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Who Really Made Your Car?: Restructuring and Geographic

Change in the Auto Industry
Thomas H. Klier
Federal Reserve Bank of Chicago

James M. Rubenstein
Miami University, Ohio

Citation
Klier, Thomas H., and James M. Rubenstein. 2008. Who Really Made Your Car?: Restructuring and
Geographic Change in the Auto Industry. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
https://doi.org/10.17848/9781435678552

This work is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 4.0 International
License.

This title is brought to you by the Upjohn Institute. For more information, please contact repository@upjohn.org.
Who Really Made Your Car?
Who Really Made Your Car?
Restructuring and Geographic
Change in the Auto Industry

Thomas Klier
James Rubenstein

2008

W.E. Upjohn Institute for Employment Research

Kalamazoo, Michigan
 Library of Congress Cataloging-in-Publication Data

Klier, Thomas H.
Who really made your car? : restructuring and geographic change in the auto
industry / Thomas Klier and James Rubenstein
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-88099-333-3 (pbk. : alk. paper)
ISBN-10: 0-88099-333-2 (pbk. : alk. paper)
ISBN-13: 978-0-88099-334-0 (hardcover : alk. paper)
ISBN-10: 0-88099-334-0 (hardcover : alk. paper)
1. Automobile supplies industry—United States. 2. Automobiles—Parts.
3. Automobile industry—United States. I. Rubenstein, James M. II. Title.
HD9710.3.U52K55 2008
338.4'762920973—dc22

2008017763

© 2008
W.E. Upjohn Institute for Employment Research
300 S. Westnedge Avenue
Kalamazoo, Michigan 49007-4686

The facts presented in this study and the observations and viewpoints expressed are
the sole responsibility of the authors. They do not necessarily represent positions of
the W.E. Upjohn Institute for Employment Research.

Cover design by Alcorn Publication Design.

Index prepared by Nancy Humphreys.
Printed in the United States of America.
Printed on recycled paper.
 Contents

Acknowledgments xi

1 The Parts of Your Vehicle 1

Principal Objectives of the Book 2
Data for This Book 8
Book Outline 13
Carmaker–Supplier Relations 14
Outlook and Uncertainties 25

Part 1: Detroit: Heart of the Auto Industry 29

2 Rise and Fall of Vertical Integration in the Midwest 31

Benefit of Vertical Integration 32
Pioneering Parts Producers 34
Vertical Integration at Ford and GM 38
Vertical Disintegration at Ford and GM 46
Outlook and Uncertainties 52

3 Supplying the Power 55

Powertrain Assembly in the Midwest 57
Powertrain Components in the Midwest 65
International Carmakers Powertrain 75
Outlook and Uncertainties 80

4 The Body Builders 83

Stamping of Body Parts 83
Painting the Body: Capturing a Mood 95
From Bumpers to Fascia 100
Outsourcing Complete Exterior Modules 103
Outlook and Uncertainties 105

5 Supplying the Suppliers 109

Typical Lower-Tier Suppliers 110
Large Lower-Tier Suppliers 114
Leading Suppliers of Commodities 120
Reducing Price While Raising Value 129
Outlook and Uncertainties 130

v
Part 2: Carmaker–Supplier Networks: How Close Is Close Enough? 133

6 The Closely Linked Supply Chain 135

Just-in-Time Production 136
Networks of Suppliers and Assemblers 141
Outlook and Uncertainties 156

7 Seat Supplier Right Next Door 159

It All Started with Seats 161
The Rest of the Interior 170
Interior Systems Integrators 176
Outlook and Uncertainties 179

8 Delivering the Goods 181

3PLs: Moving the Freight and Managing the Chain 182
Coordinating and Managing Logistics 192
Outlook and Uncertainties 200

Part 3: Shifting Fortunes along Auto Alley 203

9 Emergence of Auto Alley 205

Before Auto Alley 207
The North–South Auto Alley 213
Outlook and Uncertainties 226

10 Abandoning Ohio: A Tale of Two Cities 229

Rise and Fall of Rubber City 230
Risk and Fall of Glass City 241
Outlook and Uncertainties 248

11 Chassis Suppliers Move South in Auto Alley 251

Hanging on in the Midwest 253
Chassis Parts Production Moves South 260
North–South Battleground 266
Outlook and Uncertainties 272

12 Working for Suppliers 275

Rise and Fall of Auto Unions 277
State of the Union in the Twenty-firs Century 288
Outlook and Uncertainties 296

vi
Part 4: The Endangered U.S. Supplier 299

13 The Rising Tide of Imports 301

Nationality of Largest Suppliers 302
Which Types of Parts Are Imported? 305
The Big Picture in Trade 307
National Origin of Imports 313
Which Types of Parts Are Exported? 323
Outlook and Uncertainties 326

14 The Driving Force: Electronics Suppliers 329

Performance: Getting Power from the Engine to the Accessories 331
Safety Systems 339
Interior Convenience Components 346
Outlook and Uncertainties: Will the Tail Wag the Dog? 352

15 Conclusion: Surviving the Car Wars 355

Summary of Findings 357
Outlook and Uncertainties for Parts Suppliers 358
Outlook and Uncertainties for Communities 363
Conclusion 368

References 371

The Authors 397

Index 399

About the Institute 425

vii
 Figures

1.1 Major Suppliers to the Toyota Camry 5

1.2 Major Suppliers to the Ford F-150 6
1.3 Parts and Assembly Plants in North America 13

3.1 Location of Carmakers’ Engine Assembly Plants 58

3.2 Location of Carmakers’ Transmission Plants 59
3.3 Location of Powertrain Plants 67

4.1 Location of Exterior Supplier Plants 84

4.2 Location of Stamping Plants Owned by Carmakers 87

5.1 Location of Plants That Supply Generic Parts 113

6.1 Location of Mitsubishi’s Suppliers Relative to Its Final Assembly 144

Plant in Normal, Illinois
6.2 Location of Honda’s Suppliers Relative to Its Final Assembly 145
Plants in Marysville and East Liberty, Ohio
6.3 Location of Toyota’s Suppliers Relative to Its Final Assembly 147
Complex in Georgetown, Kentucky
6.4 Location of Chrysler’s Suppliers Relative to Its Final Assembly 150
Plants in Southeastern Michigan
6.5 Location of Ford’s Suppliers Relative to Its Final Assembly 151
Plants in Southeastern Michigan
6.6 Location of GM’s Suppliers Relative to Its Final Assembly 152
Plants in Southeastern Michigan
6.7 Location of Saturn’s Suppliers Relative to Its Final Assembly 153
Plant in Spring Hill, Tennessee

7.1 Interior Parts Plants 173

8.1 Hierarchy of Supply Chain Management 193

9.1 Close-up of Auto Alley 206

9.2 Buick City Suppliers, 1951 212
9.3 Light Vehicle Assembly Plants in the United States and 214
Canada, 1979
9.4 Light Vehicle Assembly Plants in the United States and 215
Canada, 1990

viii
 9.5 Light Vehicle Assembly Plants in the United States and 218
Canada, 2009
9.6 Labor Markets around Assembly Plants 221
9.7 Distribution of Motor Vehicle Parts Plants Opened 224
9.8 Ownership of Parts Plants, 2006 225

11.1 Location of Chassis Components Plants 252

12.1 UAW Membership, 1979–2006 278

13.1 Production-Weighted Domestic Content of Light Vehicles 302

13.2 U.S. Motor Vehicle Parts Imports, Exports, and Trade Balance 308
13.3 Auto Parts Imports by Country 314
13.4 Auto Parts Imports by System from Canada, Mexico, and 315
Japan, 2006
13.5 Value of U.S. Parts Exports by Country 324
13.6 U.S. Exports by System to Canada and Mexico, 2006 325

14.1 Location of Electronics Parts Plants 331

Tables

1.1 U.S. Assembly and Parts Employment, 2007 3

1.2 Value of Shipments and Receipts of Motor Vehicle Parts 9
(NAICS 3363)
1.3 Percent Vehicle Content by System 14
1.4 Relationships between Suppliers and U.S. and Japanese Carmakers 22
1.5 Planning Perspectives Inc.’s Working Relations Index 2002–2007 26

2.1 Ford Production Costs in 1903 37

3.1 Powertrain Parts Plants in the Midwest 66

4.1 Exterior Parts Plants in the Midwest 85

5.1 Plants Producing Generic Parts in the Midwest 112

6.1 Location, Year Opened, and Number of Suppliers for Selected 154
Assembly Plants

ix
 6.2 Suppliers within One Day’s Driving Distance of Selected 155
Assembly Plants
6.3 Suppliers within One Hour’s Driving Distance of Selected 156
Assembly Plants
6.4 Mexican and Canadian Suppliers to Selected Assembly Plants 157

7.1 Interior Parts Plants in the Midwest 169

9.1 Percentage Distribution of Parts Plants by Decade of Opening 217

11.1 Chassis Parts Plants in the Midwest 254

13.1 Top 150 Parts Suppliers by Nationality and Sales 304

13.2 Value of Imports and Exports by System, 1995 and 2006 309
13.3 Parts Imports from China by Major Subsystem, 2006 321

14.1 World Automotive Electronics Market and Anticipated Growth 330

by System
14.2 Electronic Parts Plants in the Midwest 332
14.3 Global Automotive Semiconductor Sales by System, 2005 333
and 2006

x
 Acknowledgments

The work on this book started a number of years ago when we both recog-
nized we were independently working on understanding the changing geogra-
phy of the U.S. auto supplier industry. We subsequently undertook a series of
joint projects, resulting in publications and conferences on the auto industry.
This book represents the culmination of that joint research.
Along the way, many individuals contributed. At the Federal Reserve
Bank of Chicago, we would like to thank the current and immediate past bank
presidents, Charlie Evans and Michael Moskow, and Dan Sullivan, director
of research, for encouraging and supporting the work on this book. We espe-
cially thank Bill Testa, vice president and director of regional programs, for
providing invaluable support and advice throughout the entire process. Glenn
Hansen, senior vice president and manager of the Detroit branch, was always
enthusiastic about our project and provided help in getting in touch with some
of our interviewees. We would also like to thank Loretta Ardaugh, assistant
vice president, research support; Kathy Schrepfer, vice president, administra-
tion; and Ella Dukes, senior administrative assistant, for their contributions.
As with any data-intensive research project, the compilation of the data-
base underlying the analysis for this book represents the work of many talented
individuals. We extend our thanks for assistance with research to Cole Bolton,
Taft Foster, Anna Gacia, Joanna Karasewicz, Paul Ma, Vanessa Haleco-Meyer,
Neil Murphy, Mike Rorke, Tommy Scheiding, George Simler, and Alexei Ze-
lenev, who have all worked on data preparation and support at one point or
another during this project. Special thanks to Vanessa and Cole for producing
extraordinary maps. As they say, a picture is worth a thousand words; a good
picture is worth even more.
We would also like to extend our thanks to many individuals in the auto
industry, representing carmakers, suppliers, analysts, observers, and economic
developers, who indulged in early versions of our analysis as well as provided
useful insights through conversation and discussion. We would especially like
to thank David Andrea, vice president, industry analysis and economics, Origi-
nal Equipment Suppliers Organization; and Sean McAlinden, chief economist
and vice president, research, Center for Automotive Research, for offering en-
couragement and suggestions from the early days of this project.
The staff at the W.E. Upjohn Institute for Employment Research was very
helpful in publishing the results. We would like to thank Randall Eberts, Al-
lison Hewitt Colosky, Bob Wathen, and Richard Wyrwa for their comments
throughout the publication process. We also extend our thanks to an anony-
mous referee whose comments greatly improved the book.

xi
 Thomas Klier would like to thank his family, Teresa and the boys, Alex
and Josh, for putting up with book-related disruptions to the finel tuned fam-
ily schedule. Jim Rubenstein would like to thank his wife Bernadette Unger,
who has been by his side through his two-decade auto journey.
We dedicate this book to our respective spouses. And, no, neither one of us
knows how to actually fi a car.

xii
 1
The Parts of Your Vehicle

In an operation like ours, the suppliers will make you or

break you.1

Motor vehicle producers are among the world’s most recognizable

brands. Thanks to elaborate marketing, nameplates like Ford, Toyota,
and Volkswagen are familiar to consumers around the world. Consum-
ers are attracted to the ruggedness of Ford, the reliability of Toyota,
or the style of Volkswagen. Yet the driving experience—comfort, per-
formance, and reliability—primarily is not set by the company whose
name is on the dashboard, but by the hundreds of suppliers of the vehi-
cle’s parts.
Think about the radio in the center console of your vehicle. A vehicle
is put together from hundreds of components like the radio. These com-
ponents range from pistons and cylinders to door handles and steering
wheels. And a radio, in turn, consists of many individual parts, such as
knobs and wires and sensors, not to mention nuts and bolts and screws.
Disaggregating a vehicle in this fashion reveals a highly complex sup-
ply chain involving thousands of parts and almost as many individual
companies.
The motor vehicle industry is composed of two types of manufactur-
ers: assemblers and parts makers. First, a handful of assemblers, usually
referred to in this book as carmakers, put together vehicles at several
dozen fina assembly plants in the United States. Second, several thou-
sand parts makers, usually referred to in this book as suppliers, produce
the roughly 15,000 parts that go into the vehicles (Australia Department
for Environment and Heritage 2002).
Until the late twentieth century, U.S. carmakers produced most of
their own parts themselves and dominated the suppliers of the parts that
they did purchase (see Chapter 2). In the twenty-firs century, responsi-
bility for making many parts has been passed to independently owned
suppliers. Several thousand companies, employing more than 670,000
workers, produce several hundred billion dollars worth of parts every
year for new vehicles assembled in the United States.


 Klier and Rubenstein

“The motor vehicle supplier sector has become the backbone of the
motor vehicle assembly industry, employing . . . substantially more than
the number of people employed by the assemblers” (Hill, Menk, and
Szakaly 2007). About 186,000 workers were employed in U.S. fina
assembly plants in 2007, compared to approximately 673,000 in parts
supplier plants (Table 1.1). The true ratio of parts to assembly employ-
ment was even higher than three to one because more than one-fourth
of the parts purchased in 2006 came from overseas factories, and those
workers were not included in the comparison.
The total value of all of the parts delivered by Tier 1 suppliers to
fina assembly plants averaged $13,600 per vehicle in 2006, compared
to $11,100 in 2000, an increase of 22.5 percent over six years (Merrill
Lynch 2007). In comparison, the average expenditure on a new car in-
creased only 10.0 percent during that period, from $20,600 in 2000 to
$22,650 in 2006 (Ward’s Automotive Group 2007).

PRINCIPAL OBJECTIVES OF THE BOOK

The motor vehicle parts industry has been changing geographi-

cally as well as functionally. This book analyzes the linkages between
changes in the auto industry’s geography and structure. It raises the
level of understanding of how the industry is organized by providing
analysis at a much richer level of detail than has been provided in previ-
ous studies.
This book has two major purposes. The firs is to describe the key
characteristics of parts suppliers, which account for the largest and
increasing share of the value added in manufacturing motor vehicles.
The analysis relies heavily on data collected concerning several thou-
sand parts plants in the United States, Canada, and Mexico. The second
principal purpose is to describe the changing geography of U.S. motor
vehicle production at local, regional, national, and international scales.
The book explains that these spatial changes have resulted from chang-
ing relationships between carmakers and their suppliers.
An industry that was once heavily clustered in Michigan has been
dispersing to other states, as well as to other countries. In the mid-twen-
tieth century, three-quarters of all parts were made in or near Michigan;
 The Parts of Your Vehicle 

Table 1.1 U.S. Assembly and Parts Employment, 2007

Employment (000) Share (%)
Carmakers
Total light vehicle assembly 185.5 21.6
Parts suppliers
Chassis 73.5 8.6
Electronics 79.5 9.3
Exterior 154.0 17.9
Interior 63.5 7.4
Powertrain 141.7 16.5
Other 160.3 18.7
Total parts suppliers 672.5 78.4
SOURCE: Bureau of Labor Statistics (n.d.).

in the twenty-firs century, only one-quarter come from there. Between

2000 and 2007 alone, Michigan’s employment in the motor vehicle
parts industry fell by 43 percent, from 227,000 to 129,000. Yet, at a
regional scale, the U.S. motor vehicle industry is still heavily clustered,
in a region—known as Auto Alley—that lies in a north–south corridor
between the Great Lakes and the Gulf of Mexico.
Parts are made by two kinds of companies, original equipment man-
ufacturers (OEMs) and aftermarket suppliers. Original equipment man-
ufacturers make parts for new vehicles, and aftermarket suppliers make
replacement parts for older vehicles. Original equipment accounts for
about 70 percent of total parts sales and the aftermarket about 30 per-
cent (Offic of Aerospace and Automotive Industries 2007). The dis-
tinction between the two groups is not always clear-cut because more
than one-third of the 100 largest OEM suppliers also rank among the
100 largest aftermarket suppliers, but for the most part, the two sectors
of the motor vehicle industry remain distinct (Automotive Aftermarket
Suppliers Association 2007; Automotive News 2007a).
This book is concerned with OEM suppliers, which have vary-
ing characteristics. Some of them are multibillion-dollar enterprises,
whereas others are very small. Some have been around for more than a
century, whereas others were created in the twenty-firs century. Some
are family owned, and others are controlled by venture capital.
 Klier and Rubenstein

What nearly all parts makers share in the eyes of the motorist is
invisibility. If consumers like a vehicle, the carmaker gets the credit. If
it is disliked, the carmaker is blamed. Even auto industry insiders know
little about most of the parts makers. Numerous histories have been
written about carmakers, as well as about their founders and leaders. A
search of any good-sized library or online retailer will turn up hundreds
of books just on Henry Ford and the Ford Motor Co. A similar search
will reveal that little if anything has been written about the vast majority
of the parts companies discussed in this book.
Consider, for example, the best-selling car in the United States in
2007, the Toyota Camry. Two-thirds of the value of the Camry was
added not by Toyota but by independent suppliers. The motor vehicle
industry’s principal newspaper, Automotive News, depicted some of
Toyota’s several hundred Camry suppliers (Figure 1.1). Several were
Japanese-owned companies with close historical links to Toyota, such
as the wire harness supplier Yazaki and the spring supplier NHK. But
consumers attracted to a Japanese car with a well-earned reputation for
high quality may be surprised to see how few of the parts were actually
made in Japan or by Japanese companies.
The parts in a 2007 Camry represent a veritable United Nations
of ownership, including British-based shaft supplier GKN, Canadian-
based hinge supplier Cosma (now Magna), German-based ABS brake
supplier Robert Bosch, and Swedish-based airbag supplier Autoliv.
Venerable U.S.-owned corporations were major contributors as well,
including hose supplier Dana, valve supplier Eaton, interior supplier
Lear, and paint supplier PPG. Other parts makers highlighted in Figure
1.1 are themselves multinational joint ventures, such as American–Jap-
anese exhaust supplier Arvin Sango and seat supplier Trim Masters, and
German–Japanese sealing supplier Freudenberg-NOK.
The suppliers mentioned in the two previous paragraphs all are
ranked among the largest in the motor vehicle industry, each with annu-
al sales in the billions of dollars. Other Camry suppliers are more mod-
estly sized, generating revenues only in the tens of millions of dollars,
for example, stabilizer bar supplier Brewer Automotive Components,
headrest supplier Gill, and oil fille cap supplier Miniature Precision.
When the Ford F-150, the best-selling truck model in the United
States, was redesigned in 2004, it too had a mix of large and small do-
mestic- and foreign-owned suppliers (Figure 1.2). Although the F-150
 The Parts of Your Vehicle 

Figure 1.1 Major Suppliers to the Toyota Camry

Power steering gear Hoodliner, interior dash panel insulator

JTEKT UGN
Headrest bracket frame Passenger airbag
Halogen headlamp AUTOLIV
OSRAM SYLVANIA GILL
Interior mirror Carpet, sunroof, headliner
Hood hinges
MAGNA DONNELLY LEAR
DURA
Rear decklid hinges
Oil filler cap
MAGNA (COSMA)
MINIATURE
PRECISION
COMPONENTS
Valves
EATON
Pistons
MAHLE

Wire harness Electrocoat

YAZAKI PPG
Sideshafts ABS
Steering column GKN Coil springs
BOSCH
NSK NHK
Stabilizer bars
BREWER Fuel hose
Camshaft DANA
crankshaft seals AUTOMOTIVE
SKF COMPONENTS Brake hose
HITACHI CABLE
Camshaft castings Exhaust system, fuel tank
CWC TEXTRON ARVIN SANGO Shock/strut seals
FREUDENBERG-NOK
Coolant & brake fluids Door assembly, seat assembly
CCI TRIM MASTERS

SOURCE: Adapted by the authors from Automotive News (2006).

was a truck made by a U.S.-owned company and the Camry a car made
by a Japanese-owned company, the two models had some of the same
suppliers. Not only did the “Japanese” Camry and the “American” F-
150 share leading U.S.-owned suppliers such as Dana, Dura, and Lear,
they both had brakes and lights supplied by leading German suppliers
Robert Bosch and Osram Sylvania, respectively.
Suppliers to these two best-selling vehicles differed in two key
aspects. The leading F-150 supplier by far, Visteon Corp., was not a
major Camry supplier. Among Visteon’s many contributions to the F-
150 were alternators, antitheft devices, axles, fuel tanks, headlamps,
 Klier and Rubenstein

Figure 1.2 Major Suppliers to the Ford F-150

Seats Overhead
CD/radio JOHNSON Audiophile sound Window regulators
system
DELPHI CONTROLS system ARVINMERITOR
JOHNSON
VISTEON
Tailgate lift CONTROLS Interior mirror
assist C-pillar Instrument GENTEX
TECHFORM COOPER- panel Seat systems
PRODUCTS STANDARD VISTEON LEAR
Rear window Steering column
DURA NSK
Airbags Seat adjusters
TRW MAGNA
(INTIER)
Interior trim
Seat belts LEAR
Frame TRW
DANA Door latches
Brakes Door panels MAGNA (INTIER)
Brake fluids BOSCH LEAR
DOW Park assist
Jounce VALEO
Fuel tank, Anti-theft
bumper
fuel pump system Rocker panel
COOPER-
VISTEON VISTEON COOPER-
STANDARD
Wheels STANDARD
Shocks SUPERIOR Axle drive shafts
ZF SACHS VISTEON Console shift
Body security module Floor, acoustic systems system
SIEMENS VDO LEAR DURA
Electronic vacuum regulator Occupant positioning system Wiring harness
SIEMENS VDO DELPHI SIEMENS-YAZAKI

instrument panels, pumps, radiators, sound systems, and windshields.

