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BY SHEA GIBBS, ASSOCIATE EDITOR
Ford Motor Co. hasn’t pulled any punches when describing its latest metal casting sourcing strategy. The original member of the Big Three intends to get out of the business of making its own castings by shutting down its remaining captive facility.
“The company’s decision to move away from in-house casting operations is based on a thorough analysis of our business and a need to focus on our core operations,” Adrian Vidro, site manager of Ford’s Windsor Casting plant, said after the company announced the metalcaster’s closing in June. “While difficult, these are the right actions for Ford’s future.”
Joe Hinrichs, Ford’s VP of North American manufacturing, was forced to deliver similar news in May, when Ford’s Cleveland Casting plant announced it would shut its doors. ( It has since received a one-year stay of execution because of a new agreement with the United Autoworkers Union.)
“These are difficult actions, and we’re approaching them with great sensitivity, because they involve our people,” Hinrichs said.
This doesn’t mean that Ford now is going to purchase all of its castings from low-cost foreign countries. But when discussing where it will be purchasing its castings, the company is more apt to pull punches.
“We intend to exit the casting business after the closing of Cleveland Casting in 2009, but we have not made any decisions about future sourcing as of yet,” said Anne Marie Gattari, a Ford spokesperson. One thing is certain; the company will be seeking new suppliers in the industry, just not captive suppliers.
All of the Big Three—Ford, General Motors (GM) and Chrysler—purchase at least some of their automotive metal castings in the closest low cost country available to their U.S. assembly plants, Mexico. Most of the Asian automotive players do too; the number of parts produced by the large Mexican metalcasting suppliers has grown in recent years, according to individuals knowledgeable of the market leaders. But there is reason to believe domestic automotive metalcasters have a bright future.
GM in the past year has invested several hundred million dollars in its domestic casting operations. The firm believes it is “strategic to bring part of [its casting purchases] in-house,” according to Arvin Jones, manufacturing manager for GM casting and components. Jones goes on to say that GM has a policy of leveraging that production with outside suppliers, which in some cases are based in Mexico.
But more significantly for non-captive domestic suppliers, Asian automotive companies are presenting new opportunities for metal pourers. The larger Asian car makers are opening new plants in the U.S. with gusto, and they are now and will continue to be establishing ties with U.S. metalcasters.
Just like any casting buyer, automotive companies must weigh numerous variables before establishing a relationship with a metalcaster. But because the production is higher than in most markets, automotive purchasers tend to call cash king more than others. That can push buyers of castings to low cost countries, such as Mexico or others in South America and Asia. But some casting buyers are paying more attention to the bevy of factors that make up the life cost of a metal casting.
“Our main focus is to localize per product,” said Edgar Stewart, a metal casting purchaser for Subaru. “We like working with companies here in the U.S. It amazes me that other automakers think they need to go to these other countries.”
Marco Polo
The location of an assembly plant doesn’t necessarily dictate the location of a supplier, though it is an important factor. Shipping costs are one variable in a complex algorithm that determines supplier success.
“Too many of these companies are looking at piece price,” Stewart said. “There’s also the quality, transportation, warranty and service. If I get a part from China, and I have to replace it, is it really worth it to me for the inconvenience and the overall image of the company? When we have a company here in Texas, we can be down there in half a day.
According to Edward Miller, a spokesperson for Honda of America, more than 80% of the castings that go into making a Honda on North American soil are also produced in North America. Most of them are made in the U.S., he said.
“We tend to make high volume items in the market where we sell them,” Miller said, referring to castings such as manifolds and transmission parts, among others. “We have some scattered castings that are made [in low cost countries], but not very many.”
The company’s one Mexican assembly plant follows its overall sourcing strategy, as well—buy it where you sell it. But the plant produces only a few Hondas per year—about 50,000 compared to more than 300,000 at some U.S. plants—and they rarely are sold outside the Latin market.
