric Engine Control Center: North Penn, Pa.
Main Dashboard Molding: Columbia, S.C.
Catalytic Converter: Brussels, Belgium
Anti-intrusion Door Beams: Monroe, Mich.
Air Bags: Mesa, Ariz.
To Genk, Belgium
* 1. Engine
Zeta: Bridgend, Britain; Cologne, Germany
V6 Diesel: Cleveland, Ohio; Dagenham, Britain
* 2. Transmission
Manual: Halewood, Britain; Cologne, Germany
Automatic: Batavia, Ohio
* 3. Power Steering
Gear
Right-hand drive: Wuelfrath, Germany
Left-hand drive: Indianapolis, Ind.
Pumps: Indianapolis, Ind.
* 4. Air Conditioning
Controls & Heater A/C: Charleville, France
Radiators: Basildon, Britain
Condenser: Basildon, Britain
Compressors and Accumulators: Connersville, Ind.
Evaporative Cores: Connersville, Ind.
Heator Cores: Plymouth, Mich.
* 5. Suspension
Control Module: Landsdale, Pa.
Dampers: Schweinfurt, Germany
Front Struts: Schweinfurt, Germany
Front Subframe: Darlington, Britain
* 6. Miscellaneous
Electronic Engine Control Center: Cadiz, Spain
Main Dashboard Molding: Borne, Holland
Catalytic Converter: Brussels, Belgium
Anti-intrusion Door Beams: Lulea, Sweden
Air Bags: Dachau, Germany