In 2004, Visteon was the second-largest parts maker in North America,
with $11 billion in sales for new vehicles. Visteon was not the F-150’s
leading supplier by accident. Until 2000, when it was spun off as an
independent company, Visteon was Ford Motor Company’s parts-mak-
ing operation.
The other major difference concerns geography. The F-150 was put
together at arguably the most venerable assembly plant in the country,
Ford’s Rouge complex in Dearborn, Michigan. At its height of impor-
tance between the two world wars, the Rouge complex employed more
 The Parts of Your Vehicle 

Figure 1.2 (continued)

Camshaft bushings Radiator hoses

FEDRAL-MOGUL COOPER-STANDARD Engine mounts Steering
COOPER-STANDARD column
Hood liner DELPHI
CTA ACOUSTICS Radiator Hood Windshield
Hood latch, release VISTEON ALCOA VISTEON Steering Steering
DURA wheel joints
TRW ZF
Front light bulbs
OSRAM SYLVANIA Power steering lines
DANA
Front lighting Heat shield
VISTEON ALCOA
Piston rings Water pump
DANA BOSCH

Pistons Pressure
FEDERAL return pump
Cooler & Starter, VISTEON
-MOGUL reservoir alternator
DANA VISTEON Fuel injectors
Front BOSCH
suspension Engine timing chain
bushing BORGWARNER Gas support
ZF struts
Integrated air/fuel module
STABILIUS
VISTEON
Front lower
Viscous fan drive Front stabilizer bar,
control arm
BORGWARNER coil springs
TRW Connecting
VISTEON
Idle air by-pass valve rod
Front stabilizer links DENSO bushings Electronic vapor
TRW FEDERAL- management valve
Four-wheel-drive transfer case SIEMENS VDO
MOGUL
BORGWARNER

SOURCE: Adapted by the authors from Automotive News (2006).

than 100,000 workers in more than 100 buildings. Raw materials fa-
mously arrived at one end and finishe vehicles rolled out at the other.
Ford’s twenty-first-centur Rouge assembly plant bears little physical
resemblance to the mid-twentieth-century version. A display in the
Rouge visitor center illustrates how much the complex had changed.
Yet the plant continued to be a major reason why Michigan was still the
leading car-producing state in the early twenty-firs century.
Meanwhile, 300 miles south, Toyota was assembling most of its
Camrys in Georgetown, Kentucky, previously best known for a small
 Klier and Rubenstein

college that hosted the Cincinnati Bengals preseason camp. Toyota de-
liberately chose to build a campus with nearly 10,000 employees in
a small town with little tradition in the motor vehicle industry. Ironi-
cally, Toyota’s current Georgetown complex comes closer to the orga-
nizational spirit of the mid-twentieth-century Rouge than does Ford’s
twenty-first-centur assembly plant on the Rouge site.
Where vehicles are assembled affects where parts are made. Some
parts are made right next door to the assembly plants, and some are
made on the other side of the world. In the context of just-in-time pro-
duction, however, we show that most parts are made within a several-
hundred-mile radius of the assembly plant in which they are used. Thus,
most of the F-150 parts are made within several hundred miles of the
Rouge, and most of the Camry parts are made within several hundred
miles of Georgetown.

DATA FOR THIS BOOK

The firs challenge in writing about parts suppliers is actually fin -

ing them. Other empirical studies have relied on government summary
data and interviews with selected industry official and observers (e.g.,
Cooney 2005; Cooney and Yacobucci 2005; Dyer 2000; Offic of Aero-
space and Automotive Industries 2007; Van Biesebroeck 2006).
This study’s database, in contrast, has been built by aggregating
observations from several thousand individual parts plants in the United
States, Canada, and Mexico. A large number of variables have been
collected for every factory operated by the 150 largest North American
suppliers, as well as more than a thousand smaller companies. Together,
these plants account for the overwhelming majority of parts production
in North America, probably well over 90 percent.
One hundred percent coverage cannot be claimed for the database.
Information may be incorrect for particular plants, and some plants un-
doubtedly have been missed altogether. But this is by far the most com-
prehensive and detailed compilation of data on parts suppliers in North
America, making it possible to identify trends and draw conclusions at
a higher level of detail than is possible with summary data.2
 The Parts of Your Vehicle 

Government Data Sources

The primary government data source is the U.S. Census of Man-

ufactures, collected every fiv years, including 1997 and 2002. The
Census of Manufactures provides information about both the value of
shipments originating from manufacturing establishments and the value
added at manufacturing establishments in each sector of the economy.
The census also provides information on employees, payroll, produc-
tion workers, wages, cost of materials, and capital expenditures.
Motor vehicle assembly operations are allocated to North American
Industrial Classificatio System (NAICS) code 3361. NAICS 3361 is
divided into three six-digit codes: NAICS 336111 for automobile manu-
facturing (i.e., fina assembly), NAICS 336112 for light truck manufac-
turing, and NAICS 336120 for heavy truck manufacturing. The value
of parts delivered to automobile and light truck fina assembly plants
in the United States was $156.2 billion according to the 2002 census
(Table 1.2).
The manufacture of many motor vehicle parts is assigned to NAICS
3363, which is divided into eight six-digit codes: engines, electrical,
steering & suspension, brakes, transmissions, fabrics & seats, metal
stampings, and other. We also include NAICS 336211, motor vehicle

Table 1.2 Value of Shipments and Receipts of Motor Vehicle Parts

(NAICS 3363)
Shipments Received
from suppliers by assemblers
NAICS Parts ($, billions) ($, billions)
336330, 336340 Chassis 23.6 9.5
336320 Electronics 25.7 4.0
336370, 336211 Exterior 32.9 11.9
336360 Interior 17.2 19.1
336310, 336350 Powertrain 70.5 42.9
336390 Other 41.4 6.6
Total 211.3 Unknown
— Other NAICS codes Unknown Unknown
— Total value of parts Unknown 156.2
SOURCE: U.S. Census Bureau, 2002 Census of Manufactures.
10 Klier and Rubenstein

bodies, in our definitio of motor vehicle parts. The value of shipments

for NAICS codes 3363 and 336211, motor vehicle parts and motor ve-
hicle bodies, in 2002 was $211.3 billion. The six-digit NAICS codes are
subdivided into more detailed eight- and 10-digit codes. For example,
transmissions (NAICS 336350) is divided into transmissions for new
vehicles (NAICS 33635011), transmissions for heavy trucks and buses
(NAICS 33635012), transmission parts (NAICS 33635013), axles (NA-
ICS 33635014), and other drivetrain parts (NAICS 33635015). NAICS
33635015 in turn is divided into seven 10-digit codes, such as clutches
(NAICS 3363501522) and drive shafts (NAICS 3363501528).
The large discrepancy between the value of deliveries and the value
of shipments, as well as the large size of “other” categories, points to
three serious limitations of NAICS data. First, shipments include both
original equipment and aftermarket sales. As mentioned earlier in this
chapter, an estimated 30 percent of shipments go to the aftermarket, al-
though precise figure are not available from the census and percentages
are likely to vary among NAICS codes. Second, deliveries include both
domestic-made and foreign-made parts. As discussed in more detail in
Chapter 13, at the time of the 2002 census, roughly one-fourth of parts
arriving at U.S. assembly plants were produced in other countries.
The third critical limitation, affecting both shipments and deliver-
ies, is that some key parts, including tires, glass, and paint, have been
placed in NAICS codes other than 3363 if their primary customers are
outside the motor vehicle industry. Consequently, it is not possible, us-
ing census data, to break out values on the shipments of these parts to
vehicle assembly plants.

This Study’s Database

Rather than relying predominantly on aggregated government data,

research for this book included creating a database of several thousand
parts plants by name and address. The starting point for the plant-level
database was information acquired from ELM International, Inc., a
Michigan-based vendor of information about automotive suppliers.3
Although it was not designed with research applications in mind,
the ELM International database purports to offer exhaustive coverage,
with 4,268 plant-level records in 2006, covering the United States, Can-
ada, and Mexico. Additional records are continuously added. Informa-
 The Parts of Your Vehicle 11

tion about individual plants includes name, address, products made at

the plant, names of customers, number of employees, and name of the
union if present.
We made fiv types of substantial revisions to the ELM Internation-
al database. First, the names of companies and unions were corrected to
reflec the many mergers, acquisitions, and other changes affecting the
industry in recent years.
The second revision concerned employment level. Plants shown by
ELM International to have more than 2,000 employees were checked
either by phone or a review of the company Web site. Employment
figure reported in the ELM International database for 2006 averaged
about one-fourth higher than the field-checke employment figures
Consequently, employment figure based on ELM International data
were not used in this study unless they were found to be in substantial
agreement with other sources.
We also added plants that should have been included by ELM In-
ternational to the database and removed others that had closed. Every
plant operated in the United States in 2006 by the 150 largest parts
suppliers, according to Automotive News (2007a), was identified rep-
resenting a total of approximately 1,600 plants. There was a net of 335
plants added to the ELM International database, approximately a 20
percent increase.
Fourth, we collected additional information about the 4,268 plants
in the database beyond that provided by ELM International. The age
of the plant and the nationality of the owner were found for most of
the plants through contacting the companies or reviewing state indus-
trial directories, press reports, and trade associations (e.g., the Japan
Auto Parts Industries Association). The latitude and longitude of each
plant location was geocoded to facilitate mapping of plant distribu-
tions, which was especially important for the geographic analysis found
throughout this book.
The fina significan revision was to identify one primary type of
part for each of the 4,268 plants. The ELM International database listed
up to 13 distinct parts being made at a particular plant; only 1,551 plants
had only 1 parts code, 37 had at least 10 parts codes, and 4 plants had
the maximum 13. The mean number of parts codes per plant was about
2.4. For this book, we assigned each plant one of six codes: chassis,
electronic, exterior, interior, generic, and powertrain.
12 Klier and Rubenstein

The principal limitation of the database that could not be overcome

concerned the customers for each plant. The database showed the names
of the carmakers to which the parts were ultimately attached, but it rare-
ly listed the name of the immediate customer, which in many cases
would be another supplier. In other words, most suppliers of seat parts,
for example, reported their customer to be a carmaker even though the
seat parts were actually shipped to a seat assembler.
Key finding of the database included:
• Number of plants: 3,179 plants were located in the United States,
plus 416 in Canada and 673 in Mexico (see Figure 1.3).
• Type of owner: 3 percent of the U.S. parts plants were owned by
carmakers; 42 percent by the 150 largest suppliers, each with an-
nual North American original equipment sales of more than $200
million; and 55 percent by 1,000 other suppliers.
• Plant size: Median plant employment was 220, mean was 350,
and 6 percent had more than 1,000 employees.
• Nationality of owner: 77 percent were owned by companies with
U.S. headquarters and 23 percent by companies with foreign
headquarters.
• Date of opening: 55 percent were opened before 1980 and 45
percent between 1980 and 2006.
• Location: 25 percent were located in Michigan, 36 percent in
other Great Lakes states, 28 percent in the South, and 11 percent
in the rest of the country.
• Union: 85 percent of the plants reported on their union status: 30
percent had a union and 70 percent did not.
• Type of part: 22 percent of plants made parts for the powertrain,
including the engine and transmission; 19 percent of plants made
parts for the chassis, including tires, wheels, brakes, steering, and
suspension; 15 percent of plants made parts for the exterior, in-
cluding bodies, bumpers, glass, and paint; 14 percent of plants
made parts for the interior, including seats, instrument panels,
doors, headliners, and carpeting; 15 percent of plants made parts
for the electronic systems, including engine management, pas-
senger convenience, and safety; and 16 percent of plants made
generic parts, including bearings, brackets, and hinges.
 The Parts of Your Vehicle 13

Figure 1.3 Parts and Assembly Plants in North America

SOURCE: Adapted by the authors from Ward’s Automotive Yearbook, ELM Interna-
tional, and other sources.

Compared with supplier studies by the U.S. Census Bureau, the

Center for Automotive Research (CAR), and Merrill Lynch, this study
has found a smaller percentage of powertrain plants and a larger per-
centage of chassis plants (Table 1.3). The difference can most likely
be attributed to differences in allocating parts among systems. For ex-
ample, should the axle be considered part of the powertrain or part of
the chassis?

BOOK OUTLINE

The book is divided into four sections, based on impacts of chang-

ing carmaker–supplier relationships at various geographic scales:
• Part I: The motor vehicle industry’s traditional core region cen-
14 Klier and Rubenstein

Table 1.3 Percent Vehicle Content by System

This study Census
With Without With Without Merrill
System generic generic generic generic CAR Lynch
Powertrain 22 26 27 33 40 36
Chassis 19 22 9 11 15 18
Electronics 15 17 21 25 11 18
Exterior 15 18 19 23 16 19
Interior 14 17 6 8 18 10
Generic 16 18
NOTE: Columns may not sum to 100 due to rounding.
SOURCE: McAlinden and Andrea (2002); Merrill Lynch (2007).

tered on southeastern Michigan and adjacent Midwest states near

the southern Great Lakes. Which parts are still being made in the
industry’s traditional home and why?
• Part II: Local-scale connections between carmakers and their
suppliers. Which parts are being made very close to their cus-
tomer—a fina assembly plant—and how are the rest of the parts
being moved from supplier to customer?
• Part III: Clustering of motor vehicle production at the regional
scale, known as Auto Alley. Why have most suppliers located
in Auto Alley, and what factors account for choice of location
within Auto Alley?
• Part IV: International shifts in production of parts for the U.S.
motor vehicle industry. What is the magnitude and rate of growth
of the outsourcing of parts to other countries, and which of
the many parts in a motor vehicle are the ones being sourced
overseas?

CARMAKER–SUPPLIER RELATIONS

Manufacture of original equipment parts constitutes an intermedi-

ate step in the process of producing motor vehicles. As a result, the
 The Parts of Your Vehicle 15

fortunes of the producers of the parts depend to a large extent on their

ultimate customers, the carmakers. A book on motor vehicle parts sup-
pliers therefore must acknowledge the perspective of carmakers. In this
section, we briefl review changes in the role of parts makers from the
carmaker’s perspective, as well as the literature on relationships be-
tween carmakers and parts suppliers.
The “Big 3” carmakers (GM, Ford, and Chrysler) dominated twen-
tieth-century production, but they entered the twenty-firs century on
very shaky ground. Their U.S. market share plunged from 95 percent in
the mid-twentieth century to 75 percent in the late twentieth century to
50 percent in the firs decade of the twenty-firs century. Ford and GM
faced their most serious financia challenges since the Great Depres-
sion, and Chrysler was firs sold to German carmaker Daimler-Benz,
then to private equity fir Cerberus. Reflectin the declining market
share, the “Big 3” were more accurately known in the twenty-firs cen-
tury as the “Detroit 3.”
As the Detroit 3 struggled, Japanese-based companies led by Toyota
were raking in record profit and market share. Foreign-owned carmak-
ers accounted for more than one-third of motor vehicle production in
the United States during the firs decade of the twenty-firs century (An-
drea 2007). Toyota passed Ford as the world’s second-largest producer
in 2004 and GM as the world’s largest producer in 2007 (Child 2008).
When it overtook GM, Toyota became the firs non-American company
to lead world production since the nineteenth century.
Toyota’s success was based on its distinctive production system
that efficientl turned out vehicles nearly free of defects. The Toyota
Production System has many key elements, and often underappreciated
among them is a distinctive relationship between the carmaker and its
suppliers. “At least part of Toyota’s success is because of its harmoni-
ous relationship with supplier companies.”4
In a fiercel cutthroat market, the relationship with suppliers has
become a key source of competitive advantage for some carmakers.
As Toyota passed Ford and then GM as the world’s largest carmaker,
favorable supplier relations contributed to its success. “The automaker
thinks it can gain a competitive advantage in North America if suppli-
ers are satisfie by their relationship with the automaker” (Chappell
2005b).
16 Klier and Rubenstein

Benefits of Good Carmaker–Supplie Relations

Researchers have been especially interested in documenting and ex-

plaining the competitive advantage accruing to carmakers as a result of
good supplier relations. The seminal study The Machine That Changed
the World by the International Motor Vehicle Program based at the
Massachusetts Institute of Technology introduced many in the U.S.
auto industry to the successes of Japanese-inspired lean production, in-
cluding the different relationships between carmakers and suppliers as
compared with the U.S. model (Womack, Jones, and Roos 1990).
Research on changing relations between carmakers and their suppli-
ers has emanated from two types of scholars. Analysts in nonacademic
settings have measured the magnitude of the parts industry and have
documented the enhanced role of suppliers in the production process.
Academic researchers have emphasized the underlying meaning and
significanc of changing carmaker–supplier relations and the compara-
tive advantage that accrues to some carmakers through enhanced sup-
plier relations.
Most of the recent studies on the motor vehicle parts sector have
come from analysts in nonacademic settings. Researchers are based in
three types of organizations: auto industry specialists, financia services
firms and government agencies. Described below are some of the stud-
ies that industry specialists have released to the public.
The CAR Economics and Business Group has addressed changing
relationships between carmakers and suppliers in numerous studies.
CAR researchers have estimated the total number of jobs generated by
the auto industry in the United States and in selected states (Hill 2005;
Hill, Menk, and Szakaly 2007), the future size of union membership
and the Detroit 3 workforce (McAlinden 2007), and a “stay/go” index
to forecast the likelihood that production of particular types of parts will
abandon Michigan (McAlinden 2006).
DesRosiers Automotive Consultants has estimated the magnitude
of the supplier sector in North America and the likelihood of increased
overseas outsourcing (DesRosiers 2005, 2006). The fir is Canadian
based, so it breaks out U.S. and Canadian data.
The Original Equipment Suppliers Association (OESA), represent-
ing the perspective of the leading parts makers in North America, has
documented the difficultie faced by suppliers, especially in the context
 The Parts of Your Vehicle 17

of the global economy. OESA has also described the increasing role of
equity investment firm in the parts supplier industry (De Koker 2006;
Motor & Equipment Manufacturers Association 2007; Original Equip-
ment Suppliers Association 2006).
CSM Worldwide has specialized in forecasting future demand for
vehicles and parts, with a worldwide focus (Robinet 2005). Roland
Berger Strategy Consultants has also concentrated on future worldwide
trends in demand for different parts, especially in view of technology
changes (Maj, Benecchi, and van Acker 2004). The McKinsey Global
Institute within McKinsey & Company has documented productivity
improvements in the motor vehicle industry (Baily et al. 2005). IRN,
a Michigan-based consultancy, focuses on auto supplier issues (Korth
2007).
Studies on the motor vehicle parts sector have also been produced
by agencies of the federal government. The U.S. Department of Com-
merce Offic of Aerospace and Automotive Industries publishes an an-
nual assessment of the parts industry.5 Reports on aspects of the auto
industry of particular interest to Members of Congress are published by
the Congressional Research Service (Cooney 2005). The Government
of Canada has also commissioned studies of its automotive market (Van
Biesebroeck 2006).
Analysts based in financia services firm have been primarily con-
cerned with the financia challenges facing motor vehicle suppliers as
a result of changing relations with carmakers (see, for example, Stein-
metz 2006). Merrill Lynch has monitored the supplier sector with an
eye to recommending companies for investment (Merrill Lynch 2007);
the fir has also looked at future energy technology (Merrill Lynch
2006).

Elements of Changing Carmaker–Supplier Relations

The shift from parts and components to modules and systems has
fundamentally changed the role of parts suppliers in the development
and production of cars. Analysts agree on the following basic dimen-
sions of change (Wasti and Liker 1999).
18 Klier and Rubenstein

Fewer parts and more modules

What goes into a vehicle can be sorted into the following hierarchy:
• Parts are typically small, individual pieces of metal, rubber, or
plastic stamped, cut, or molded into distinctive shapes, such as
knobs and levers.
• Components are several parts put together into recognizable fea-
tures, such as radios and seat covers.
• Modules are several components combined to make functional
portions of a motor vehicle, such as instrument panels and seats.
• Systems are groups of components that are linked by function into
major units of motor vehicles, such as interiors and engines.
In the past at their fina assembly plants, carmakers gathered to-
gether thousands of individual parts and components purchased either
from independent suppliers or made by their own parts divisions. Now,
suppliers are being asked to deliver large modules and systems ready to
be installed on the fina assembly line. “A modular system is composed
of subsystems (or modules) that are designed independently but still
function as an integrated whole” (Dyer 2000, p. 171). Modularization
was described by GM vice president Bob Lutz as “like the definitio of
a Lego set” (Mackintosh 2004).
“What was once a highly vertically integrated industry has become
ever more dependent on supplier companies to fulfil increasingly com-
plex piece and module design and production” (Hill, Menk, and Szakaly
2007, p. 9). As a result, some analysts speculate that “[m]odularization
may remove the nameplate assembler from directly manufacturing
much of the product; it becomes rather the marketer, coordinator and
distributor of the fina vehicle” (Cooney and Yacobucci 2005, p. 41).
SupplierBusiness.com (2004) described the difference between a
module and a system this way: “[T]he different parts of a safety system
or a braking and traction control system are located in separate areas
of the vehicle and incorporated into several different modules, but they
will have been designed to work together as a complete system . . .
[M]odules are being designed as complex units, which incorporate
multiple functions. Examples of modules include seats, doors, cockpits,
front-ends and suspension corner modules. Each of these can include
components from two or more major vehicle systems.”
 The Parts of Your Vehicle 19

A parts producer stated the difference more flippantly “Two parts

bolted together is a module. Three parts bolted together is a system.”6

Larger contracts to fewer suppliers

Instead of buying from thousands of suppliers, carmakers are of-
fering large contracts to only a handful of suppliers, which are con-
solidating into fewer larger firm and driving smaller firm out of the
industry.
“Productivity improvements and the declining market share of do-
mestic OEMs have led to considerable consolidation among motor ve-
hicle parts suppliers” (Hill, Menk, and Szakaly 2007, p. 10). “Since the
early 1990s . . . the largest 20–30 suppliers in the industry have taken on
a much larger role in the areas of design, production, and foreign invest-
ment, shifting the balance of power in some small measure away from
lead firm towards suppliers” (Sturgeon, Van Biesebroeck, and Gereffi
2007, p. 3). As a result, “[w]hile the total number of vehicles produced
in North America grew by 40 percent between 1991 and 2005—from
11.6 million to 16.3 million—the combined sales of the largest 150 sup-
pliers in North America almost tripled over the same time period . . .”
(Hill, Menk, and Szakaly 2007, p. 24).

