GM plant closures shake up Canadian auto-parts suppliers
Recent cost-cutting measures from General Motors Corp. (GM) means Canadian auto-parts manufacturers will have to develop more "value-added" relationships with the automaker to stay listed on its suppl...
Recent cost-cutting measures from General Motors Corp. (GM) means Canadian auto-parts manufacturers will have to develop more “value-added” relationships with the automaker to stay listed on its supply chain.
GM announced last November it is cutting 30,000 North American jobs, and GM chairman and CEO Rick Wagoner said the third shift at GM Canada’s Number 1 plant in Oshawa will be cancelled in the second half of 2006. The Number 2 plant will be closed in 2008.
The announcement came in the wake of GM’s continuing billion-dollar losses and its diminishing North American market share.
For companies manufacturing parts for GM or its OEM suppliers, the announcement could mean lost business as GM plans to not only cut costs but reduce the number of its part suppliers.
John Henke, president of the Birmingham, Mich.-based Planning Perspectives Inc., said the troubles GM has experienced over the past few years resulted from having an excess of manufacturing capacity.
Although GM produces some five million automobiles each year in North America, it has the capacity to produce six million, meaning its operations were running at a little under 80 per cent.
Henke believes GM’s market share will continue to shrink for some time, as compared to the other major North American and foreign automakers. As a result, GM’s remaining suppliers can expect further pressure from the firm to reduce the cost of parts.
“This has been happening for the last several years as GM has been losing market share,” Henke noted. “The suppliers have been feeling this; it has been rippling down through the whole supply chain.”
Suppliers that rely on GM for the majority of their business will be most affected, said Anthony Faria, chairman of the department of management science with the Odette School of Business at the University of Windsor. One high-profile casualty was Troy, Mich.-based Delphi Corp., a major automotive parts supplier, which filed for bankruptcy protection late last year. The majority of Delphi’s business was with GM.
“GM has been cutting back on production for a while now and that has meant losses for Delphi,” Faria added. “This could be the same case with smaller parts makers if GM is a big customer.”
Michael Jenner, sales and marketing manager with London, Ont.-based Trimco (A Division of Trim-Gard Company Limited), said suppliers will have to work harder to keep contracts with automotive companies like GM. Trimco is a manufacturer of plastic profile extrusions for the industrial, marine, automotive and furniture sectors.
He added GM’s remaining suppliers should also begin to diversify their customer base to avoid depending on a single customer for revenue, no matter how large that customer may be.
Since GM along with the other major North American automakers have been reducing the number of parts suppliers they deal with, those remaining will also be pressured to offer something more than just a good part at a low price, Henke noted.
“What this means is that suppliers have to got get themselves out of the habit of being viewed as suppliers of a commodity,” Henke said. “(Suppliers) will have to start to differentiate themselves so they don’t have to price in competition to everyone else, but price according to the value they are providing and what can be perceived as unique by the customers.”
Not all the news surrounding GM is doom and gloom, though. Other automotive players are growing and offering business opportunities to parts suppliers.
Faria said automotive sales have actually been rather strong as car buyers have shifted their dollars to automobiles from foreign carmakers like Toyota, Honda and Nissan for example. All these firms have assembly plants in the U.S.
“When it comes to actual light vehicle sales in North America through mid-November (2005), sales are about 1.6 per cent higher than they were in 2004,” Faria added. “It is not as if the industry is declining. The decline is GM and Ford, with sales shifting to the other companies.”
For example, Toyota recently announced it will build a new assembly plant in Windsor, Ont. So while parts suppliers many not be able to bank on a future with GM, they certainly have other potential customers who could benefit from their skills.