Stewart said that Subaru’s strategy is similar. While the company recognizes that the overall driver for sourcing is cost, it believes that local suppliers in most cases can produce the parts they need at a competitive rate. More than half of the company’s parts come from localized sources, and it works with more than 15 domestic metalcasting suppliers.
“We at least evaluate all parts from [local] suppliers,” Stewart said. “We create partnerships with our suppliers. We don’t go with one supplier for a part and then jump to another supplier.”
Part of creating partnerships with suppliers means helping them improve. Subaru believes that its stateside suppliers can take a cue from the lean manufacturing principles in play at its Japanese manufacturing plants.
“When we have a company working hard, we will stick with them,” Stewart said. “We will go out to our suppliers and make them better.”
General Assembly
As Asian auto companies continue to grow, the move to North America makes increasing sense. Freight tends to escalate when shipping two-ton items over a distance in excess of 8,000 miles. And as Asian car assembly outlets move to the Western hemisphere, so do their suppliers.
“Generally you want to get your suppliers as close to you as you can,” Miller said. “The fuel price for shipping certainly has us sharpening our pencils to figure out a way to keep the costs down.”
The large Asian automakers have been coming over in leaps and bounds in the past 25 years. Honda and Toyota have led the charge, with Honda establishing the first U.S.-based auto plant by a Japanese company in 1979. Today, almost 80% of the Hondas sold in America are built in North American plants. The company recently announced that its new $550 million manufacturing plant in Greensburg, Ind., is nearing completion. When the final brick is laid, Honda will have six operating manufacturing plants in North America, with another to open in the Fall of 2008 in Indiana. Only one of Honda’s North American plants is located in Mexico.
Toyota too has announced several major manufacturing events in the recent past, while operating only one plant in Mexico, Toyota Motor Manufacturing de Baja California. On Nov. 17, it opened the doors to a sprawling manufacturing campus in San Antonio, Texas, that in addition to assembly boasts 21 on-site suppliers. The $1.28 billion mega-facility has been nearly four years in the making, employs 2,000 and will have the capacity to produce 200,000 full-size Tundra trucks when it achieves full speed.
“Because [suppliers are] on site, it eliminates the need to transport [components] from a remote factory,” said Don Jackson, vice president of production and quality, Toyota Motor Manufacturing Texas. “There is no need for component packaging and no freight costs. This eliminates land fill waste and reduces the environmental impact of fuel consumption associated with freight movement. More importantly, with the production facility virtually in house, we have a close connection with the supplier, should component quality issues be detected. The ability to significantly shorten the duration of any quality issue is a huge advancement and certainly makes my job easier.”
Toyota also broke ground for a plant in Mississippi on April 18. The $1.3 billion manufacturing facility, Toyota’s eighth in North America, should begin production in 2010, employ 2,000 and have the capacity to produce 150,000 automobiles. The company will realize capacity for 2.2 million cars and trucks in North America alone when the Mississippi plant is finished.
It won’t have to wait that long to see growth, though. While Toyota’s vehicle production hit a plateau in 2007, it has seen growth every year for at least the last five, and engine production now has reached record levels (Table 1). The company plans to get off the vehicle production plateau in the coming year.
“By 2008, Toyota’s vehicle capacity will grow 33% as we follow our philosophy to build vehicles where we sell them,” said Seiichi Sudo, president and COO of Toyota Motor Engineering & Manufacturing North America Inc.
Some U.S. automakers have been going the opposite way, taking their assembly plants beyond U.S. borders. Chrysler on Dec. 13 opened a new supplier park next to an assembly plant in Toluca, Mexico. While the company has opened several new plants in the U.S., as well, it now has increased its number of assembly plants in Mexico to five. The supplier park was part of a $1 billion investment and offers “complete component modules” to its Tuloca Assembly Plant. Chrysler’s five Mexico-based assembly plants also include its Saltillo Assembly Plant, in which the company recently invested $48 million. Officials for Chrysler declined to comment for this article. ECS
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