Longer relationships between suppliers and carmakers

Instead of awarding contracts annually to the lowest price bidders,
carmakers are developing long-term relationships with suppliers, at
least for the several-year life of specifi vehicle models, if not longer.
“The continued efforts by original equipment manufacturers
(OEMs) to reduce costs has led to an ever-increasing amount of manu-
facturing, sub-assembly, and R&D work being shifted to suppliers . . .
The supplier companies design, engineer and manufacture the vast ma-
jority of the parts that go into a modern-day motor vehicle” (Hill, Menk,
and Szakaly 2007, pp. 1, 9). “For niche vehicles or low-volume cars
the entire assembly is sometimes turned over to an outside contractor.
The practice allows OEMs to assemble vehicles locally without large
capital investments or to increase production capacity when their own
assembly plants cannot satisfy demand for an unexpectedly successful
model” (Van Biesebroeck 2006, p. 210).
20 Klier and Rubenstein

More research and development by suppliers

Instead of providing detailed specifications carmakers are giving
suppliers responsibility for research and development to design and
build innovative modules and systems.
In 2000, suppliers spent $6.6 billion on research and product devel-
opment, accounting for 36 percent of total automotive-related spending
on research and development; this increased to $6.8 billion in 2003,
or 40 percent of all research and product development spending (Hill,
Menk, and Szakaly 2007). “Most innovations in safety, emissions, and
entertainment come from Tier 1 suppliers.”7 “Some suppliers are will-
ingly taking on the new responsibilities offered to them by the OEMs,
transforming themselves into ‘Tier One-Half systems integrators,’ that
engineer and build complete modules (for example, an entire interior,
4-corner suspension sets, or an entire rolling chassis) and assume both
product design and development responsibilities and down stream sup-
ply chain management functions previously undertaken by the OEMs”
(Offic of Aerospace and Automotive Industries 2007, p. 6).

Smaller parts inventory and more just-in-time delivery

Instead of maintaining a large inventory of parts, carmakers are re-
quiring suppliers to deliver modules and systems on a just-in-time (JIT)
basis, often within only a few minutes before needed on the fina as-
sembly line.
“Because there is no built up inventory, JIT allows the firm to
correct quality problems as they are discovered, and to make running
changes in product specification or volume requirements when need-
ed” (Offic of Aerospace and Automotive Industries 2007, p. 5).

Two Paradigms for Carmaker–Supplier Relations

Researchers argue that an automaker’s strong relationships to its

supply base can be a valuable strategic capability that is difficul and
time-consuming for competitors to imitate. According to Jeffrey Dyer
(2000, p. 169), “competitive advantage will increasingly be jointly cre-
ated, and shared, by teams of firm within a value chain.”
 The Parts of Your Vehicle 21

Analysts’ perspectives on Japanese carmaker–supplier relations

Japanese carmakers have established constructive partnerships
with their suppliers. A key to better supplier relations is trust. The three
leading Japanese carmakers, Toyota, Honda, and Nissan, are seen as
legitimate semi-insiders by supplier companies (Sako 2004, p. 301):
“Suppliers’ trust of (Japanese carmakers) lay in the latter’s competence
as teachers, but also in devising a clear set of rules for sharing specifi
gains from short-term intervention, and for letting suppliers appropriate
wider gains from long-term capability enhancement.”
According to Wasti and Liker (1999), positive supplier relation-
ships are achieved by following six steps: 1) understand how suppliers
work, 2) turn supplier rivalry into opportunity, 3) supervise vendors,
4) develop supplier technical capabilities, 5) share information inten-
sively but selectively, and 6) conduct joint improvement activities.
From interviews with nearly 100 managers at Honda and Toyota
as well as their suppliers, Liker and Choi ([2004]; see also Dyer and
Nobeoka [2000]) concluded that these two carmakers “have struck re-
markable partnerships with some of the same suppliers that are at log-
gerheads with the Big Three and have created latter-day keiretsu across
Canada, the United States, and Mexico . . . Toyota and Honda have
managed to replicate in an alien Western culture the same kind of sup-
plier webs they built in Japan.” (Keiretsu is define on p. 22.)
It is no coincidence that many of today’s fastest growing and most
financiall stable suppliers set up shop in the United States at the behest
of Japanese carmakers. “For Toyota and Honda, making sure their sup-
pliers earn a profi is a key part of their formula for success. Profitabl
suppliers are able to develop technologies that give their customers an
advantage” (Automotive News 2005a). Japanese carmakers have nursed
their suppliers, and suppliers like doing business with them. In addition,
supplier networks incorporate a complex system of incentives.
The three leading Japanese carmakers do not have identical supplier
relations (Sako 2004). Although all three transfer knowledge to suppli-
ers through a variety of development activities and management control
systems, Toyota shares more information with suppliers and has more
separation between purchasing and engineering development. “[Each
of the three Japanese carmakers] clearly distinguishes between the in-
ner core of suppliers to which processes for ‘capability enhancement’
22 Klier and Rubenstein

are taught in a hands-on manner, and the rest, who are mainly given
incentives to make improvements through long-term customer commit-
ment. This distinction ensures that tacit knowledge is shared only with
the inner core. This inner core ranges from 25 companies at Nissan and
52 at Toyota, and up to 63 at Honda” (Sako 2004, p. 302).

Analysts’ perspectives on Detroit 3–supplier relations

In contrast, Sako and Helper surveyed 675 Tier 1 suppliers in the
United States and 472 in Japan during the 1990s and found that “[t]he
U.S. auto industry has been characterized by decades of adversarial
buyer-supplier relations” (Mudambi and Helper 1998, p. 789). They
also state that “suppliers to the U.S. automobile industry have little ex-
pectation of being treated fairly by their customers” (p. 776). Table 1.4
summarizes the contrast between the two models of supplier relations.
“Experts agree that American corporations, like their Japanese ri-
vals, should build supplier keiretsu: close-knit networks of vendors

Table 1.4 Relationships between Suppliers and U.S. and Japanese

Carmakers
Criteria Detroit 3a Japanese 3b
Relationship orientation Adversarial; focus is on Strategically integrate
cost and OEMs’ short-term suppliers into partnership-
gain like relationship

Open, honest Indifference; incomplete High level and timely

communication and late information

Protect confidentia Little regard for suppliers’ High regard

information proprietary information or
intellectual property

Importance of cost vs. By far, primary focus is on Also seek low cost but
quality and technology cost balance it with quality
improvements and
technology

Supplier survival Little regard Concern for long-term

success and stability
a
GM, Ford, and Chrysler.
b
Toyota, Honda, and Nissan.
SOURCE: PPI (2005).
 The Parts of Your Vehicle 23

that continuously learn, improve, and prosper along with their parent
companies” (Liker and Choi 2004, p. 106). The key word in the previ-
ous sentence is should, because the reality is that “current attempts to
increase informal commitment and trust are constrained by the exis-
tence of adversarial buyer-supplier relations in the past” (Mudambi and
Helper 1998, p. 776).
U.S. carmakers have tried going down the path of cooperation. Dur-
ing the early 1990s, for example, Chrysler implemented a more coop-
erative way of doing business with its suppliers that showed almost
immediate improvements in its supplier relationships. In the wake of its
merger with Daimler, however, that approach was abandoned in favor
of the traditional way of doing business.8
Mudambi and Helper (1998, p. 789) concluded that relationships
between U.S. carmakers and suppliers are close even though they are
adversarial: “[T]he close but adversarial model represents the current
state of buyer-supplier relations in the majority of cases.” U.S. carmak-
ers have created a framework of formal cooperation with their suppli-
ers, but it is accompanied by uncooperative behavior. U.S. carmakers
take advantage of the competitive weaknesses of suppliers to reap
short-term gain (Mudambi and Helper 1998). Especially damning was
the perspective of U.S. suppliers, which were less trusting than Japa-
nese suppliers, except when they had Japanese carmakers as customers
(Sako and Helper 1998).
Liker and Choi (2004) show that U.S. carmakers have adopted all of
the Japanese-inspired organizational strategies, including slashing the
number of suppliers, awarding long-term contracts to the survivors, en-
couraging Tier 1 suppliers to set up lower-tier networks, ordering sys-
tems and modules instead of parts and components, receiving deliveries
on a just-in-time basis, and giving suppliers responsibility for quality
and costs. “However, while these American companies created supply
chains that superficiall resembled those of their Japanese competitors,
they didn’t alter the fundamental nature of their relationships with sup-
pliers. It wasn’t long into the partnering movement before manufactur-
ers and suppliers were fightin bitterly over the implementation of best
practices, like continuous quality improvement and annual price reduc-
tions” (Liker and Choi 2004, p. 106).
24 Klier and Rubenstein

Carmaker–Supplier Relations: Converging or Diverging?

Helper and Sako (1995) did detect some convergence in the way
U.S. and Japanese carmakers work with suppliers.
• Information disclosure. The percentage of suppliers reporting
an increase in information disclosed by U.S. carmakers rose from
38 percent in 1984 and 50 percent in 1989 to 80 percent in 1993;
the percentage of suppliers reporting an increase in information
disclosed by Japanese carmakers declined from 80 percent in
1989 to 77 percent in 1993.
• Joint problem-solving. The percentage of suppliers report-
ing that U.S. carmakers helped them match efforts by compet-
ing suppliers increased from 32 percent in 1989 to 51 percent
in 1993; the percentage of suppliers reporting that Japanese car-
makers helped them match competitors declined from 45 percent
in 1989 to 40 percent in 1993.
• Contract length. Suppliers to U.S. carmakers reported that the
average contract increased from 1.2 years in 1984 to 2.3 years in
1989 and 2.4 years in 1993; two-thirds of suppliers to Japanese
carmakers reported no time-specifi contracts.
The immense cost pressures faced by the Detroit 3 have since
pushed the pendulum in the other direction and again made cost the
main criterion in supplier selection. First, the Detroit 3 carmakers have
been more easily able to source globally, notably from China. As a re-
sult, many North American suppliers now have to compete with the
“landed costs” of parts produced in China and other low-wage coun-
tries. Second, Internet-based technologies have allowed the Detroit 3
to get suppliers to compete on cost more efficiently—a d more bru-
tally—than they used to. Confrontational tactics of Detroit 3 purchasers
include “beat[ing] down prices with electronic auctions or rebidding
work to a competitor. Japanese are equally tough on price but are com-
mitted to maintaining supplier continuity” (Chappell 2004a; Sherefkin
and Wilson 2003). Consequently, the relations between carmakers and
suppliers in America have deteriorated even as the quality of vehicles
has improved (Liker and Choi 2004). According to Stallkamp (2005b),
“Typically, in any one of the Big Three automakers there might be more
than 250 to 300 buyers working at one time, each responsible for man-
 The Parts of Your Vehicle 25

aging a small aspect of the parts or services that go into the vehicle.”
Isolated from engineering, manufacturing, and marketing people, these
buyers have been motivated primarily by the desire to reduce the piece
or unit price. A penny per part adds up to big savings for a buyer.
Detroit 3 financia monitors have further increased pressure on sup-
pliers through “open book pricing,” such as auditing quotes and review-
ing overhead expenses. “What happens is the big guys, major OEMs,
keep putting more and more requirements on the supplier that are non-
negotiable. They simply say, ‘This is the way it is going to be done as of
this date, and next year we want another 5 percent price reduction.’”9
In response, Stallkamp (2005b) suggests that suppliers have en-
gaged in an elaborate game:
The supply base participants quickly figure out that a low quote
was the major deciding factor and often bid at cost or even below
cost to secure the business. They recovered their profit over time
because the development process each of the U.S. companies used
was so lengthy and convoluted that each part was changed several
times, each time providing a chance for the supplier to increase
its price for the design change. Suppliers often padded these de-
sign changes, but because the business was based on the initial
quote, little was done to move to another supplier because switch-
ing would cost time, cause disruption and possibly produce quality
issues.

OUTLOOK AND UNCERTAINTIES

“Industry surveys consistently have shown the U.S. component

supplier segment to be mistrustful, resentful and rebellious against their
Big 3 customers, while favorable to the Japanese transplants such as
Toyota and Honda” (Chappell 2005b). One such survey of carmaker–
supplier relationships has been conducted annually since 2000 by Plan-
ning Perspectives Inc. (PPI). From the responses of more than 200 sup-
pliers, PPI (2005) constructed a Working Relations Index to measure
how carmakers treat their suppliers on the basis of 17 business prac-
tices. According to a 2007 PPI survey of 308 North American parts
makers, including 69 of the 150 largest, Toyota was ranked highest in
26 Klier and Rubenstein

Table 1.5 Planning Perspectives Inc.’s Working Relations Index

2002–2007
Year 2006–07 2002–07
Carmaker 2002 2003 2004 2005 2006 2007 % change % change
Toyota 314 334 399 415 407 415 2.0 32.2
Honda 297 316 384 375 368 380 3.3 27.9
Nissan 227 259 294 298 300 289 −3.7 27.3
Chrysler 175 177 183 196 218 199 −8.7 13.7
Ford 167 161 160 157 174 162 −6.9 −3.0
GM 161 156 144 114 131 174 32.8 8.1
Industry mean 224 234 261 259 266 270 1.3 20.7
NOTE: The index ranks OEMs based on 17 criteria across fiv broad areas: relation-
ship, communication, help, hindrance, and profi opportunity.
SOURCE: PPI (2007).

fostering positive business relationships, followed by Honda, Nissan,

Chrysler, GM, and Ford (PPI 2007; Table 1.5).
Why do supplier relations matter? Because good relationships to
the supply base have become a key element of some carmakers’ busi-
ness strategies. “For the Big 3, the danger is that suppliers may stop of-
fering them their best technology” (Automotive News 2005b). Suppliers
say they have reduced spending on research and development for the
Detroit 3 and increased it for Japanese carmakers. More mistrustful of
Detroit 3 business methods, suppliers have been less willing to share
technology with them or invest in their products as compared with Japa-
nese carmakers (Chappell 2004b).
Larry Denton, CEO of Dura Automotive Systems, summarized the
situation in Sherefkin and Wilson (2003): “Catalytic converters, ABS,
airbags, automatic transmissions, safety belts—those were all innova-
tions that came from the traditional Big 3. We can’t name anything like
that that has come in the last fiv years because if I look at iDrive,
advanced diesel engines, hybrids, CVT—where did they come from?
There’s something broke here. Innovation isn’t getting through the old
domestics . . . Even though we’re all suppliers to all of them, technol-
ogy is headed in one direction because of the business model, and it
needs to be fixed.
 The Parts of Your Vehicle 27

Notes

1. Bill Taylor, Mercedes-Benz U.S. CEO, quoted in Chappell (2005a).

2. Research for this book also benefite from a dozen strategic interviews with car-
makers as well as parts makers, both large and small.
3. The ELM International, Inc. Web site can be accessed at http://www.elm-intl.com.
4. Lars Holmqvist, CEO of the European Association of Automotive Suppliers
(CLEPA), quoted in Wernle (2005a).
5. The “U.S. Automotive Parts Industry Annual Assessment” is published annually.
6. Sam Licavoli, president of Textron Automotive Co. Trim Operations, quoted in
Automotive News (1997).
7. Andrew Brown, Delphi executive director of engineering, 2003, quoted in Van
Biesebroeck (2006, p. 209).
8. For an enlightening description of that episode, see Stallkamp (2005a).
9. Ken Rice, manager of manufacturing the engineering-commercial division at
IMMI, Westfield Indiana, provider of seat belt assemblies, quoted in Murphy
(2004).
 Part 1

Detroit: Heart of the Auto Industry

To assert that Detroit and the auto industry have long been synonymous
may seem either unnecessary or anachronistic. For most of the twentieth cen-
tury, the city’s central position in the auto industry was so obvious as to need
no elucidation. As recently as the mid-twentieth century, two-thirds of the
nation’s auto industry jobs were in Michigan.
Detroit’s preeminence in the auto industry derived from the emergence
of the Big 3 carmakers. The clustering of Big 3 management and technical
operations contributed heavily to the Detroit area’s auto employment during
the twentieth century, and they continue to do so in the twenty-firs century.
However, the preponderance of Michigan’s Big 3 auto jobs historically was
actually in parts-making facilities. In the mid-twentieth century, the Big 3 as-
sembled most of their vehicles outside Michigan, but they made nearly all of
their parts inside Michigan.
Since the late twentieth century, the declining fortunes of the Big 3 have
caused declining fortunes for Detroit. Michigan’s job loss in the auto industry
in the early twenty-firs century averaged 6 percent per year. Having lost their
status as the three largest carmakers, the Big 3 are now being referred to as
the Detroit 3, even more closely linking a struggling city with the struggling
companies. Derelict factories and empty offic towers gave mute testimony to
the collapse of Detroit’s auto industry.
“Detroit’s long reign as the dominant force in the American car industry
is over,” proclaimed auto analyst Micheline Maynard on the firs page of her
2003 book, and just to make sure, she repeated on the second page, “Detroit’s
single-handed control of the American automobile industry has been lost for-
ever” (Maynard 2003). Although its auto employment has declined sharply,
Michigan remains the leading parts-making state. This section discusses how
the Detroit 3 parts-making operations came to be clustered in that state. It then
examines the three leading types of parts made in Michigan: engines, bodies,
and “bin” or generic parts.

29
 2
Rise and Fall of Vertical
Integration in the Midwest

[Hyundai officials] know that the Detroit area is the brain center
of not only the global automobile industry, but particularly
the North American automobile industry.1

Thousands of companies were established to build cars in the United

States in the firs years of the twentieth century. At the end of the firs de-
cade of the twenty-firs century, there were only three American-owned
carmakers—Chrysler LLC, Ford Motor Co., and General Motors Corp.
By 1910 Ford and GM had emerged as the two top-selling carmakers in
the United States and worldwide, and they remained so until they were
passed by Toyota in the firs decade of the twenty-firs century.
Many reasons accounted for the success of Ford and GM, but argu-
ably the most important was the ability of the two companies to make
most of their own parts instead of buying them. Ford and GM both
regarded the strategy, known as “vertical integration,” as an important
competitive advantage. Chrysler, the third of the Detroit-based Big 3
carmakers, was somewhat weaker in large measure because it was less
vertically integrated than its two larger competitors. Unable to compete
with the Big 3 on price and quality, other carmakers were driven out of
business, and independent suppliers were relegated to a marginal role
in the production process.
Vertical integration was also the basis for the dominance of motor
vehicle production in the Midwest, especially in southeastern Michigan.
At the height of vertical integration, parts-making was more highly clus-
tered in southeastern Michigan than was fina assembly. Parts produced
in southeastern Michigan were shipped to fina assembly plants located
near big cities around the country, like New York and Los Angeles.
After nearly a century of making most of their own parts, GM and
Ford both exited the parts-making business within a year of each other,
in 1999 and 2000, respectively. Making their own parts had become a
liability rather than an asset for GM and Ford because other carmakers

31
32 Klier and Rubenstein

were buying better quality parts from independent suppliers at lower

prices.
Just as the rise of vertical integration underlay southeastern Mich-
igan’s dominance of the motor vehicle industry for much of the twen-
tieth century, so has the end of vertical integration triggered hard times
in Michigan. At the height of vertical integration, immediately before
and after World War II, Ford and GM together made about 60 percent
of their parts in Michigan but assembled only about 15 percent of their
vehicles there. At the beginning of the twenty-firs century, Michigan’s
share of Ford and GM’s North American fina assembly operations had
increased to 20 percent, but the state’s share of parts production had
fallen to about 25 percent.

BENEFITS OF VERTICAL INTEGRATION

Every manufacturer needs inputs into its production process and

ways to get its goods to customers. Vertical integration measures the ex-
tent to which a fir is integrated with its “upstream” sources of inputs
and its “downstream” distribution to customers.
A fir must either procure inputs from other firm or control the in-
put sources itself. A fir that is relatively integrated upstream produces
most of its raw materials and semifabricated inputs itself. Similarly, a
fir either turns over its output to other firm or controls the sources of
distribution itself. A fir that is relatively integrated downstream con-
trols most of its own distribution activities instead of turning over its
goods to independent wholesalers and retailers.
The benefit of vertical integration were recognized by economists
long before the establishment of the motor vehicle industry. Industrial
organization textbooks (e.g., Scherer and Ross 1990) distinguish sev-
eral motives for vertically integrating a business activity. Vertical inte-
gration can have the following benefits
• Reducing costs. According to Nobel Laureate Ronald Coase,
who proposed a transaction cost theory of firms activities will
be collected in a fir when the cost of using the price mecha-
nism (procuring across markets) exceeds the cost of organizing
those same activities through direct managerial control. Several
 Rise and Fall of Vertical Integration in the Midwest 33

empirical studies have shown that auto manufacturers tend to in-

tegrate the production of a component if the production process
generates very specialized and nonpatentable know-how (Mas-
ten, Mehan, and Snyder 1989; Monteverde and Teece 1982).
• Enhancing control. Producers have more control over their eco-
nomic environment; for example, they are provided with immu-
nity from total interruption in the supply of a part.
• Optimizing scale. Various production operations with different
optimal scales can be combined in one corporate structure if mar-
kets are prone to a breakdown of competitive supply conditions.
At the height of vertical integration in the motor vehicle industry,
for example, the most efficien assembly plants produced about
200,000 vehicles per year on two shifts. Stamping body parts
and machining automotive transmissions are characterized by
much higher minimum annual volumes, up to 400,000 units each
(White 1971). The much larger scale of stamping operations lim-
ited the number of possible independent stamping companies.
Carmakers therefore protected themselves by integrating the
stamping operation.
Carmakers have shown little interest in “downstream” vertical inte-
gration. Frustrated with the inexperience of early dealers, Ford did set
up company-owned stores called branch houses during the firs decade
of the twentieth century (Rubenstein 2001). Located in major cities,
branch houses were staffed by Ford employees who received a salary
plus a bonus based on sales (Parlin and Youker 1914).
By the 1910s, though, Ford had abandoned direct selling. Ford could
not open branch houses fast enough to meet demand, nor could it fin
enough qualifie people to staff the branches (Epstein 1928; Knudsen
1926). More crucially, Ford official concluded that salaried employees
were not sufficientl motivated to sell cars. According to an industry
analyst writing in the 1920s (Epstein 1928, pp. 135–136), “If a dealer
has a financia interest in his own company, he is found to be much
more satisfactory than a branch manager, who has practically no fina -
cial interest in the branch.”
Although they abandoned downstream vertical integration, the Big
3 remained vertically integrated upstream until the end of the twentieth
century. As recently as the 1980s, GM produced more than 70 percent
34 Klier and Rubenstein

of its own parts and Ford 54 percent. Chrysler, which then had just
emerged from a near-brush with bankruptcy, produced only 39 percent
of its own parts (Andrea, Everett, and Luria 1988).

PIONEERING PARTS PRODUCERS

The question, “Which came first—part makers or carmakers?” is

not a chicken-and-egg puzzle. The parts makers came first Early car-
makers were primarily assemblers and distributors, and they were ca-
pable of producing few if any of their own parts. Experimental vehicles
in the 1890s were put together by adapting parts that were being made
for other purposes.
In Chapter 1, we identifie six major vehicle systems: body, chassis,
electronics, interior, generics, and powertrain. Early vehicles did not
have electronics or an interior, but they did have the other four systems.
A powertrain was needed to propel the vehicle, a body to contain people
and equipment, a chassis to carry the weight without bogging down,
and generic parts like nuts and bolts to put the other pieces together.
Carmakers had to rely on already established companies to obtain
these parts. Detroit and nearby communities attracted carmakers be-
cause the principal sources of parts were already there. To supply indus-
tries that existed before motor vehicles, nineteenth-century firm that
would later prove to be expert parts makers had settled in a region that
centered on southeastern Michigan and extended along the southern
Great Lakes between Buffalo and Milwaukee.
Of the 50 largest suppliers in the United States in 2007, 20 predated
the establishment of the motor vehicle industry in the 1890s. The list
includes some of America’s most venerable manufacturers, such as Du-
Pont, established in 1802 to make gunpowder, and Navistar, established
in 1831 to make McCormick reapers. Several of the older firm began
in the nineteenth century as suppliers of parts such as bearings, frames,
springs, and tires for carriages and bicycles. Others making a success-
ful transition to motor vehicle parts started out producing metal, glass,
and textile products for household use; some even began as retailers or
service providers rather than manufacturers.
 Rise and Fall of Vertical Integration in the Midwest 35

Leading Suppliers in 1900

As commercial production of motor vehicles soared in the firs few

years of the twentieth century, two Detroit-area machine shops emerged
as the industry’s leading parts suppliers: Leland & Faulconer Manufac-
turing Co. and Dodge Brothers. The two firm supplied parts for a high
percentage of vehicles produced during the firs years of the twentieth
century and were responsible for a high share of the value added in the
manufacturing process.

Leland & Faulconer

At the top of the list of needs for the early carmakers was a reliable
engine. In 1900, southeastern Michigan was the leading center for sup-
plying gasoline engines. Once gasoline defeated steam and electricity
as the preferred power source for car engines during the firs years of
the twentieth century, Detroit was the unrivaled leader in supplying mo-
tor vehicle parts.
There were two principal markets for Detroit’s gasoline engines be-
fore motor vehicles. First, small stationary gasoline engines were sold
to generate power on farms and in other rural settings that lacked access
to electricity. The nation’s leading supplier of small stationary gasoline
engines during the 1890s was Lansing-based Ransom E. Olds. He then
turned to motor vehicle production and became the best-selling car-
maker during the firs three years of the twentieth century.
Gasoline engines were also used to power boats. The leading sup-
plier of marine gasoline engines during the 1890s was Leland & Faul-
coner, founded in Detroit in 1890 by skilled machinist Henry M. Le-
land and lumber magnate Robert C. Faulconer. Leland & Faulconer firs
worked with Olds in 1899 to correct problems with noisy transmissions,
then supplied transmissions beginning in 1900 and engines in 1901.
The Leland & Faulconer engine quickly established a reputation for
delivering more horsepower than its competitors because it was built
to more exacting manufacturing standards (Hyde 2005, p. 30). Henry
Leland became president of the Cadillac Automotive Co. in 1903, and
Leland & Faulconer merged with Cadillac in 1905.
36 Klier and Rubenstein

Dodge Brothers
Founded by John and Horace Dodge in 1900, Dodge Brothers ini-
tially designed and built steam engines for yachts, repaired typesetting
and typography machines, and made replacement parts for them. Be-
ginning in 1886, the brothers worked in several machine shops in south-
eastern Michigan and Windsor, Ontario. They patented an improved
bicycle bearing in 1895 and started making the E. & D. Bicycle a year
later, with partner Fred S. Evans (the “E” in the name), as a subsidiary
of the Canadian Typograph Co. When U.S. and Canadian bicycle firm
consolidated into a monopoly in the late 1890s, the Dodge brothers sold
their interest and used the capital to open their own machine shop in
Detroit.
The Dodge Brothers’ firs large motor vehicle contract was to make
engines for Olds Motor Works after a fir destroyed the Olds factory
in Detroit on March 9, 1901. After Olds switched its engine contract
to Leland & Faulconer, Dodge Brothers started supplying Ford. Over
the next decade, the fate of Ford and Dodge became intertwined—Ford
assembled half the world’s cars, and Dodge made most of Ford’s parts.
Dodge Brothers worked exclusively for Ford and became the world’s
leading parts maker by a wide margin.
When Ford was unable to pay for the initial parts contracted in 1903,
John and Horace Dodge agreed to accept 50 shares each of Ford Mo-
tor Co. in exchange for their notes of $5,000 each. Had Ford failed, so
would have Dodge Brothers. But when Ford became the world’s domi-
nant carmaker, the Dodges became wealthy. The brothers used their
wealth to switch from making parts to making their own cars in 1914.
The Dodge car quickly gained a reputation for good value and reliabil-
ity without flashiness suitable for doctors and other professionals.
Henry Ford bought the Dodge Brothers’ shares of Ford Motor Co.
in 1919 for $25 million. John and Horace Dodge died within months of
each other in 1920. Their widows sold the car company to investment
fir Dillon, Read in 1924, and Chrysler Corp. acquired Dodge Brothers
in 1928.

Early Ford Suppliers

The importance of suppliers in the early years of motor vehicle pro-

duction is especially well documented in the archives of Ford Motor
 Rise and Fall of Vertical Integration in the Midwest 37

Co. In its firs year of production (1903), Ford spent $404 to make each
vehicle. Of this, $384, or 95 percent, came from the cost of buying parts,
and only $20 of value was added during fina assembly (Table 2.1).
The 1903 Ford sold for $750. Included in the 86 percent markup
from production cost to selling price were $150 for advertising, sales
force salaries, and other costs of selling the vehicle and $46 for a con-
tingency fund to financ legal battles. That left a handsome profi of
$150 per vehicle or 20 percent of gross revenue. Henry Ford reinvested
most of the profit back into company expansion.
Ford’s financia records show that most of the manufacturing costs
were allocated to purchasing three types of parts: running gear, body,
and tires. The most important of these by far was running gear, which
consisted of the engine, transmission, and axles mounted on a frame.
Ford contracted with Dodge Brothers in 1903 to supply 650 sets of run-
ning gear for $250 each, accounting for 62 percent of manufacturing
cost (Hyde 2005, p. 31).
Ford’s second-leading supplier in its firs year of production, be-
hind Dodge Brothers, was C.R. Wilson Carriage Co. Ford bought bod-

Table 2.1 Ford Production Costs in 1903

Item Cost ($)
Running geara 250
Body 52
4 tires 40
4 wheels 26
Seat cushions 16
Cost of assemblingb 20
Production cost 404

Cost of sellingc 150

Contingencies 46
Profi 150
Selling price 750
a
Includes engine, transmission, axles, and frame.
b
Includes wages, rent, insurance, and factory incidentals.
c
Includes advertising, salaries, and commissions.
SOURCE: Based on Quaife (1950) as quoted in Hyde (2005, p. 36) and Model T Ford
Club of America (2007).
38 Klier and Rubenstein

ies from Wilson for $52 each and seat cushions for $16 each. Charles R.
Wilson had established a blacksmith and wagon repair shop in Detroit
in 1870 and a carriage maker (C.R. & J.C. Wilson Carriage Co.) with
his brother three years later. The brothers split the company during the
1890s. J.C. Wilson Co. manufactured horse-drawn trucks and wagons,
and it produced the Wilson Truck between 1915 and 1925. C.R. Wilson
Carriage Co. concentrated on horse-drawn buggies and carriages and
was reorganized as the C.R. Wilson Body Co. in 1897.
As Ford sales increased rapidly after introduction of the Model T in
1908, Wilson was no longer the exclusive body supplier. After Charles
Wilson died in 1924, the body company was merged with several com-
petitors into the Murray Body Co., which survived as an independent
body supplier until World War II (Theobald 2004).
Ford’s third largest supplier in 1903 was the Hartford Rubber
Works Co., which provided tires for $10 each. Even when carmakers
started to make most of their own parts, they continued to purchase tires
from independent suppliers. Hartford became part of the United States
Rubber Co., the leading tire supplier in the early years of the industry.
U.S. Rubber merged with B.F. Goodrich Co. in 1986 to form Uniroyal,
which was acquired by Michelin in 1990.

VERTICAL INTEGRATION AT FORD AND GM

Vertical integration at Ford and GM began with production of the

mechanical portion of the vehicle, that is, the powertrain and chassis.
As electrical components and interiors were added to vehicles, they
were also integrated into the core competency of the two carmakers.
The body was last to be added. By the 1920s, Ford and GM were highly
integrated with most of their upstream inputs.
Yet the two companies approached vertical integration differently:
• Ford set up most of its own parts-making operations, whereas
GM acquired them.
• Ford clustered most parts production in one complex in the De-
troit area, whereas GM’s was spread throughout southeastern
Michigan.
 Rise and Fall of Vertical Integration in the Midwest 39

• Ford integrated the production of inputs such as steel, glass,

and wood into its corporate empire, whereas GM procured them
through market relationships.
With the Big 3 carmakers firml established, the sequence of lo-
cation decisions characteristic of the pioneering years of the motor
vehicle industry was reversed. Early carmakers had located in south-
eastern Michigan primarily to be near suppliers. Now independent sup-
pliers began to cluster in southeastern Michigan to be near the Big 3
carmakers.

Ford Clusters Parts Production

Dependency on others—be they associations, financiers service

providers, or parts makers—rankled Henry Ford from the outset. As-
sociations protected monopolies, financier cared about the bottom line,
service providers were unreliable, and parts makers could not meet
Ford’s demanding production schedule. Through the firs two decades
of the twentieth century, Henry Ford defie trade associations, elimi-
nated financia backers, bought out suppliers, and made his own parts.
Conventional wisdom in 1900 was that cars were toys for the rich,
and profi would be maximized by building a small number of expensive
models that could be sold at a high per-unit markup. In contrast, Ford
believed that demand for cars was universal, and he set about meeting
that demand by building a high volume of low-priced vehicles. When
his competitors, financia backers, service providers, and parts suppliers
did not share his vision, Ford decided to go it alone. Once the validity of
his approach was proved, Ford felt he no longer needed the others.

Ford starts making parts

Shortly after the Ford Motor Co. was incorporated in June 1903,
Henry Ford met with Fred L. Smith, treasurer of Oldsmobile and act-
ing president of the Association of Licensed Automobile Manufacturers
(ALAM), a trade association formed earlier that year. The purpose of
the meeting was to discuss Ford’s prospects for obtaining an ALAM
license. Smith told Ford that the ALAM would likely reject the applica-
tion because the Ford Motor Co. did not make its own engines and other
parts, and it was therefore “a mere assemblage place.” Ironically, within
40 Klier and Rubenstein

a decade Ford would be making more of its own parts than any other car-
maker. And a century later, Ford—as well as other carmakers—would
head back in the direction of being “a mere assemblage place.”
To make parts for his “mere assemblage place,” Henry Ford set up a
parts-making operation in 1905 called the Ford Manufacturing Co. Ford
Manufacturing made engines, gears, and other parts for Ford Motor’s
low-priced cars, while Dodge Brothers continued to supply most of the
key parts for Ford’s higher priced models. Henry Ford’s motivation for
setting up a separate parts-making subsidiary was largely driven by a
dispute with his principal financia backer. Unable to borrow money
from Detroit’s banks after two earlier attempts to set up a company had
failed, Ford turned to the city’s leading coal dealer, Alexander Y. Mal-
comson, who had sold coal to Edison Illuminating Company when Ford
worked there during the 1890s. Most of Ford’s other investors in 1903
were either relatives or business associates of Malcomson.
Henry Ford finance Ford Manufacturing Co. by reducing Ford Mo-
tor Co. dividends in 1906, against the wishes of Malcomson. After Mal-
comson reacted to the dividend cut by investing in a competitor (Aero-
car), Ford Motor’s board of directors asked him to resign as treasurer
and director. With Malcomson out of the picture, Henry Ford merged
Ford Motor and Ford Manufacturing and consolidated operations in the
Piquette Ave. assembly plant. Heavy equipment, suitable for machining
the engine and axles, was placed on the firs floo . Other light machin-
ing and subassembly were done on the second floo . Chassis assembly
took place on the third floo (Model T Automotive Heritage Complex
2007; Rubenstein 2001, p. 15).

Logical sequencing of parts

Ford pioneered one of the principal innovations of vertical integra-
tion at the Piquette plant: logical sequencing. Three elements of logi-
cal sequencing were noteworthy in the Piquette plant. First, appropri-
ate tools were placed next to each workstation. Traditionally, machine
tools were kept in one place; a worker needing a particular tool would
retrieve it, bring it to the workstation, do the work, and return the tool
to storage.
Second, workstations were arranged in the building so that parts
would not have to travel far from one operation to the next. According
to Ford’s chief tool designer, Oscar C. Bornholdt, logical sequencing
 Rise and Fall of Vertical Integration in the Midwest 41

avoided “a lot of handling and trucking and saved lots of floo space
. . . Under this method of operation the company did not have to pile
up parts between machines in the aisles, and it also was able to reduce
inventory greatly” (Bornholdt 1926, pp. 2–3).
Third, the specifi number of machines and workers allocated for
each workstation was appropriate for maintaining even production
through the factory. According to Bornholdt, “one type of machine
would produce exactly the number of parts necessary for 100 percent
production by the next type of machine, the production of all being
so synchronized that there was no excess or shortages anywhere”
(Bornholdt 1926, pp. 2–3).
When Ford transferred production from Piquette to Highland Park
in 1910, logical sequencing was incorporated from the beginning. Se-
quencing began at the top floo and flowe downward. Body parts were
fashioned on the fourth floo , painted on the third floo , assembled on
the second floo , and dropped on top of the chassis on the firs floo . As
at Piquette, engines, transmissions, and other powertrain components
were made on the firs floo of Highland Park because they required the
heaviest machinery (Arnold and Faurote 1919).
Highland Park became famous as the home of the moving assem-
bly line, firs installed in 1913. Starting as an extension of the logical
sequencing that had been used for several years at Piquette, the moving
assembly line became the revolutionary centerpiece of the company’s
approach to vertical integration, overshadowing Ford’s other innova-
tions in materials handling.

Vertical integration at the Rouge

Within a decade of moving into Highland Park, Ford started con-
structing a much larger facility along the banks of the River Rouge
in Dearborn. The Rouge would be the most vertically integrated com-
plex in the auto industry. At its peak around 1940, the Rouge employed
110,000 workers in 127 structures totaling 11 million square feet spread
out over 2,000 acres.
At the center of the Rouge complex was a canal slip along the River
Rouge, enabling large ships to arrive from the Great Lakes by way of
the Detroit River. Raw materials, such as coal and iron ore, were un-
loaded into large storage bins along the east side of a canal slip that cut
through the center of the complex. East of the canal slip was a power
42 Klier and Rubenstein

plant that produced electricity for the complex. Parts operations were
clustered in three areas of the Rouge complex:
1) The engine block and other iron components were cast in
buildings to the north of the canal slip from pig iron smelted
in Rouge blast furnaces and shaped in the Rouge foundry, the
world’s largest.
2) A steel-making complex on the west side of the canal slip
stamped bodies and powertrain components.
3) Glass, tires, and other nonmetal parts were made in buildings
situated to the northwest of the canal slip.
Though the Rouge included a fina assembly plant—raw materials
were said to arrive at one end and finishe vehicles to depart at the other
end—most of the parts made at the Rouge, as well as at Highland Park
before it, were actually shipped in knocked-down form to other fina
assembly plants. A railroad boxcar could be fille with enough parts to
assemble 26 cars, compared to only seven or eight fully assembled cars,
thereby dramatically reducing the company’s freight bill.
Ford’s board of directors authorized construction of a branch plant
in Kansas City, which opened in 1912. By 1917, Ford was assembling
cars in 30 U.S. cities, using parts made in Michigan.

GM Acquires Parts Producers

GM founder William C. Durant was a strong advocate of vertical

integration. Prior to organizing GM in 1908, Durant had made Durant-
Dort Carriage Co. the country’s largest carriage maker through vertical
integration. Durant believed that parts-making was the key to minimiz-
ing production costs and achieving economies of scale (Epstein 1928,
pp. 50–53; Pound 1934, p. 88). While competitors assembled carriages
with parts bought from independent suppliers, Durant-Dort made its
own bodies, wheels, axles, upholstery, springs, varnish, and whip sock-
ets (Rubenstein 1992, p. 33). “We started out [in the carriage industry]
as assemblers with no advantage over our competitors,” Durant remi-
nisced. “We paid about the same prices for everything we purchased.
We realized that we were making no progress and would not unless and
until we manufactured practically every important part that we used”
(Durant n.d., p. 12).
 Rise and Fall of Vertical Integration in the Midwest 43

Durant entered the motor vehicle business in 1904, when he was

asked to reorganize the foundering Buick Motor Co., which was based
in his hometown of Flint, Michigan. Buick founder David Dunbar
Buick “was an innovative fellow who had made a fortune in the plumb-
ing business . . . He began to manufacture gasoline engines in 1900 and
decided to design an automobile. But his business foundered. He tin-
kered a lot, but he did not produce cars commercially” (Wright 1996).
Under Durant, Buick became the best-selling carmaker in the United
States and formed the “foundation stone” of General Motors in 1908
(Pound 1934, p. 68).
As Durant moved from making carriages to cars, he continued to
make vertical integration a key element in his competitive strategy.
Unlike Ford, which had Dodge Brothers supply its firs engine, Buick
could produce an engine in-house from the start. Although automotive
historians disagree on allocating credit for the engine among Buick’s
firs chief engineer Walter L. Marr, his successor Eugene C. Richard,
and David Buick himself (Gustin 1993), Buick developed and patented
the firs overhead valve engine for motor vehicles, and “in 1915 Buick
began to advertise and promote its patented engine as the ‘valve-in-
head’” (Buick Club of America 2007).

Bringing parts makers to Flint

Durant needed sources of other parts. What he couldn’t fin already
in Flint, he worked hard to bring to Flint. Durant’s chief asset in attract-
ing suppliers to Flint was his personal charm. Walter Chrysler, president
and general manager of Buick from 1916 to 1920, later described Du-
rant’s charm particularly well: “I cannot hope to fin words to express
the charm of the man. He has the most winning personality of anyone
I’ve ever known. He could coax a bird right down out of a tree” (Chrys-
ler 1937, p. 143).
Among the parts makers Durant coaxed to Michigan were Albert
Champion and Charles Stewart Mott. When Durant was in Boston to
open a Buick showroom, Champion, a French-born race-car driver,
showed him a magneto he had designed. Durant did not need a mag-
neto, but he was interested to learn that Champion also made spark
plugs. At Durant’s invitation, Champion moved to Flint in 1905 and
manufactured spark plugs in a corner of the Buick factory. AC Spark
Plugs moved to a separate building in Flint in 1917.
44 Klier and Rubenstein

Durant had difficult securing suitable axles from his carriage-mak-

ing operations, so he wooed Charles Mott, president and general man-
ager of Weston-Mott Company, a leading axle supplier, to relocate from
Utica, New York, to Flint in 1906. Mott was a descendant of a prominent
upstate New York family that included his grandfather Samuel Mott,
who had founded Motts Apple Sauce in 1842. Reluctantly Mott moved
the company and eventually sold it to GM. He later became mayor of
Flint and a prominent philanthropist in his adopted hometown.

Republic Motors
During his two years in control of GM between 1908 and 1910,
Durant bought 30 firms including Cartercar Co., Dow Rim Co., Elmore
Manufacturing Co., Jackson-Church-Wilcox Co., Michigan Auto Parts
Co., and Michigan Motor Castings Co. These companies made useful
parts, but acquiring so many proved to be a financia drain on a fled -
ling GM.
Particularly disastrous to GM’s financia health was Durant’s ac-
quisition of Heany Electric Co., whose founder, John Heany, claimed
to hold a valid patent on the electric light bulb. General Electric sued,
and Heany’s lawyer and a patent offic clerk were convicted and jailed
for falsifying the patent application. Support for Heany drained GM’s
scarce financia reserves, and the company was saved by Eastern bank-
ers, who replaced Durant with new management, although Durant was
permitted to remain on GM’s Board of Trustees.
Ousted from GM, Durant decided to replicate his strategy of build-
ing cars with an eye for vertical integration. He organized three new
companies in 1911: Little Motor Car Company, Mason Motor Com-
pany, and Chevrolet Motor Company. Little produced a small car, Ma-
son a four-cylinder engine, and Chevrolet a model based on a prototype
developed by the well-known Swiss race-car driver Louis Chevrolet.
Republic Motors was created a year later to market and distribute Chev-
rolet and Little cars.
The Little was a well-designed but underpowered car, whereas the
Chevrolet was a high-priced, high-performance vehicle with limited
appeal. To increase Republic’s overall sales, Durant put the Chevrolet
name on the Little. Louis Chevrolet, furious at having his name associ-
ated with the aptly named Little, left the company, but Chevrolet (i.e.,
the rebadged Little) sales soared.
 Rise and Fall of Vertical Integration in the Midwest 45

Durant then had enough capital for his next move, which was to
convince enough GM shareholders into swapping their GM stock for
Republic Motors stock (at the attractive rate of one GM share for 10
shares of Republic) that he was able to regain control of GM in 1916.
“Upon regaining control of General Motors, Durant’s firs act was to
fir [GM general manager Charles] Nash . . . ‘Well, Charlie, you’re
through,’ he told his former employee who he felt had thrown in his lot
with the bankers” (Wright 1996).

United Motors
Back at the helm of GM, Durant resumed his pursuit of vertical in-
tegration. A key acquisition was United Motors, a holding company for
several parts makers Durant had created in 1916. Durant also consoli-
dated United Motors, as well as Republic Motors (including Chevrolet),
into General Motors in 1918.
Major additions to GM through the United Motors acquisition in-
cluded Dayton Engineering Laboratories Company, Harrison Radiator
Corporation, Hyatt Roller Bearing Company, New Departure Manufac-
turing Company, and Remy Electric Company.

Dayton Engineering Laboratories Company. Later known by the

acronym Delco, the Dayton Engineering Laboratories Company was
founded in 1909 and invented an electric self-starting ignition, which
was firs installed as standard equipment on GM’s Cadillac in 1912.
Delco’s director Charles F. Kettering, appointed head of GM’s newly
created Research Laboratories in 1920, was instrumental in making
Dayton, Ohio, GM’s largest parts-making center outside Michigan.

Harrison Radiator Corporation. Founded in 1910 by Herbert C.

Harrison in Lockport, New York, the Harrison Radiator Corporation
produced honeycomb-shaped radiators that helped reduce overheating
(a common problem of early car engines). Although Harrison is cred-
ited by some with its invention, German automotive pioneer Wilhelm
Maybach held a patent on it.

Hyatt Roller Bearing Company. Founded by John Wesley Hyatt

in 1892 in Harrison, New York, the Hyatt Roller Bearing Company
started producing roller bearings for cars in 1896. Because a roller bear-
46 Klier and Rubenstein

ing, which consists of a cylinder sandwiched between two races, can

withstand a relatively heavy load, it is commonly used in transmissions
and wheels.

New Departure Manufacturing Company. Brothers Edward D.

and Albert F. Rockwell founded New Departure in Bristol, Connecticut,
in 1888 to make doorbells. The company started producing ball bear-
ings for car axles in 1907.

Remy Electric Company. The Remy Electric Company was

founded by brothers Frank and Perry Remy in 1896 to make magnetos
for a number of early cars, including Buick. After joining GM, Remy
was merged with Delco into a single electrical parts-making division.
Remy’s hometown of Anderson, Indiana, became GM’s second-largest
parts-making center outside Michigan.

Fisher Body and Packard Electric

Outside United Motors, Durant’s most significan contribution to
GM’s vertical integration was acquiring a controlling interest in Fisher
Body. Founded in Detroit in 1908 by the Fisher brothers, the company
became GM’s leading supplier of bodies during the 1910s. GM ac-
quired 60 percent of the company in 1919 and the remainder in 1926.
GM heavily advertised “Body by Fisher” and attached a plate with the
phrase on all of its vehicles.
After Durant was ousted for a second and fina time in 1920, GM
continued to acquire a few other key parts makers, notably Packard
Electric in 1932. Packard Electric, established by brothers James W. and
William D. Packard, firs made incandescent lamps and transformers
and then assembled luxury cars beginning in 1899. Packard’s carmak-
ing operations were sold to Detroit investors and its lamp operations to
General Electric, leaving Packard Electric to concentrate on wiring.

VERTICAL DISINTEGRATION AT FORD AND GM

Market-based transactions increasingly dominated carmaker rela-

tions with their parts suppliers in the late twentieth century. “A domi-
 Rise and Fall of Vertical Integration in the Midwest 47

nant trend in the organization of production (in both the automotive in-
dustry and elsewhere) during the past decade [1990s] has been the shift
away from vertical integration as manufacturers have increasingly out-
sourced parts to their suppliers” (Dyer 2000). The share of a vehicle’s
value added in the production process by parts makers rose rapidly,
from approximately 40 percent in 1990 to approximately 60 percent in
2000. Suppliers were anticipated to add 80 percent to the value of a new
vehicle by 2010.2
The impetus for changing carmaker–supplier relations was the dif-
fusion of lean production into the U.S. manufacturing sector (Milgrom
and Roberts 1990; Womack, Jones, and Roos 1990). Starting in the early
1980s, the arrival of Japanese-owned carmakers in North America illu-
minated a different approach to supplier relations. After World War II,
resource-constrained Japanese carmakers had fostered partnerships and
alliances with a small number of suppliers, in the process building long-
term relationships with them. When they came to the United States,
Japanese carmakers brought some of these key suppliers with them.
Reacting to these changes, GM spun off most of its parts-making
plants into an independent company called Delphi Corporation in 1999.
A year later, Ford spun off most of its parts-making plants into Visteon
Corporation. Armed with contracts to supply parts to what were still the
world’s two largest carmakers, Delphi and Visteon immediately became
North America’s two largest parts makers.
Delphi and Visteon each reported initial quarterly profit between
0.5 and 1 percent of sales, which was not bad for the troubled auto parts
sector and better than forecast. But those bright prospects soon faded.
Within a half-dozen years, Delphi would seek bankruptcy protection,
and Visteon would not be in much better shape.
Delphi and Visteon had problems with both revenues and expenses.
Revenues were overstated due to transfer costs from one division to
another. As independent companies, Delphi and Visteon were pressured
by GM and Ford to charge prices that were competitive with indepen-
dent suppliers. GM and Ford moved business away from Delphi and
Visteon if independent suppliers could provide parts at lower prices.
At the same time, Delphi and Visteon faced higher expenses than inde-
pendent suppliers. As former divisions of GM and Ford, the two parts
makers were paying wages comparable to those that GM and Ford paid
48 Klier and Rubenstein

for fina assembly work, rather than the lower wages prevailing in the
motor vehicle parts industry.

From GM to Delphi

GM consolidated most of its parts plants into a division called Del-

phi Automotive Systems in 1995. Delphi Corp. became an independent
company four years later when shares were sold to the public or turned
over to GM stockholders. Delphi immediately became the largest U.S.-
based parts producer by a wide margin, with North American sales of
$21 billion.
As an independent company, Delphi initially had seven divisions:
1) Delphi Energy & Engine Management Systems, primarily
plants from AC, Delco-Remy, and Rochester Products that
made fuel lines, ignitions, and other engine parts.
2) Delphi Steering Systems, primarily plants in Saginaw, Michi-
gan, that made crankshafts, steering gears, and other cast parts.
3) Delphi Chassis Systems, primarily Delco, Hyatt, and New
Departure plants that made brakes, bearings, shock absorbers,
and other chassis parts.
4) Delphi Harrison Thermal Systems, primarily Harrison Radia-
tor plants that made heating and cooling parts.
5) Delphi Interior Systems, primarily Fisher Body, Inland Man-
ufacturing, and Guide Lamp plants that made seats, steering
wheels, and other interior parts.
6) Delphi Packard Electric Systems, primarily Packard plants
that made wiring.
7) Delphi Delco Electronics Systems, primarily Delco plants that
made radios.
During its firs six years of independence, Delphi set out to reduce
dependency on sales to its largest customer, GM. According to Delphi
chairman and CEO Robert S. “Steve” Miller (Detroit News 2005), “[t]he
basic idea was for Delphi to outrun the legacy problem of its inherited
labor costs by diversifying its customer base and global footprint.” Suc-
cess came quickly: sales of parts to carmakers other than GM more than
doubled from $4 billion in 1999 to $9 billion in 2005. Carmakers other
 Rise and Fall of Vertical Integration in the Midwest 49

than GM accounted for half of Delphi’s revenue in 2005, compared to

only one-fift in 1999.
Taken in isolation, this would have constituted remarkable growth
in both percentage and dollar terms—only three other suppliers even to-
taled $5 billion in revenues, let alone increased sales by that amount or
percentage. But, during the same time period, Delphi’s sales to GM fell
from $17 billion in 1999 to $9 billion in 2005. As GM’s North Ameri-
can production declined from 5.7 million vehicles in 1999 to 4.6 million
in 2005, so did its purchases from its largest supplier—and one-fourth
of GM’s total parts buy was from Delphi.
As a result of the GM cuts, Delphi’s total North American revenues
declined from $21 billion in 1999 to $18 billion in 2005. Only six years
after it was created, Delphi file for Chapter 11 protection, the largest
bankruptcy in motor vehicle industry history. Steve Miller, who placed
Delphi in bankruptcy three months after being hired, gave reporters his
perspective on what went wrong. He focused on three things:
1) The spread between automaker labor costs and competitive
supplier labor costs has widened sharply over the past decade,
driven by globalization and by rising health care and pension
costs.
2) Given Delphi’s high fixe costs and inflexibl labor rates, the
recent sharp declines in Delphi’s shipments to GM due to their
market share losses have been devastating.
3) The game plan for Delphi included “flow-backs to GM of ex-
cess Delphi workers. But GM has had no room to accept Del-
phi employees, resulting in a $100 million penalty last quarter
(Q3 2005) alone for 4,000 idled workers in Delphi’s jobs bank,
drawing full pay and benefit (Detroit News 2005).
Emerging from bankruptcy protection would make Delphi a drasti-
cally different company than the one spun off by GM in 1999. It was
going to be:
• A much smaller company. The number of U.S. plants was to
be cut from 29 to 8. The jettisoned plants would be sold if a
buyer could be found, otherwise they would be closed. Hourly
employment was cut from 33,000 in 2005 to 6,000 in January
2008 (Clarion Ledger 2008).
50 Klier and Rubenstein

• A more Mexican-oriented company. Delphi had more employ-

ment and plants in Mexico than in the United States.
• A lower-wage company. Average hourly wages were reduced
from about $28 to about $15.
• A more specialized company. Most of the remaining operations
in North America concentrated on electronics, based on the old
Packard division’s wiring production that had grown rapidly in
Mexico during the 1980s.
Concentrating on electronics was a fortuitous choice for Delphi
because that was the most rapidly growing sector of the industry (see
Chapter 14). But emerging as an electronics specialist was a far cry
from the 1999 company that seemed to have the capability of supplying
nearly any type of part.

From Ford to Visteon

Visteon was incorporated in 2000, for six months as a wholly owned

subsidiary of Ford, then as an independent company with stock distrib-
uted to Ford shareholders.
Visteon was initially organized into seven business units:
1) Chassis Products, including axles, catalytic converters, shafts,
steering, and suspension.
2) Climate Control Products, including air conditioning and en-
gine cooling.
3) Electronic Products, including audio and driver information.
4) Exterior Products, including bumpers and headlamps.
5) Glass Operations, including windows and windshields.
6) Interior Products, including consoles, doors, and instrument
panels.
7) Powertrain Products, including alternators, fuel lines, intake
manifolds, and wipers.
Ford spun off Visteon at the end of an extended period of unusually
harmonious labor relations. The top negotiators—Ford executive vice
president for corporate relations Peter J. Pestillo and UAW vice presi-
dent and director of the Ford Department Ernest Lofton—were golfin
 Rise and Fall of Vertical Integration in the Midwest 51

partners who had both held their positions for more than two decades.
Ford agreed to “look to Visteon first as its supplier of choice when
making sourcing decisions.
Visteon workers actually remained employees of Ford “on assign-
ment” to the parts maker. Visteon workers would continue to draw
the relatively high wages paid to Ford employees and to participate in
Ford’s relatively generous health care and pension plans. Ford issued
checks to the workers, and Visteon reimbursed Ford for a percentage
of the wages and benefits Only the workforce hired after the spin-off
actually became Visteon employees. The “assigned” Ford employees,
reluctant to join an untested parts maker, were assured that they would
still be on the Ford payroll should Visteon fail.
Ford and Visteon both paid a heavy price for this “sweetheart” deal.
As Ford vehicle sales sagged, it spent $3 billion less on parts from Vis-
teon in 2004 than in 2001. Visteon offset the decline with an increase
in sales of parts to other carmakers by $3 billion in North America and
by $2 billion in the rest of the world. But Visteon failed to make a profi
and ran up $3 billion in debt.
The original spin-off agreement was renegotiated in 2003. Ford re-
leased Visteon from more than half of its $3 billion retirement benefi
obligations, assumed half of the costs for Visteon’s information technol-
ogy, and accelerated payment for components. In return, Visteon agreed
to reduce prices. Still, losses mounted at both companies.
As Visteon neared bankruptcy in 2005, a more drastic deal was
struck. All 17,700 Ford employees still assigned to Visteon were re-
turned to Ford. Ford offered buyouts to 5,000 and reabsorbed the re-
mainder. Visteon was relieved of a $2 billion liability in health care and
life insurance benefit for Ford employees and retirees. Visteon also
returned to Ford 24 unprofitabl plants, one of which was closed, two
were reabsorbed into Ford, 11 were put up for sale, and the remaining
10 were left with an unclear future. Visteon’s total worldwide employ-
ment, which was at 82,000 at the time of the spin-off from Ford, was
reduced to 43,000 in January 2008 (Sherefkin 2008).
The last restructuring radically altered the makeup of Visteon’s
North American labor force. With Mexican workers far outnumbering
UAW members at Visteon, “they have become largely a foreign sup-
plier” (Wernle 2005b).
52 Klier and Rubenstein

Chassis, climate control, and interior each accounted for 22 percent

of Visteon’s sales in 2004. Powertrain sales accounted for 17 percent,
electronics for 10 percent, exterior for 4 percent, and glass for 3 per-
cent. After restructuring, climate control had increased to 34 percent of
Visteon revenues in 2005, electronics to 26 percent, and interiors to 24
percent. The other four areas had declined from a combined total of 46
percent to 16 percent.
Underlying the restructuring was the recognition that Visteon had
cut back to a single core competency—cockpits—which combined in-
strument panels (interiors) with climate control, tied together by elec-
tronics. Visteon had become the North American market leader in cock-
pits (Chappell 2005c). But this was a far cry from Ford’s full-service
parts maker—the $11 billion supplier in 2000 had been reduced to $4
billion in 2007, and sales were still falling.

OUTLOOK AND UNCERTAINTIES

The spin-offs of Delphi and Visteon were the most visible evidence
that vertical integration as a dominant business strategy had ended in
the motor vehicle industry along with the old millennium. In the twenty-
firs century the strongest carmakers were not the vertically integrated
ones; rather, they were the ones working best with independent parts
suppliers.
The Delphi and Visteon spin-offs were also emblematic of uncer-
tainties facing the suppliers in the new millennium. Set adrift as in-
dependent companies, neither company was able to survive simply as
principal parts supplier for its former boss. Nor could either survive as
a one-stop shopping center for every sort of part, be it large or small,
expensive or cheap, high-tech or generic.
Once the second-largest supplier in the United States, Visteon fell to
ninth place in 2007 and was set to decline further in subsequent years.
Shed of its highest-cost workers and unprofitabl plants, Visteon be-
came primarily an overseas producer, with more employees in Mexico
than in the United States. Like Visteon, Delphi was likely to survive pri-
marily as a foreign-based company. Wiring, audio equipment, and other
 Rise and Fall of Vertical Integration in the Midwest 53

electronics would be produced in low-wage countries for insertion into

vehicles assembled in the United States.
As Visteon struggled to survive, its corporate office moved in 2004
to Visteon Village, a 256-acre, nine-building complex, in Van Buren
Township, Michigan, 10 miles southwest of Detroit Metro airport, near
the junction of I-94 and I-275. Occupying much of Visteon Village’s
street-front space were retailers, such as a bank, café, dry cleaner, fitnes
center, hair salon, and Starbucks. Office were on the upper floors An
offic tower straddled the middle of Main Street. Behind the southern
tier of buildings was 15-hectare (37-acre) Grace Lake, where local resi-
dents walked their dogs and offic workers ate their lunch in summer.
Cars—the business of the company—were banished to peripheral lots,
leaving employees with a shuttle bus commute or a lengthy hike—a
somewhat arduous prospect during Michigan’s long, cold winters.
A visitor couldn’t help but wonder whether Visteon Village was a
make-believe place, like Disneyland or Colonial Williamsburg. How
could Visteon plan such an elaborate and costly campus in the face
of financia crisis? Was Visteon Village destined to join southeastern
Michigan’s already unmatched collection of industrial archaeology?

Notes

1. Delphi chairman and CEO Robert S. Miller, quoted in The Washington Post
(2005).
2. Management consultant Roland Berger made this estimate in 2002, as quoted in
Ziebart (2002).
 3
Supplying the Power

I’m not sure the buyer of a Buick LaCrosse would know or

care if the engine was multivalve or pushrod. I don’t think a
Camry buyer would know either, for that matter.1

“Powertrain” is the term the motor vehicle industry uses to encom-

pass the systems responsible for providing power. The two principal
powertrain systems are the engine and drivetrain. Components attached
to the engine and drivetrain, as well as others closely related to the pro-
vision of power, can also be included in the powertrain designation.
All but a handful of the world’s one billion motor vehicles produced
during the twentieth century were powered by a four-stroke gasoline-
burning internal combustion engine. The heart of the engine is a piston
moving back and forth inside a cylinder in four cycles or “strokes.”
• On the firs stroke—called the intake stroke—the piston de-
scends, fillin the cylinder with a mixture of gasoline and air
drawn through an open intake valve.
• On the second stroke—compression—the piston rises as the in-
take valve is closed, compressing the mixture.
• On the third stroke—power—the piston descends again, driven
down as the mixture is ignited and explodes.
• On the fourth stroke—exhaust—the piston rises again, pushing
the spent gases out through an open exhaust valve.
Most gasoline engines have had four to eight cylinders. An eight-
cylinder engine typically had two rows of four cylinders set at a 90
degree angle to each other. Thus it was V-shaped and known as a V-8; if
there were fewer than eight cylinders, they were more likely to be bored
in a straight line.
Displacement is the total volume displaced by all of the pistons in
the engine block. Horsepower measures the rate at which the engine
performs work. Before the motor vehicle age, one horsepower had been
define as the amount of power needed to lift 33,000 pounds one foot

55
56 Klier and Rubenstein

in one minute. U.S. engines have typically displaced three to fiv liters
and achieved 150 to 300 horsepower. Engines built elsewhere in the
world have generally been smaller.
The heart of the drivetrain is the transmission, which contains gears
that are connected to the engine by means of an input shaft and to the
axles by means of an output shaft. The purpose of the transmission
gears is to adjust the input shaft to turn faster or slower than the output
shaft, depending on conditions.
The number of revolutions per minute that the input shaft—as well
as the engine’s crankshaft to which it is attached—rotates is a factor of
what is known as torque. Torque is a measure of force that produces
rotation. At a high speed, the engine is capable of turning the crankshaft
and input shaft more rapidly than is needed to keep the vehicle mov-
ing. In contrast, at a low speed the engine does not generate enough
torque to move the vehicle except with some assistance. The transmis-
sion gears provide that assistance by increasing the torque delivered by
the engine at low speed and decreasing it at high speed.
The transmission adjusts torque by means of gears that mesh with
each other. To move the vehicle at low speed or up a hill, the transmis-
sion increases torque by connecting the input shaft to a smaller gear and
the output shaft to a larger gear. As a result, the input shaft turns several
times before the output shaft makes one complete revolution. On the
other hand, at high-speed driving or going downhill, gears are engaged
to slow the rotation of the input shaft.
Carmakers consider the powertrain to be one of their core compe-
tencies because it is vital to vehicle performance and character. A prin-
cipal in-house activity is the assembly of engines and transmissions.
Although carmakers put together most of their powertrains in-house,
they purchase most of the parts from independent suppliers. Power-
train components add more value than any other system, an estimated
$2,750 per vehicle in 2004, but only one-fift of the value of the pow-
ertrain is estimated to be added by independent suppliers (Tomkins plc
2004, p. 4).
Powertrain production is heavily clustered in the Midwest. Central
to this distribution is the long-standing regional concentration of nearly
all of the Detroit 3 facilities for assembling engines and transmissions.
For manufacturers of powertrain components, a location in the Mid-
west has traditionally offered a compelling combination of proximity to
 Supplying the Power 57

skilled labor, their Detroit 3 customers, and their main sources of inputs
(such as steel mills that are also clustered in the region).
The dominance of the Midwest in powertrain production has been
eroded under the influenc of the leading Japanese-owned carmakers,
which have sited their powertrain plants farther south. Suppliers of
some powertrain components have also opened facilities in the South.
Nonetheless, the preponderance of powertrain facilities remain in the
Midwest because the region’s geographic assets listed in the previous
paragraph remain important.

POWERTRAIN ASSEMBLY IN THE MIDWEST

In 2008 the Detroit 3 built the vast majority of their engines and
transmissions themselves at 13 engine plants, 8 engine parts plants, and
10 transmission plants that were heavily clustered in the Midwest. Car-
makers also outsourced entire engines and transmissions that they could
not cost-effectively produce themselves. In most cases, outsourcing
was designed to capture new technology or items with sales potential
too low to recoup developmental expenses.

Detroit 3 Powertrain Plants

Seven of the 13 Detroit 3 U.S. engine plants were in Michigan, 3

in Ohio, and 1 each in New York, Tennessee, and Wisconsin (Figure
3.1). The Detroit 3 carmakers also made engines in 2008 at 4 plants in
Mexico and 2 in Canada.
All of the Detroit 3 transmission plants were located in the Mid-
west. Five transmission plants were in Michigan, three in Ohio, and two
in Indiana (Figure 3.2). The Detroit 3 also built transmissions at one
plant each in Canada and Mexico.

Ford powertrain production

Ford had six North American engine plants as of 2008, one each in
Dearborn and Romeo, Michigan; Brook Park and Lima, Ohio; Wind-
sor, Ontario; and Chihuahua, Mexico. Ford also produced engine parts
(crankshafts) in Woodhaven, Michigan, and operated casting plants in
58 Klier and Rubenstein

Figure 3.1 Location of Carmakers’ Engine Plants

SOURCE: Adapted by the authors from the ELM International database and other
sources.

Brook Park, Ohio, and Windsor, Ontario. It made transmissions at two

Michigan locations, in Livonia and Sterling Heights, as well as in Sha-
ronville, Ohio.
Until the 1950s, Ford manufactured all of its engines at its home
plant in the Detroit area—firs at Highland Park and then at the Rouge.
Both complexes had foundries to cast engine blocks and shops to ma-
chine pistons and cylinders. Finished engines were shipped by rail to
Ford’s branch assembly plants around the country for installation in
finishe vehicles. To serve the then-separate Canadian market, Ford
opened an engine plant in Windsor in 1923.
Ford subsequently opened several powertrain parts and assembly
plants in Ohio during the 1950s, enticed by lower taxes and a desire to
counter what came to be seen as excessive centralization of its opera-
 Supplying the Power 59

Figure 3.2 Location of Carmakers’ Transmission Plants

SOURCE: Adapted by the authors from the ELM International database and other
sources.

tions at the Rouge. Much of Ford’s engine production was relocated

to northern Ohio during the 1950s, including several facilities in the
Cleveland suburb of Brook Park, plus one in Lima. Transmission pro-
duction went to the other end of the state, at a plant in the Cincinnati
suburb of Sharonville.
After the burst of investment in Ohio during the 1950s, Ford added
powertrain facilities in the Detroit area, including Livonia in 1952,
Sterling Heights in 1968, Essex, Ontario, in 1981, and Romeo in 1990.
Another Cincinnati suburb, Batavia, received a Ford transmission plant
in 1980 as front-wheel-drive transaxles became more popular. The Bat-
avia plant, situated on a street named “Front Wheel Drive,” was turned
over to supplier ZF in 1999 and subsequently closed seven years later.
60 Klier and Rubenstein

GM powertrain production
GM operated nine North American engine plants as of 2008, located
in Flint, Livonia, and Romulus, Michigan; Tonawanda, New York; Mo-
raine, Ohio; Spring Hill, Tennessee; St. Catharines, Ontario; and Ramos
Arizpe and Silao, Mexico. GM also had engine parts plants in Bedford,
Indiana; Bay City and Saginaw, Michigan; Massena, New York; Defi-
ance, Ohio; and Toluca, Mexico.
GM Powertrain produced transmissions in 2007 at six North Ameri-
can plants. Five were near Detroit: Romulus, Warren, and Willow Run,
Michigan; Toledo, Ohio; and Windsor, Ontario. GM also made trans-
missions in Ramos Arizpe, Mexico. The plant in Spring Hill stopped
producing transmissions in 2006. Transmission parts were made in
Fredericksburg, Virginia.
The opening dates of GM’s powertrain plants were spread evenly
through the decades. The Tonawanda plant was the oldest, built in 1938.
Warren and Willow Run dated from the 1940s; Toledo from the 1950s;
St. Catharines and Windsor from the 1960s; Livonia and Romulus (en-
gine) from the 1970s; Muncie, Ramos, and Silao from the 1980s; and
Moraine, Romulus (transmission), and Spring Hill from the 1990s. The
Flint engine plant was opened in 2001 as a replacement for facilities
that dated back a century.
Each of GM’s major car brands had traditionally been responsible
for producing its own powertrain. Individual responsibility was primar-
ily a legacy of each division’s origin as an independent company. Once
swallowed up by GM in the early twentieth century, each brand was en-
couraged by the corporation’s decentralized decision-making structure
to develop its own powertrain. When GM controlled half the U.S. mar-
ket, GM brands often regarded their principal competitors to be other
GM brands rather than other companies. Therefore, unique engines and
transmissions for its brands were seen as a way to enhance differentia-
tion within the corporation.
GM broke down much of its traditional brand distinctiveness dur-
ing the 1960s when it introduced additional size categories of vehicles,
such as compacts and intermediates. Chevrolet and Pontiac compacts
shared key components, as did Oldsmobile and Buick intermediates,
and so on through the product lineup.
Several decades later, GM’s various engine plants were combined
into an Engine Division in 1990. In addition, the increasing importance
 Supplying the Power 61

of electronic controls made close integration of engineering, design,

and production for engines and transmissions essential. GM therefore
combined its Hydra-Matic transmission division with its Engine and
Central Foundry divisions as well as its Advanced Engineering Staff
into a Powertrain division in 1991.

Chrysler powertrain production

Chrysler had three U.S. engine plants in 2008, including two in
Michigan and one in Wisconsin. Chrysler made all of its North Ameri-
can transmissions in Indiana. The company also had an engine plant in
Ramos Arizpe, Mexico, and was a partner in the GEMA joint venture
engine plant in Dundee, Michigan.
Like Ford, Chrysler produced nearly all of its components in Michi-
gan prior to World War II. Chrysler’s largest parts facility was the Dodge
Main complex in the Detroit suburb of Hamtramck, where Dodge ve-
hicles were also assembled. Components produced at Dodge Main were
also trucked to other Chrysler assembly plants clustered in the Detroit
area. Dodge Main was closed in the early 1980s.
Chrysler opened two other Detroit-area engine plants during the
1960s, in Trenton on the south side and Warren on the north side. The
Warren facility on Mound Road was closed in 2002, three years after
another engine plant was opened in Detroit on the site of a demolished
stamping facility at Mack Avenue. The Saltillo complex, opened in Ra-
mos Arizpe in 1981, included an engine plant as well as fina assem-
bly and stamping operations. From its American Motors acquisition,
Chrysler also inherited an engine plant in Kenosha, Wisconsin, dating
back to 1917.
Chrysler also had two engine parts plants in North America. En-
gine blocks were cast at a foundry in Indianapolis, acquired by Chrysler
from the American Foundry Co. in 1946. Aluminum engine compo-
nents were cast at a plant in Etobicoke near Toronto, Ontario, which
opened in 1942 and was acquired by Chrysler in 1964.
Chrysler clustered all of its transmission production in Kokomo, In-
diana. The company did not produce a fully automatic transmission un-
til 1953, 13 years after GM began producing the Hydra-Matic. Produc-
tion of automatic transmissions was placed at a plant on the south side
of Kokomo in 1956. After it was acquired by Daimler-Benz, Chrysler
opened two more transmission plants in Kokomo, in 1998 and 2003.
62 Klier and Rubenstein

Transmission parts (e.g., torque converters) were machined at a plant

that opened in 1966 in Perrysburg, Ohio, a suburb of Toledo.
After its separation from Daimler, Chrysler was expected to sharply
increase its powertrain outsourcing between 2007 and 2013 from 42
percent to 77 percent of engines and from 35 percent to 68 percent
of transmissions, according to CSM Worldwide (Phillips and Wernle
2007). The firs step in Chrysler’s outsourcing was a transmission plant
being built near Kokomo. Chrysler was to pay only 43 percent of con-
struction costs and hold only a 15 percent equity stake in the plant.
Remaining costs, as well as management control of the plant, were the
responsibility of the German supplier, Getrag Corp (Phillips 2007).

Outsourced Diesel Engines

The most common outsourcing of entire engines by the Detroit 3

has been for diesels. The diesel engine was developed by Rudolph Die-
sel during the 1890s. It differs from the more common gasoline engine
because it takes only air into the cylinder on the firs intake stroke,
rather than a mixture of air and fuel. Instead, fuel is injected only after
the air has been compressed on the second stroke. The heat of the com-
pressed air rather than a spark ignites the fuel. Compared to a regular
gasoline engine, a diesel engine can operate more efficien ly because it
compresses air at a higher ratio.
In Europe, where diesel engines now account for more than half
of new car sales, the major vehicle manufacturers build their own. In
the United States, 1.5 million diesels were manufactured in 2005; two-
thirds were destined for heavy trucks and one-third for light vehicles.
The major challenge in expanding the market for diesel engines in the
United States has been emission standards. Under the Clean Air Act
Amendments (CAAA) of 1990, Tier 1 emission standards were adopted
in 1991 and phased-in between 1994 and 1997. Tougher Tier 2 stan-
dards were adopted in 1999 and phased-in between 2004 and 2009. Tier
2 standards required light-duty diesel engines to emit no more than 0.07
grams per mile of NOx (oxides of nitrogen). In comparison, Volkswa-
gen cars—the only cars with diesel engines sold in the United States
in 2005—emitted about 1.25 grams. Companies such as Daimler and
Robert Bosch were in the process of developing the technology that
 Supplying the Power 63

would enable diesel engines to continue to be sold in the United States

starting in 2008.
The location of diesel engine manufacturing plants reinforces the
clustering of powertrain production in the Midwest. The leading U.S.
suppliers of diesel engines for light vehicles have been International
and Cummins. A GM-Isuzu joint venture, Dmax, was also a major
supplier.

International/Navistar
The largest supplier of diesel engines in the United States for both
heavy-duty trucks and light vehicles has been International/Navistar.
Navistar has also been the third-leading producer of heavy-duty trucks
in the United States, behind Freightliner and Paccar. International start-
ed manufacturing diesel engines in Indianapolis in 1937. That facility
has produced engines for Ford heavy-duty vehicles. International also
produced diesel engines in Huntsville, Alabama (for Ford), and in Mel-
rose Park, Illinois (for other companies). Its casting plants for engine
components were located at Waukesha, Wisconsin, and Indianapolis,
Indiana.
International has venerable roots as a successor to the McCormick
Harvesting Machine Co., founded by Cyrus McCormick to produce the
firs successful reaper, which he invented in 1831, as well as other ma-
chinery that revolutionized American agriculture in the late nineteenth
century. J.P. Morgan formed the International Harvester Co. (IHC) in
1902 by merging McCormick with other firms including its principal
competitor, Deering Harvester Co. IHC dominated agricultural equip-
ment production for much of the early twentieth century.
IHC was acquired in 1985 by J.I. Case Co., another venerable
nineteenth-century agricultural equipment manufacturer. At the time,
Case was a subsidiary of Tenneco Inc., which had acquired it in 1967.
Founded by Jerome I. Case in 1842, Case was the world’s largest pro-
ducer of steam engines in the nineteenth century, and it was the firs
to build a practical stationary steam engine marketed for agricultural
use. “International Harvester” and “IHC” remained Case brand names,
while IHC’s truck and diesel engine division was split off as a separate
company, called Navistar.
64 Klier and Rubenstein

Cummins
Cummins has been the second-largest supplier of diesel engines in
the United States. It was founded in 1919 in Columbus, Indiana, by auto
mechanic Clessie Lyle Cummins. Financial backing came from Colum-
bus banker William Glanton Irwin, who had originally hired Cummins
in 1908 to drive and maintain his car. Irwin’s great-nephew J. Irwin
Miller became general manager in 1934 and led the company for four
decades.
Clessie Cummins built what the company claims was the firs
diesel-powered car in the United States by placing a diesel engine in
Irwin’s Packard. Backed by Irwin’s money, Cummins raced diesel-
powered vehicles, setting speed and endurance records that attracted
truck manufacturers. Attracted by the diesel’s economy and durability,
Cummins secured the rights to manufacture a Dutch truck known as the
Hvid. After making significan improvements to the Hvid engine, Cum-
mins started selling his own diesel engines, primarily for boats, as well
as stationary ones for farm use.
As diesel engines became common in trucks, manufacturers of
trucks merged with engine suppliers, much as manufacturers of cars
made their own engines. But in the case of Cummins, a merger with
White Motors in 1963 failed, so Cummins remained an independent
engine supplier. Cummins’s market was almost exclusively engines for
medium- and heavy-duty trucks until 1989, when Chrysler offered a
Dodge Ram pickup truck with a Cummins diesel engine. In addition
to operations in its hometown, Cummins produced diesel engines in
Jamestown, New York, and participates in two joint ventures: Consoli-
dated Diesel Co., in Rocky Mount, North Carolina, opened in 1980
with J.I. Case Corp., and Cummins Komatsu Engine Co. in Seymour,
Indiana, opened in 1993 with Komatsu, Ltd. One-half of Cummins’s
$6.3 billion sales in 2003 were overseas.

Dmax and Detroit Diesel

Dmax, the third-leading producer of diesel engines in the United
States, was owned 40 percent by GM and 60 percent by Isuzu. Isuzu
has been responsible for design and engineering, and GM for finance
public relations, and support activities. The joint venture produced die-
sel engines for GM pickups and sport utility vehicles beginning in 2000
 Supplying the Power 65

in a plant built by GM in Moraine, Ohio. The Moraine plant replaced an

older GM diesel engine plant nearby.
General Motors has a long history of producing diesel engines in
the United States. The company owned the world’s largest builder of
diesel-powered locomotives, Electro-Motive, until it was sold in 2005
to Greenbrier Equity Group and Berkshire Partners. To produce die-
sels for motor vehicles, primarily heavy-duty trucks and off-road ma-
chines, GM established the GM Diesel Division in Detroit in 1938. It
was turned into an independent company, the Detroit Diesel Corp., in
1988 as a joint venture with Penske Corp. and was acquired by Daim-
lerChrysler in 2000.

POWERTRAIN COMPONENTS IN THE MIDWEST

Powertrain-related parts can be divided into four main subsystems:

1) the engine block, including cylinders, pistons, and valves; 2) the
thermal system, including cooling and climate control; 3) the exhaust
system, including pipes and mufflers and 4) the drivetrain, including
clutches and torque converters.
About 46 percent of plants that make a powertrain part produce
engine block components, 25 percent produce thermal components,
20 percent make drivetrain components, and 9 percent make exhaust
components. These subsystems are discussed in the next four sections.
Some plants also specialize in generic powertrain parts (e.g., bearings
and mounts), which are discussed in Chapter 5 along with other generic
parts.
The production of all four of the principal powertrain subsystems
has been concentrated in the Midwest, with the percentages of parts
made in the Midwest ranging from 59 percent for exhaust components
to 64 percent for the drivetrain (see Table 3.1). Figure 3.3 illustrates the
clustering of powertrain plants in the Midwest. It includes three concen-
tric circles drawn around Detroit. These circles represented quartiles of
the distance from the suppliers to Detroit, which serves as the reference
point for the center of this industry. The closest one-fourth of all exterior
parts suppliers are located within the inner circle, the next closest fourth
were between the inner and middle circle, the third closest quartile were
66 Klier and Rubenstein

Table 3.1 Powertrain Parts Plants in the Midwest

Powertrain system Number of plants % in Midwest
Engine block subsystem 849 61.8
Engine bearings and cylinder blocks 44 70.5
Pistons 70 68.6
Crankshafts and balance shafts 37 75.7
Cylinder heads and liners 45 57.8
Valvetrain 146 60.3
Intake and exhaust manifolds 90 72.2
Vibration dampeners 63 74.6
Oil pumps, pans, and filter 65 60.0
Belts, pulleys, flywheels and dipsticks 58 55.2
Timing gears and chains 17 52.9
Sensors 24 29.2
Other engine parts 190 55.3
Thermal subsystem 463 60.4
Air conditioning 110 61.8
Fans 30 56.7
Radiators 27 29.6
Engine cooling sensors 15 60.0
Thermostats, water pumps, and coolant 45 75.6
reservoirs
Heating 21 57.1
Ducts, hoses, and tubes 128 66.4
Other cooling and climate control 87 54.0
Exhaust subsystem 167 59.3
Pipes and tailpipes 21 47.6
Catalytic converters 18 27.8
Muffler and resonators 32 50.0
Heat shields 15 73.3
Emission controls 26 69.2
Other exhaust parts 55 70.9
Drivetrain subsystem 379 63.9
Transmission parts 121 68.0
Clutch parts 64 71.9
Differential parts 25 60.0
Gearshift parts 25 68.0
Other drivetrain parts 144 63.9
Total powertrain 1,858 61.7
SOURCE: Adapted by the authors from the ELM International database and other sources.
 Supplying the Power 67

Figure 3.3 Location of Powertrain Plants

NOTE: Circles are drawn around Detroit and envelop plants producing powertrain parts
by quartile. In other words, the tightest circle around Detroit envelops a quarter of the
powertrain auto parts plants in North America.
SOURCE: Adapted by the authors from the ELM International database and other
sources.

between the middle and the outer circle, and the fina quartile is beyond
the outer circle. In other words, one-half of powertrain parts produc-
ers were located within the middle circle, 272 miles from Detroit, and
three-fourths were within the outer circle, 608 miles from Detroit.

Engine Block

The primary engine block parts include pistons, cylinders, and

valves, as well as rods and shafts. The Detroit 3 have cast most of their
engine blocks at in-house casting plants, although some outsourcing
has begun. Blocks were traditionally made of iron, but aluminum has
68 Klier and Rubenstein

become increasingly common, so carmakers typically maintain both

iron and aluminum casting facilities, though some iron facilities have
been closed.
A scattering of other engine parts continued to be made in-house,
such as crankshafts at Ford’s Woodhaven plant, pistons at GM’s Bed-
ford and Saginaw foundries, and shafts and rods at GM’s Bay City
plant. Most other mechanical parts for engines have been outsourced
by the Detroit 3 to independent suppliers.
The percentage of engine parts made in the Midwest was exception-
ally high, exceeding 70 percent in many cases, including crankshafts,
dampeners, manifolds, and the blocks themselves.

Domestic suppliers
The two leading engine parts suppliers in the early twenty-firs cen-
tury in the United States were Eaton and Federal-Mogul.

Eaton. Eaton, founded in 1911 to make truck axles, has been a

valve specialist and major supplier of other engine parts. Its firs chair-
man, Joseph O. Eaton, bought the company in 1922, changed its name
from Torbensen Gear & Axle (named for its firs president), and moved
the company from Bloomfield New Jersey, to Cleveland to be closer to
the center of motor vehicle production. Eaton has been closely associ-
ated with the city of Cleveland since then. A large number of acquisi-
tions and divestitures during the 1990s left Eaton with a very different
profil than the original axle supplier. Two-thirds of company revenues
were generated by nonautomotive products, especially hydraulics and
electrical controls.

Federal-Mogul. Federal-Mogul has become the other large U.S.-

owned supplier of engine parts, including engine bearings, pistons, pis-
ton pins, piston rings, cylinder liners, valve seats and guides, transmis-
sion products, and connecting rods. Federal-Mogul was created from
the 1924 merger of two pioneering U.S. engine bearings companies,
Federal Bearing and Bushings Co. and Mogul Metal Co.
• “Mogul” was a trademarked secret process for making engine
bearings used by the Muzzy-Lyon Co., founded in Detroit in 1899
by Edward F. Lyon and J. Howard Muzzy. Muzzy-Lyon made
 Supplying the Power 69

bearings from an alloy of tin, antimony, and copper based on a

process that was patented by Isaac Babbitt in 1839 to prevent
rotating metallic shafts from overheating and wearing out.
• Federal was founded in 1915 by a group of Detroit business-
men who took over the assets of a defunct brass and aluminum
foundry to make bronze bearings, castings, and bushings.
Federal and Mogul made a logical merger, according to the com-
pany Web site, because Federal did bronze foundry work but lacked
the capacity to produce Babbitt metal, whereas Muzzy-Lyon operated a
Babbitt foundry but had to purchase bronze.
Acquisitions during the 1990s, especially of the British fir T&N
plc in 1997, gave Federal-Mogul a dominant position as the supplier of
more than 90 percent of engine bearings in North America and 50 per-
cent worldwide. The T&N acquisition was especially important in Fed-
eral-Mogul’s goal of becoming a “one-stop” source for engine parts.
It was also instrumental in forcing Federal-Mogul to fil for Chapter
11 bankruptcy protection in 2001. Inherited from T&N was a massive
legal liability stemming from claims that asbestos in its products made
360,000 victims ill.
Federal-Mogul may be the best example of a supplier gone awry.
It grew quickly between 1996 and 1998, following the industry
trend. It took on more responsibility for engineering and design
work, got bigger to lower costs through economies of scale and
diversifie its product offerings.
One of the problems suppliers have faced is too much seat-of-the
pants planning. In Federal-Mogul’s case, the company knew it had
to get bigger to keep up with demand but has had no time to decide
how to wring efficiencie from the acquisitions.
The frenetic pace of the industry, while a boon to revenue streams,
hasn’t been as kind to the bottom line, and suppliers are beginning
to feel it. (Strong 2000)
Federal-Mogul emerged from Chapter 11 at the end of 2007.

Foreign-owned suppliers
Other leading suppliers of powertrain parts in the United States
have been foreign-owned firms including Linamar Corp., Mahle Inc.,
Nemak SA., and Teksid Aluminum North America Inc.
70 Klier and Rubenstein

Linamar Corp. Linamar Corp. was a Canadian company founded

in 1965 by Frank Hasenfratz. Most of its production facilities were lo-
cated in Guelph, Ontario.

Mahle Inc. Mahle Inc. was a German pioneer in piston production

during the 1920s and had two dozen U.S. engine parts facilities in 2007.
The company opened its firs plants in the United States in the 1970s
primarily in the South and expanded rapidly through a 2007 acquisi-
tion of Dana Corporation’s engine parts plants, many of which were in
Michigan.

Nemak SA. Nemak SA was a joint venture that was established

in 1979 between Ford and the Mexican company Alfa. Alfa was one
of Mexico’s largest industrial conglomerates, founded in 1974 through
combining steel manufacturer Hojalata y Lamina, packaging manufac-
turer Empaques de Cartón Titán, mining company Draco, and a minor-
ity interest in the television broadcaster Televisa. Nemak operated no
plants in the United States, although Ford transferred control of two
aluminum parts plants in Windsor and Essex, Ontario, to Nemak in
2000.

Teksid Aluminum North America Inc. Originally Italian carmaker

Fiat’s parts-making operations, Teksid Aluminum North America Inc.
was spun off in 1978. Teksid opened what it claimed to be the world’s
largest aluminum foundry in Dickson, Tennessee, in 1987 to produce
cylinder heads and blocks for GM and Ford engines. It was acquired in
2002 by TK Aluminum Ltd., a holding company based in Bermuda and
owned by equity investors led by Questor Management.

Thermal Systems Suppliers

An engine normally operates at a temperature of about 2,000°F, al-

though much higher temperatures can be reached. In the absence of
cooling devices, parts would melt or expand to the point that they would
seize up and be unable to move.
The principal purpose of the thermal system is to remove the en-
gine’s excess heat. The thermal system also heats up the engine to op-
erating temperature as rapidly as possible and maintains the engine at a
 Supplying the Power 71

constant temperature because a cold engine is less efficient emits more

pollutants, and causes parts to wear out faster.
Most motor vehicle engines are cooled with water, which circu-
lates through pipes and passageways. As the water passes through the
hot engine, it absorbs heat from the combustion chamber and cools the
engine. After the water leaves the engine, it passes through a radia-
tor, which consists of a core made of finne tubes surrounded by cool-
ant tanks. The radiator transfers the heat from the water to air blowing
through it. To help cool the water, air is pulled in through a grille with
the help of a fan.
The radiator also supplies heat to the passenger compartment. A fan
blows air from the radiator core through a heater core into the passenger
compartment. Alternatively, to cool the passenger compartment, the air
conditioning system removes excess heat as well as moisture. A fan
pulls the hot, humid air through an evaporator and a condenser, where
a liquid refrigerant condenses water from the hot air and discharges it
from the vehicle before returning the “cooled” air through the evapora-
tor back to the passenger compartment.
Cooling and climate control modules have attracted several of the
largest foreign-owned suppliers to the United States, and they control
the largest share of the market. Nonetheless, most thermal parts are still
made in the Midwest, including the air conditioners and hoses. Leading
suppliers have included Valeo, Denso, CalsonicKansei, and Behr.

Valeo Inc.
Valeo Inc., the leading thermal systems supplier in the United States,
began making heat exchangers in the United States in 1981 in Greens-
burg, Indiana, and Jamestown, New York. Climate control components
were made beginning in 1988 in Hamilton, Ohio, initially as a joint
venture with Chrysler’s Acustar division. Valeo took over several GM
plants in Rochester, New York, that made motors for climate control,
engine cooling, interior components, and wipers.
Valeo, originally known as Société Anonyme Française du Ferodo
(SAFF), was established in France in 1921 to distribute and then manu-
facture brake linings pioneered by British fir Ferodo Ltd, established
in 1897. The name “Valeo,” came from the Latin “to be strong, able,
vigorous, and in good health.”
72 Klier and Rubenstein

Denso Corp.
Denso Corp. was Toyota’s in-house electrical and radiator maker
until 1949. Known as Nippondenso until 1996, Denso became Japan’s
largest supplier and third-largest supplier worldwide (after Robert
Bosch and Delphi) in the firs decade of the twenty-firs century. Toyota
still owned one-fourth of Denso and accounted for one-half of sales in
2007 (Denso Corporation 2007).
Denso entered the U.S. auto parts industry in 1971 to sell after-
market air conditioners for Japanese cars. Its firs U.S. manufacturing
facility, which opened in 1984 in Battle Creek, Michigan, made air con-
ditioners. It has since become the largest supplier of original equipment
air conditioners worldwide and has held a leading position in engine
cooling.

CalsonicKansei North America Inc.

Nissan’s former in-house thermal system supplier, CalsonicKansei,
was the third-largest thermal system supplier in North America, behind
Valeo and Denso (CalsonicKansei 2004). CalsonicKansei was formed in
2001 through the merger of Calsonic Corp. and Kantus Corp. Calsonic,
known until 1988 as Nihon Radiator Manufacturing Co., produced ra-
diators beginning in 1938, and added muffler in 1954, heaters in 1955,
and air conditioners in 1966. Kantus, originally Kanto Seiki Co., was
established in 1956 to make speedometers licensed from the German
company VDO and the British company Smiths. The company claimed
to be Japan’s firs modular supplier—a front-end module that combined
the radiator, condensers, grille, and other heat-exchange components
with headlights.

Behr GmbH.
Europe’s second-leading European thermal systems supplier behind
Valeo, Behr supplied most German carmakers with radiators from the
firs decade of the twentieth century onward. Car heaters were added in
1949 and air conditioners in 1957. Behr started producing air condition-
ers in the United States in 1974 in what was then a remote location of
Fort Worth, Texas. Engine cooling was added in North America in 1993
through a joint venture with Cummins Engine. Acquisition of Daim-
lerChrysler’s Dayton, Ohio, Thermal Products plant in 2002 tripled
 Supplying the Power 73

Behr’s U.S. presence and gave it 10 percent of the U.S. engine cooling
and climate control market.

Exhaust Module Suppliers

The exhaust module carries gases through pipes from the engine to
the rear of the vehicle, where they are discharged into the air. At the en-
gine end, the exhaust gases are carried from the combustion chambers
through the exhaust manifold, a pipe usually made of cast iron bolted
to the cylinder head.
Before being discharged through the tailpipe, the exhaust gases pass
through a muffler, which deadens the loud noise that would result from
the escape of the gases by reducing the otherwise very high pressure level.
A catalytic converter, which reduces pollutants in the exhaust gases, is
attached to the exhaust line between the exhaust manifold and muffler.
The distinctive challenge of shipping exhaust modules is readily
visible in a fina assembly plant. Whereas most parts arrive in tightly
packed crates, exhaust pipes arrive delicately hung on racks or laid-out
in large coffins As a result, the distribution of exhaust module produc-
tion has been similar to that for fina assembly plants. Production of the
individual exhaust-related parts has been clustered in the Midwest.
The largest suppliers of exhaust modules in the United States into
the twenty-firs century included ArvinMeritor, Tenneco Automotive,
Faurecia, and Benteler Automotive.

ArvinMeritor
One of the largest U.S.-owned suppliers, ArvinMeritor Inc., formed
by merger of Arvin Industries Inc. and Meritor Automotive Inc. in 2000.
Meritor, spun off from Rockwell International in 1997, was a leading
manufacturer of axles and other chassis components (see Chapter 11).
Arvin’s predecessor, Indianapolis Air Pump Co., founded in 1919 by
Q. G. Noblitt, started making what would become its core product (muf-
flers in 1927. Richard Arvin patented the company’s firs successful
product, a car heater, in 1920. ArvinMeritor cobbled together “a collec-
tion of assets without many compelling synergies,” according to UBS
analyst Robert Hinchliffe (Sherefkin 2004).
74 Klier and Rubenstein

Tenneco Automotive
Tenneco Automotive was spun off in 1999 from Tenneco Inc. Its
primary automotive parts activity derived from a 1967 acquisition of
Walker Manufacturing, a major supplier of exhaust and emissions con-
trol devices founded in 1888 in Racine, Wisconsin, originally to make
springs for horse-drawn wagons. Tenneco Inc., formed in 1943 to build
a natural-gas pipeline from Texas to West Virginia, was a conglomerate
that also included the manufacturer of Hefty trash bags and the firs TV
dinner.

Faurecia
Europe’s leading exhaust components supplier, Faurecia, moved
into third place in the United States after it acquired AP Automotive
Systems Inc. in 1999. GM played a central role in nursing Faurecia to
the front ranks of U.S. suppliers, primarily in seating (see Chapter 7).
“In what analysts say was an unusual move, GM (in 1998) passed over
industry exhaust system giants Tenneco and Arvin and asked a consor-
tium of three suppliers (Faurecia, AP Automotive, and Magneti Marelli)
to make exhausts.” Faurecia gave GM “another supplier in North Amer-
ica and GM wants more competition,” according to industry analyst
Craig Cather (Sherefkin 1999a). Similarly, GM added Faurecia as a seat
supplier in 1999 in order to add competition (see Chapter 7).

Benteler Automotive
Benteler Automotive has claimed to be the world’s largest family-
owned supplier. Founded as an ironmonger shop in Germany in 1876 by
Carl Benteler, three generations of the family have followed in manage-
ment. Benteler produces an eclectic mix of metal components, includ-
ing exhaust manifolds and other exhaust components at two plants in
the United States. The company also produces chassis and body struc-
tural components in the United States.

Transmission Parts Suppliers

Transmission parts suppliers are also clustered in the Midwest.

Like engine parts, drivetrain parts have been made in the Midwest in
 Supplying the Power 75

part because of the combination of historical proximity to inputs and

customers.
Most drivetrain suppliers have been small companies not included in
the Automotive News list of the top 150 suppliers. The leading U.S. sup-
plier of transmission parts historically was BorgWarner Automotive.

BorgWarner Automotive
BorgWarner Automotive was founded in 1928 through the merger
of the leading clutch producer Borg & Beck with the leading indepen-
dent transmission supplier Warner Gear. When manual transmissions
predominated in the United States, into the 1950s, BorgWarner supplied
75 percent of the U.S. clutch market. As automatic transmissions took
over in the 1950s, BorgWarner was the leading supplier of torque con-
verters. The company also supplied complete automatic transmissions
to Ford, Studebaker, and London’s famous black taxis.
Into the twenty-firs century, the company has shifted its focus from
transmissions to engine components. Its largest product segment has
become the turbocharger, which increases the amount of air and fuel
injected into the engine. Early in the twenty-firs century, components
such as the turbocharger started to receive increasing attention from
automakers in North America because they were expected to produce
cleaner and more fuel efficien vehicles.

INTERNATIONAL CARMAKERS POWERTRAIN

International carmakers that assemble vehicles in North America

have begun to produce some of their engines and transmissions in North
America. However, many also continue to be imported from Japan (see
Chapter 13). In addition, Toyota and Nissan have outsourced many of
their transmissions.

International Carmakers Powertrain Plants

Most vehicles assembled in North America by Toyota, Honda, Nis-

san, and Subaru have been equipped with engines produced in North
76 Klier and Rubenstein

America. A smaller share of transmissions has been made in the United

States. The international carmakers, especially Honda, have added to
the clustering of powertrain plants in the southern part of the Midwest.
However, much of international powertrain production has been located
in the South, especially Kentucky and Tennessee (see Figures 3.1 and
3.2).

Japanese-owned engine plants

Toyota’s initial North American production facilities that opened
during the 1980s in Georgetown, Kentucky, and Cambridge, Ontario,
were designed as relatively self-contained campuses, including engine
plants adjacent to fina assembly plants. Georgetown produced major
powertrain components and assembled the best-selling Camry models,
and Cambridge was similarly set up for the Corolla model.
As Toyota began to assemble a wider variety of models in North
America, new engine plants were added in Buffalo, West Virginia, in
1998 and in Huntsville, Alabama, in 2003. Neither engine plant was
adjacent to a fina assembly plant. Huntsville supplied truck engines to
Toyota’s truck assembly plant in Princeton, Indiana, whereas the Buffalo
plant produced engines primarily for Toyota’s widening array of lower
volume car models that were assembled at Georgetown. The distance
from the engine plant to the nearest assembly plant was virtually identi-
cal in both cases, approximately 280 miles, or about a half-day’s drive.
Toyota’s strategy of sprinkling engine and assembly plants across
the southern United States was heavily influence by labor availability
concerns. Difficultie with findin a sufficientl large pool of skilled
labor within commuting distance of its Georgetown complex induced
Toyota to disperse its powertrain and assembly operations several hun-
dred miles east to West Virginia, west to southern Indiana, and south
to Alabama, well beyond the central Kentucky labor market area—al-
though they did not go north to Ohio or Michigan.
Honda tied its engine plant locations more closely to its assembly
plants. The company’s initial North American fina assembly complex
opened during the 1980s in Marysville and East Liberty, Ohio, and re-
ceived its engines from a facility that opened in 1985 in Anna, Ohio,
40 miles northwest. (That facility is Honda’s largest auto engine plant
worldwide, producing nearly 1.2 million engines annually.) Similarly,
Honda’s assembly plant that opened in Lincoln, Alabama, in 2003 re-
 Supplying the Power 77

ceives its engines from a nearby facility that opened at about the same
time.
Nissan’s Powertrain Assembly Plant in Decherd, Tennessee, pro-
duced engines for its two U.S. assembly plants in Smyrna, Tennes-
see (70 miles to the north), and Canton, Mississippi (400 miles to the
southwest). Subaru started building engines at its Lafayette, Indiana,
complex in 2002, 13 years after assembly operations began in the same
complex. Mazda did not operate a U.S. engine plant, but it did assemble
some vehicles in the United States with engines produced by Ford.
Mitsubishi and Hyundai did not produce their own engines in the
United States, but both were being supplied by the Global Engine Man-
ufacturing Alliance (GEMA), a joint venture of the two companies as
well as Chrysler. The GEMA plant, which opened in 2005 in Dundee,
Michigan, located in southeastern Michigan, has been a prominent ex-
ample of the continued viability of the Midwest for powertrain produc-
tion. GEMA’s Web site offered the following reason for the site selec-
tion: “It is located near several large industrial-based manufacturing
centers with thousands of tech-savvy workers to choose from. The re-
gion boasts many technological resources. It has easily accessible trans-
portation routes. And it’s a family-friendly community, offering a full
array of lifestyle enhancing experiences” (GEMA 2007).
The GEMA plant in Michigan, currently one of fiv plants among
the three partners, was built to specialize in the production of four-cyl-
inder engines for entry-level and lower value models sold by the three
carmakers. Highly capital intensive and lean, the plant did quickly go
to the top of the list of most productive powertrain plants in the United
States (Barkholz 2006). The alliance has also opened plants in Japan
and South Korea.
A key to the high productivity at GEMA was flexibl work rules.
Production workers were placed in only one job classific tion and or-
ganized into teams. Three sets of teams work four 10-hour shifts per
week, for a total of 120 hours of production per week, compared to a
total of 80 hours per week generated in the traditional scheduling of two
sets of fiv 8-hour shifts per week.

Japanese-owned transmission plants

Of the three leading Japanese-owned carmakers, only Honda has
produced nearly all of its own transmissions. Moreover, Honda has
78 Klier and Rubenstein

been largely able to meet demand for transmissions at its U.S. assembly
plants and has imported relatively little from Japan.
Honda Transmission Manufacturing of America (HTM) has pro-
duced transmissions in Bellefontaine and Russells Point, Ohio, and in
Tallapoosa, Georgia. The Ohio plants were originally opened in 1982
by the Honda-controlled Bellemar Parts Industries to supply Honda’s
nearby Marysville and East Liberty fina assembly plants with a vari-
ety of parts, including seats, tire assemblies, exhaust systems, catalytic
converters, and brake and fuel lines. Honda’s U.S. transmission pro-
duction was initially in its Anna, Ohio, engine plant. Bellemar became
a subsidiary of American Honda and shifted production to transmis-
sions in 1996. Transmission components were made at Bellefontaine,
and transmissions were assembled at Russells Point. The components
formerly made there were subsequently sourced to other suppliers. In
2006 Honda opened a plant in Georgia to supply transmissions to its
Lincoln, Alabama, assembly plant, 60 miles west.
Toyota and Nissan joined Honda in opening transmission produc-
tion facilities in the United States during the late 1990s, Toyota in Buf-
falo, West Virginia, and Nissan in Decherd, Tennessee. Toyota and Nis-
san both combined transmission with engine production in the same
facility.

Transmissions Outsourced by Japanese Carmakers

Toyota and Nissan, in contrast to the other leading carmakers, have

met much of their transmission needs from independent suppliers. Not
surprisingly, the world’s two largest independent transmission produc-
ers, Aisin World and Jatco, have become the principal suppliers for
Toyota and Nissan.

Aisin
One of the world’s 10 largest suppliers, Aisin is the second-larg-
est Japanese-owned supplier after Denso in both worldwide and North
American sales. Aisin is 24.5 percent owned by Toyota Motor Corp.
and is closely tied to Toyota’s keiretsu network. Two-thirds of Aisin’s
sales are to Toyota. Aisin is one of the most diversifie of the world’s
very large suppliers. Powertrain components have accounted for about
 Supplying the Power 79

half of Aisin’s sales. Body and chassis components make up most of the
other half.
The relationship between Toyota and Aisin is typical in that neither
does the carmaker totally control its supplier, nor is the supplier com-
pletely independent of the carmaker. “Consequently, the Toyota suppli-
ers were independent companies, with completely separate books. They
were real profi centers, rather than the sham profi centers of many ver-
tically integrated mass-production firms Moreover, Toyota encouraged
them to perform considerable work for other assemblers and for firm
in other industries because outside business almost always generated
higher profi margins” (Womack, Jones, and Roos 1990).
Aisin supplied transmissions to Toyota primarily from a facility in
Durham, North Carolina. Other transmissions were imported from Ja-
pan. Aisin also produced a wide variety of other parts in the United
States, primarily for Toyota, including brakes, body parts, and sensors.
Its 17 U.S. automotive parts production facilities in 2007 included six
in Indiana and three in Illinois.

Jatco
Challenging Aisin as the world’s leading independent producer of
complete transmissions was Jatco. It may be the largest supplier and
should have been included in the Automotive News rankings of top 150
North American and top 100 world suppliers, but it is not. This exclu-
sion may result from Jatco being regarded as a Nissan captive rather
than truly independent.
Jatco was created in 1970 jointly by Nissan and Mazda, but Mazda
sold its stake in 1999 to Nissan, which in turn combined it with its own
transmission unit. Mitsubishi Motors turned over its transmission op-
erations to Jatco in 2002, in exchange for a minority ownership in the
supplier. Nissan accounted for 59 percent of Jatco sales in 2005 and
Mitsubishi for 14 percent (Treece 2005). In addition to Nissan, Mazda,
and Mitsubishi, Jatco also supplied complete transmissions to BMW,
Isuzu, Jaguar, Subaru, Suzuki, and Volkswagen (Treece 2001). Jatco
operated a transmissions plant in Aguascalientes, Mexico. Rather than
produce transmissions in the United States, Jatco has imported them
from Japan.
80 Klier and Rubenstein

OUTLOOK AND UNCERTAINTIES

The future health of powertrain suppliers in southeastern Michigan

and throughout the Midwest depends, like much of the motor vehicle
industry, on the future health of the Detroit 3 carmakers. However, pow-
ertrain production in the region may more easily weather market shifts
among carmakers. Powertrain production has been strongly embedded
in the Midwest, as firm depend on proximity to iron and steel inputs,
powertrain assembly customers, and skilled labor.
In the longer run, carmakers and parts suppliers have been scram-
bling to produce viable alternatives to the internal combustion engine.
Hybrid electric vehicles rapidly gained market share during the firs
decade of the twenty-firs century, and fuel cell vehicles were lurking
around the corner.2
A fuel cell produces electricity by separating a hydrogen molecule
into a positively charged proton and a negatively charged electron. The
proton flow through a membrane while the electron flow through an
external circuit from an anode to a cathode, creating electricity. A cata-
lyst on the cathode side of the membrane facilitates recombining of the
hydrogen ions with oxygen to form water.
The principal challenge with fuel cell technology has been storage
and delivery of the hydrogen. “[Y]ou don’t have a hydrogen pipeline
coming to your house, and you can’t pull up to a hydrogen pump at your
local gas station” (Nice and Strickland 2007). A further difficult has
been dependency on platinum, a costly and finit resource, to coat the
membrane. A key hurdle on the path to mass production has been the
development of a supply base. “Manufacturing capacity for the batter-
ies is limited because the technology required is relatively new. There
are very few suppliers in the world that not only know how to put bat-
tery cells together but also how to manufacture them.”3
GM and Toyota have backed away from fuel cells, expressing
“doubts about the viability of hydrogen fuel cells for mass production
in the near term . . . Daimler AG [however] expects to begin producing
fuel-cell cars in limited quantities in 2010,” according to its chief exec-
utive Dieter Zetsche (Taylor and Spector 2008). Because fuel cell vehi-
cles were not ready for mass production in the early twenty-firs centu-
ry, carmakers needed an immediate strategy to reduce fuel consumption
 Supplying the Power 81

and lower emissions. Hybrid electric vehicles, combining a gasoline

engine with an electric motor, moved into the lead as the quickest and
least expensive way to make progress. Consumer-oriented publications
like Consumer Reports and Car & Driver warned their readers that hy-
brids were unlikely to achieve advertised fuel efficienc under most
driving conditions, and higher purchasing and operating costs were not
likely to be recouped during the life of the vehicle. Nonetheless, sales of
hybrids increased in the United States from 85,000 in 2004 to 338,851
in 2007; 50 hybrid models were expected to account for 1 million sales
in the United States in 2010 (Chew 2005; Truett 2005).
Much of the success at pushing hybrids in the United States came
from Toyota. Competitors charged that Toyota was selling hybrids at a
loss to tout itself as an environmentally friendly company. But this was
exactly the point for Toyota: when consumers demanded more fuel-
efficien and environmentally friendly vehicles, they would look firs at
Toyota’s products. As a result, other carmakers were forced to allocate
scarce resources to developing their own hybrids instead of developing
possibly more viable long-term solutions like fuel cells.
During 2007, when it decided on the major engineering issues for
the third generation of the Prius, its best-selling hybrid car, Toyota took
a more cautious approach than other carmakers regarding the feasibility
of using lithium ion batteries and producing a plug-in version (White
2007). Toyota’s cautiousness despite being the market leader in hybrid
vehicles illustrated the uncertainties associated with a technology wide-
ly considered as transitional.
Fuel cell, hybrid, and other alternative fuel technologies are des-
tined to shake up the motor vehicle industry in the long run. In the
firs decade of the twenty-firs century, the large powertrain and elec-
tronics suppliers were jockeying to obtain leading roles in supplying
hybrid components in the short term and fuel cell components in the
long run. Suppliers of components such as alternators were scrambling
to cope with obsolescence of their products in an alternative fuel world.
As is often the case with new technologies, small start-up companies
were positioned to be early innovators in producing alternative fuel
components.
Then there was the question of who would take the lead in hybrid
technology R&D. To advance its Chevrolet Volt hybrid, GM awarded
two battery development contracts to independent suppliers in 2007:
82 Klier and Rubenstein

• A joint venture between Cobasys LLC, a suburban Detroit maker

of nickel-metal hydride batteries, and its partner, A123 Systems
of Watertown, Massachusetts.
• A joint venture between two large auto parts makers, Johnson
Controls and French battery-maker Saft Group SA (LaReau
2007).
On the other hand, when it failed to fin reliable suppliers of hybrid
technology, Toyota gained leadership by investing in its own research
efforts and obtained several patents on key hybrid technology.
In the early twenty-firs century, it was uncertain whether carmakers
like Toyota would continue to design and produce most of their engines
with new technologies or whether suppliers would be the principal
source. And if the responsibility were outsourced, would new compa-
nies evolve into major powertrain suppliers or would already-existing
large Tier 1 suppliers prevail either through in-house creation of tech-
nology or acquisition of the upstart companies?

Notes

1. Gordon Wangers, managing partner, Automotive Marketing Consultants, quoted

in Guilford (2004).
2. For a more detailed analysis of the challenges of creating automobiles that will run
on cleaner energy sources, see Carson and Vaitheeswaran (2007).
3. Jim Queen, GM group vice president of global engineering, quoted in LaReau
(2007).
 4
The Body Builders

For two executives whose life-blood is engineering and, of

course, the bottom line, [Martinrea Chief Executive Officer]
Fred Jaekel and [President] Nick Orlando have a keen eye
on another science—geography. “We get plants in Missis-
sippi, Tennessee, Kentucky; it allows us to get to the south,”
Mr. Orlando says. (Keenan 2006)

The system of the motor vehicle most responsible for the Midwest’s
continued—if diminished—leadership in parts production is the exte-
rior. Major exterior modules include the body, frame, and bumpers.
More than two-thirds of all exterior parts were made in the Mid-
west (Figure 4.1). Especially likely to be made in the Midwest were
the bulkiest exterior modules, notably bodies and bumpers (Table 4.1).
Even manufacturers of small exterior parts, such as grilles and hard-
ware, were overwhelmingly clustered in the Midwest.
Proximity to both raw materials and customers explained the Mid-
west’s attraction for suppliers of the bulkier stamped exterior parts. The
principal input into stamping exterior parts was steel, which was pro-
duced primarily at Midwestern mills. Suppliers also sought to minimize
the cost and distance of shipping stamped exterior parts to the fina
assembly plants because they are relatively bulky and fragile, and of
relatively low value.

STAMPING OF BODY PARTS

The body drop is perhaps the most entertaining station at a fina as-
sembly plant. Stamped, welded, and painted bodies are finall married
to the powertrain. To casual visitors, the bewildering complexity of mo-
tor vehicle assembly finall starts to make sense when the vehicle takes
shape at the body drop.

83
84 Klier and Rubenstein

Figure 4.1 Location of Exterior Supplier Plants

SOURCE: Adapted by the authors from ELM International database and other
sources.

The body drop was the most widely photographed and filme fea-
ture of Ford’s revolutionary moving assembly line at Highland Park a
century ago. The attraction then as now was partly the dramatic visual
image. At Highland Park, the body drop had the added value of taking
place along an exterior wall of the plant, where early twentieth-century
cameras could obtain much better quality images than possible inside.
Bodies built on the upper floor at Highland Park were slid down an
outside chute and attached to chassis built on the firs floo and rolled
outside under the chute.
Some bodies are still dropped onto chassis, but these are confine to
larger trucks. Most light vehicles are now built through so-called unit-
ized construction, which involves welding the frame of front, rear, and
side rails into an underbody. Top and side frames are then welded to the
underbody to form a shell. This is one of the most automated steps in
 The Body Builders 85

Table 4.1 Exterior Parts Plants in the Midwest

Exterior part Number of plants % in Midwest
Body 260 75.0
Body molding 57 75.4
Roofs and body panels 127 76.4
Doors 76 72.4
Frame 70 62.9
Bumpers and fascia 79 72.2
Exterior trim 286 64.9
Door hardware 108 65.7
Labels and exterior decals 37 64.9
Grills and luggage racks 35 74.3
Windshield washers 35 54.3
Mirrors 32 59.4
Hardware 21 71.4
Other body parts 479 62.8
Total exterior 1,156 66.7
SOURCE: Adapted by the authors from the ELM International database and other
sources.

fina assembly, with most welding done by robots. Hood, trunk, door,
and fender panels arrive at the body build-up area ready for hanging
on the shell. Panels are stamped or pressed from sheets of steel, alumi-
num, or plastic at stamping facilities operated by the carmakers or by
independent suppliers. The built-up body, known as “body-in-white,”
subsequently goes to the paint shop.
Carmakers have been more reluctant to outsource body build-up
and painting stampings than other components because of the high cap-
ital cost associated with these two operations. Stamping operations, es-
pecially purchase of stamping dies, have represented 10 percent of the
cost of a new vehicle program (Child 1996). The paint shop has been
even more expensive, accounting for one-third of the cost of a fina as-
sembly plant. Stamping has been kept in-house because accurate stamp-
ing of large panels has been critical to meet the tight tolerance required
in today’s assembly of vehicles, and therefore to vehicle quality.
Outsourcing of exterior components has been increasing in the
twenty-firs century. The chief reason has been a proliferation of body
styles, many designed for low-volume models. Because carmakers can-
86 Klier and Rubenstein

not justify the high cost of dies to produce body panels for limited pro-
duction models, they have turned to independent suppliers.
Exterior parts other than body panels are also more likely to be out-
sourced. The bumper, once stamped in-house or purchased as a stand-
alone part, is now outsourced as part of a larger front-end or rear-end
module called a fascia. Glass and coatings have always been a principal
responsibility of independent suppliers.

In-House Stamping

The Detroit 3 operated 27 stamping plants in the United States in

2008, including 13 by GM, 10 by Ford, and 4 by Chrysler. These facili-
ties have a contemporary layout and modern equipment, but beneath the
surface are remnants of their heritage from the era of vertical integra-
tion. Many of them are “full-sized” free-standing body stamping plants,
but some are integrated with an assembly plant. The Detroit 3 also oper-
ated two stamping facilities in Ontario and fiv in Mexico.
The Detroit 3 stamping plants are clustered along the southern
Great Lakes (Figure 4.2). Twelve of the 27 are located in southeastern
Michigan, six in northern Ohio, and two in central Indiana. Three others
are not all that far away in Buffalo, New York, and Belvidere and Chi-
cago Heights, Illinois. Outliers are the GM facilities in Fairfax, Kansas;
Spring Hill, Tennessee; and Wentzville, Missouri; and a Ford stamping
plant in Louisville, Kentucky. Most stamping plants were built shortly
after World War II, including eight in the 1950s; four in the 1960s; and
three each in the 1930s, 1940s, and 1980s. One plant each was also
built in the 1920s, 1960s, and 1970s. Plants typically occupied roughly
2 million square feet and employed 1,000 to 2,500 workers.
Historically, a stamping plant was dedicated to meeting the need for
bodies at a nearby fina assembly plant. At Ford’s Rouge complex, for
example, bodies were stamped in one building and dropped on the chas-
sis in the adjacent fina assembly building. Cadillac bodies were trucked
through the streets of Detroit from the Fort Street Fleetwood stamping
plant to the Clark Avenue fina assembly plant two miles away. Chev-
rolet bodies were stamped at a plant in Fairfield Ohio, and shipped by
rail 15 miles south to a fina assembly plant in Norwood, Ohio. Bodies
were painted in the fina assembly plant.
 The Body Builders 87

Figure 4.2 Location of Stamping Plants Owned by Carmakers

SOURCE: Adapted by the authors from the ELM International database and other
sources.

Most Detroit 3 stamping plants are now “stand-alone” facilities

rather than tied to supplying a specifi assembly plant. Consequently,
they now compete with each other to obtain the right to make particu-
lar body parts and ship them to multiple assembly plants. Division of
responsibility among Detroit 3 stamping plants is thus by type of part
rather than by model or platform. For example, among Chrysler facili-
ties in 2004, truck hoods and fenders were stamped at the Warren plant,
truck roofs and floo pans at the Twinsburg plant, and car panels at the
Sterling Heights plant. In the early twenty-firs century, Ford’s Torrence
Avenue assembly plant received front and rear doors from both Chicago
Heights and Buffalo.
88 Klier and Rubenstein

GM stamping
GM’s stamping operation is a legacy of its relationship with Fisher
Body, firs as an independent company, then as a highly autonomous
business unit within GM during the firs half of the twentieth century.
Fisher placed a body stamping plant near each GM assembly plant.
Because bodies were very bulky and fragile, Fisher found that haul-
ing them from Michigan to GM’s then far-flun assembly plants was
more costly than shipping raw materials. For example, GM’s Flint Metal
Center began life in 1954 as the Chevrolet Flint Frame and Stamping
Plant, which supplied fenders, hoods, and frames to Chevrolet’s Flint
assembly plant opened in 1947.
Fisher generated its own set of suppliers during the 1920s. It bought
controlling interest in National Plate Glass Company and Ternstedt
Manufacturing Company, which made body parts such as window
cranks. Because early bodies were made of wood, Fisher controlled
nearly 250,000 acres of timberland, mostly in Michigan, Louisiana, and
Arkansas, and sawmills and woodworking plants in Louisiana, Tennes-
see, and Washington.
Fisher Body lost its distinct identity during the 1980s, firs merging
with Guide Lamp in 1986 and then with Inland to form Inland Fisher
Guide Division in 1990. The division was renamed Delphi Interior
and Lighting Systems in 1994, and then Delphi Interior Systems when
GM spun off much of its parts operations in 1999. GM consolidated 13
Fisher stamping facilities into the Metal Fabricating Division in 1994.
Even that faint vestige of Fisher’s one-time autonomy was extinguished
when Metal Fabricating was folded into GM’s North American manu-
facturing operations in 2005.
Five of the surviving Fisher facilities (located in Indianapolis; Flint;
Lordstown and Parma, Ohio; and Spring Hill, Tennessee) did stamping,
one (in Flint) made dies, and fiv (in Marion, Indiana; Grand Blanc,
Grand Rapids, and Pontiac, Michigan; and Mansfield Ohio) did both
stamping and die-making. Stamping plants in Lansing, Michigan, and
Pittsburgh, Pennsylvania, were closed in 2006 and 2007. Stamping
plants are adjacent to assembly plants at Fairfax, Kansas; Oshawa, On-
tario; and Wentzville, Missouri. GM’s two stamping facilities in Mex-
ico, at Ramos Arizpe and Silao, are inside assembly plants.
 The Body Builders 89

Ford stamping
Ford characteristically concentrated nearly all stamping operations
at the Rouge complex during the 1930s. Bodies were stamped in what
was then called the Pressed Steel Building and either sent next door to
the fina assembly plant or shipped to branch assembly plants around
the country.
Ford later broke up the extreme concentration of production at the
Rouge after World War II. Stamping facilities were placed near long-
standing fina assembly plants in Buffalo and Chicago, as well as in
Walton Hills, part of Ford’s emerging postwar components production
center in the Cleveland area. Two other stamping plants were added
in the 1960s and 1970s in Woodhaven in the Detroit–Toledo corridor,
as well as adjacent to assembly plants in Dearborn, Louisville, and
Wayne.
Ford’s substantially downsized Rouge complex still includes a
stamping plant. Though a modernized operation, the Dearborn stamp-
ing plant is one of the Rouge’s clearest relics of an earlier era because
steel comes in at one end from the adjacent, independently owned steel
mill, and doors and hoods come out at the other end destined for the
adjacent fina assembly plant. Ford’s stamping facility in Hermosillo,
Mexico, was part of an assembly plant.

Chrysler stamping
Chrysler did not own a car body stamping facility until 1953, when
it purchased its principal supplier Briggs Manufacturing Co. Estab-
lished in 1908 by Walter Owen Briggs, the body maker emerged as the
largest surviving independent supplier during the 1920s once Ford and
GM started making their own.
Briggs survived by selling to the smaller carmakers that lacked in-
house body-making capabilities, including Chrysler. Briggs’s Mack
Avenue stamping plant in Detroit, originally built in 1916 by the Michi-
gan Stamping Co., produced bodies for Chrysler’s Plymouth division,
which had a fina assembly plant two miles west on Mt. Elliott Avenue.
In 1926 Briggs acquired LeBaron Carrossiers Inc., which became the
source of bodies for Chrysler’s luxury cars.
Walter Briggs was well-known in Detroit after he purchased the
Detroit Tigers baseball team in 1935. The team’s ballpark was known
90 Klier and Rubenstein

as Briggs Field between 1938 and 1961, when the name was changed
to Tiger Stadium.
Meanwhile, Chrysler opened stamping plants adjacent to its truck
assembly plant in Warren in 1949 and its car assembly plants in Sterling
Heights and Belvidere, Illinois, in the 1960s. The company also opened
a stamping plant in Twinsburg, outside Toledo, in 1957 and continued
to make bodies at Briggs’s Mack Stamping plant until closing it in 1979
during its near brush with bankruptcy.1 Briggs remained in business
manufacturing plumbing supplies until it was sold to Cerámicas Indus-
triales in 1997. Chrysler also operated two stamping plants in Mexico
(Toluca and Saltillo) and one in Canada (Brampton).

Japanese stamping facilities

Japanese-owned carmakers had six stamping facilities in the Unit-
ed States and one in Canada in 2008. Toyota had two stamping plants
at its Georgetown, Kentucky, complex, as well as one in Long Beach,
California. Honda had two stamping facilities adjacent to its two Ohio
assembly plants. Mitsubishi had one adjacent to its Normal, Illinois, as-
sembly plant. Nissan operated a stamping plant along with powertrain
facilities in Decherd, Tennessee, an hour from its Smyrna fina assem-
bly plant.

Outsourced Exterior Systems

The leading independent suppliers of exterior modules, including

stamped body parts, were two Canadian companies, Magna and Mar-
tinrea, and the U.S. frame-making fir Tower. Magna International was
the second-largest supplier in the United States during the firs decade
of the twenty-firs century, and it generated by far the largest amount of
revenue from exterior components of any supplier.

Magna International
Canada’s largest parts maker has become the only supplier to be a
major player in as many as four of the fiv main parts systems (all but
electronics). It has also been a pioneer in providing integrated modules,
as well as in assembling entire vehicles on behalf of carmakers. Magna
is a technology leader in the body segment. It has pioneered hydroform
 The Body Builders 91

technology, which is effective in shaping vehicle frames and bodies as

well as making them lighter. For example, hydroformed Magna frames
have been used in GM’s large trucks.
Frank Stronach, a 25-year-old tool and die engineer who had immi-
grated to Canada from Austria in 1954, founded Magna’s predecessor,
Multimatic Investments Limited, in 1957. Multimatic’s firs automotive
contract was to supply GM with metal brackets for sun visors. Multi-
matic merged with defense contractor Magna Electronics Corporation
in 1969 and adopted the Magna International name four years later.
Aerospace and defense operations were sold in 1981, leaving Magna as
an automotive specialist.
Stronach imposed a strong personality on Magna. The centerpiece
was what he called a “Corporate Constitution,” which he announced in
1971, based on what he called a “Fair Enterprise” management philoso-
phy. The “Corporate Constitution” specifie the distribution of profit
among employees, management, charities, and research and develop-
ment. For example, “ten percent of Magna’s profi before tax will be
allocated to employees. These funds will be used for the purchase of
Magna shares in trust for employees and for cash distributions to em-
ployees, recognizing length of service” (Magna International 2007).
Shareholders would get 20 percent, management 6 percent, charities 2
percent, and research and development 7 percent of the profits
In order to concentrate on his love for horse racing, Stronach turned
over control of Magna International to his daughter, Belinda Stronach,
who became CEO in 2001 and president in 2002. She left the company
in 2002 to pursue political ambitions but returned in 2007. Stronach
adopted decentralized management for Magna, including so-called
groups for each of the major systems. An Executive Strategy Com-
mittee coordinated the groups. Decentralization was pushed further in
the late 1990s by spinning off groups into independently traded pub-
lic companies. Magna wanted to avoid becoming one of what it called
the “lumbering dinosaurs” by creating “a smaller, more focused and
more entrepreneurial company,” according to Don Walker, CEO of In-
tier (Armstrong 2004a). Top managers were considered more likely to
remain with the company if they received ownership stakes in the new
pieces, although Magna retained ultimate financia control.
The arrangement proved short-lived, and Magna reacquired the
three spun-off companies in 2005 because it discovered that Japanese
92 Klier and Rubenstein

carmakers preferred dealing with a single supplier. Magna president

Mark Hogan said, “It got a little confusing as to who to deal with”
(Armstrong 2004a).
Magna has a reputation for being perhaps the most publicity-shy of
all of the major suppliers. Seemingly straightforward information, such
as the address of its plants, is difficul to extract from the company.
Even Ontario government official have difficult getting a handle on
the company’s operations.
The company had 236 manufacturing facilities worldwide in 2007,
including 52 in the United States and 61 in Canada. Eighteen of the U.S.
facilities were in Michigan, primarily those producing interior parts.
Body stamping facilities were more likely to be outside the Midwest.

Martinrea (Budd)
In the early 1900s, bodies were made primarily of wood. White ash
was most preferred, with oak, beech, teak, pine, and elm also common.
Timber took 10 years to properly season, and it took many weeks for
skilled craft workers to fashion coaches. “[By the late 1930s,] there
were only a few sticks of wood left in the passenger job. To all intents
and purposes, you might say that wood, as far as passenger jobs were
concerned, was discontinued.”2
Philadelphia furniture maker Hale & Kilburn, then the dominant
producer of steel seats for trains, was credited with producing the firs
steel car body, for the 1912 Hupmobile. Hale & Kilburn’s general man-
ager Edward Budd set up his own fir in 1912 to produce steel car
bodies. “[T]rue revolution came with Edward G. Budd, founder of The
Budd Co., who invented and patented the all-steel car body in 1912”
(Winter 1996).
To prove that steel bodies were stronger and therefore safer than
wood ones, Budd staged outrageous publicity stunts during the 1910s.
An elephant sitting on top of a Budd body did not crush it, even when
the doors were opened and closed. Probably the most spectacular stunt
was driving a Dodge with a Budd steel body off a cliff. After rolling
over several times, the car was still drivable, and the driver emerged
uninjured.
Low-volume luxury brands such as Packard and Peerless were early
adopters of Budd’s steel body. The firs large order came in 1914 from
Dodge Brothers, which was then in the process of converting from the
 The Body Builders 93

nation’s largest parts supplier to a high-volume carmaker. Dodge paid

Budd $42 per body and $2 for each set of fenders (Hyde 2005, p. 81).
Ford’s decision to purchase Budd steel bodies in 1917 was a criti-
cal step in speeding up Model T production. The principal constraint in
increasing assembly speed had been the time needed to paint the body.
Paint applied to a steel body at a high temperature dried in a few hours,
whereas varnish took two weeks to dry on a wood body.
Edward Budd (1870–1946) and Henry Ford (1870–1947) were con-
temporaries and allegedly developed a personal relationship through
the years, and Ford wrote in his newspaper, The Dearborn Independent,
that Budd was “a high-class, Christian gentleman. Just the type of man
I would like to see in the manufacturing world. There are too few men
like Budd to me.” However, Budd (the man or the company) is never
mentioned in Allan Nevins’s exhaustive history of Henry Ford and the
firs half-century of the Ford Motor Company (Nevins 1954; Nevins
and Hill 1957, 1962).
More generous in citing Budd is the most authoritative history
of Dodge (the brothers and the company; Hyde [2005], p. 79): “The
Dodge Brothers automobile was not merely another mid-range offering
on the market but an innovative product because it incorporated all-
steel bodies supplied by the Edward G. Budd Manufacturing Company
of Philadelphia. Dodge Brothers developed an innovative, cooperative
relationship with Budd in the process.”
Budd was also credited with developing unitized body construc-
tion during the 1930s, three decades before it was widely adopted. By
then, though, the car body business had declined sharply, as a result
of Depression-era cutbacks and in-house body-making. Beginning in
1934, Budd devoted its attention to what became its best-known prod-
uct, stainless steel passenger railroad cars, especially the Pennsylvania
Railroad’s streamliner trains.
Much later, faced with collapse of the U.S. railroad car market, the
struggling Budd Company was acquired in 1978 by German steel man-
ufacturer Thyssen AG, which merged in 1999 with another venerable
German steelmaker, Krupp AG.
ThyssenKrupp sold its U.S. stamping operations in 2006 to the little-
known Canadian company Martinrea International Inc. Martinrea was
formed in 2002 by former leaders of Magna’s metal-forming unit Cos-
ma International. Not coincidentally, Martinrea’s corporate philosophy
94 Klier and Rubenstein

was modeled on Magna, including an Employee Bill of Rights. Martin-

rea CEO Fred Jaekel said “[I]t would be an honour to be called ‘Magna
Jr.’” (Keenan 2006).
Before the ThyssenKrupp Budd acquisition, Martinrea was a com-
pany with 3,000 employees and $500 million in revenues worldwide. It
had one U.S. stamping facility, in Corydon, Indiana, which had opened
in 2005. The addition of the ThyssenKrupp stamping facilities tripled
revenues, doubled the number of employees worldwide, and increased
the number of U.S. plants from 1 to 14.

Tower
The starting point for putting together a body is the frame, con-
structed of steel members welded or riveted together, usually in the
shape of a rectangle with crosspieces, sometimes in an X-shape. Front
and rear portions of the rectangle are rounded up to provide clearance
over axles and suspension. The frame must be very rigid, in order to
provide support and alignment for the body and powertrain, which are
bolted to it.
A.O. Smith was the dominant frame supplier for much of the twenti-
eth century. As with a number of leading chassis suppliers, Milwaukee-
based A.O. Smith predated the motor vehicle industry by producing
wood frames for carriages beginning in 1874. Through such innova-
tions as using pressed steel and automatic riveting, A.O. Smith captured
two-thirds of the market in 1901 and produced 10,000 frames a day.
A.O. Smith’s dominance as a frame supplier diminished after car-
makers adopted unibody construction for cars and some trucks begin-
ning in the 1960s. Unibody construction involved welding a frame to a
body shell. Welding the two together gave a vehicle greater structural
rigidity and made it less likely to shake and rattle. As a frame special-
ist, A.O. Smith found itself competing with systems integrators (e.g.,
Magna) who could provide an entire unibody. By 1997 A.O. Smith had
diversifie into nonautomotive sectors, including water heaters, electric
motors, fibe glass pipe and fittings and glass-lined storage tanks, which
generated higher returns on investment, so it sold its Automotive Divi-
sion to Tower Automotive.
Tower Automotive was formed in 1993 when Minneapolis-based
holding company Hidden Creek Industries spent $83 million for R.J.
 The Body Builders 95

Tower Co., a small machine shop that had started in 1874 to repair met-
al farm implements. As a result of acquisitions like A.O. Smith, Tower
was able to offer a wide variety of structural body components made
of stamped and pressed steel, including body pillars, top cross frames,
lower side sills, rails, fender reinforcements, and floo pans.
In 2004, Tower became one of the firs suppliers to operate a facil-
ity inside a U.S. fina assembly plant at Nissan’s Smyrna facility. Tower
provided Nissan with fully assembled frames for Nissan’s pickup
trucks, while Nissan continued to assemble frames itself for its sport
utility vehicles with rails supplied by Tower. The relationship deepened
at Nissan’s second U.S. assembly plant in Canton, Mississippi, which
receives complete frames within minutes of being needed on the fina
assembly line from the nearby Tower plant in Madison.
During the 1990s Tower followed a strategy of globalization through
acquisitions, as well as expanded product lines. Sales rose from $167
million in 1994 to $2.2 billion in 2000. Tower took on debt expecting
that the acquisitions would produce synergies and growth. However,
the company was unable to integrate its many capital-intensive busi-
nesses. It was not able to cover its fixe costs, and Tower entered Chap-
ter 11 in 2005. Two years later, the company emerged from bankruptcy
by selling most of its assets to the private equity fir Cerberus Capital
Management, which acquired Chrysler the same year (Sherefkin 2007a;
Walsh 2007).

PAINTING THE BODY: CAPTURING A MOOD

Henry Ford’s famous epigram, “People can have the Model T in

any color—so long as it’s black,” captured the distinctive appeal of the
Model T during the 1910s. The firs Model T’s produced between 1909
and 1913 and the last ones produced in 1926 and 1927 were painted
bright colors, but the 15 million produced in between came only in
black.
Painting had been the most time-consuming step in early car mak-
ing. Typically, fiv coats were painted by hand with a brush. Before
each coat was applied, the body had to be sanded and varnished, and
after each coat, the body took several days to dry. Altogether painting
96 Klier and Rubenstein

took 18 days, during which time the body had to be stored in a dust-free
location (Yanik 1993).
The painting process is still relatively elaborate and expensive. First,
a primer layer is applied to steel and plastic components to smooth out
irregularities and imperfections and to improve resistance against chip-
ping. Primers may be tinted to reduce the amount of paint needed. A
basecoat layer provides most of the coloring, and the fina clearcoat
layer provides most of the protection. A tricoat layer of micas, alumi-
num flakes or other pigments may be added between the basecoat and
clearcoat to obtain a more complex metallic, speckled, flat or three-
dimensional appearance.
Many body parts are now painted by electrocoating, which is “an
organic coating method that uses electrical current to deposit paint onto
a part or assembled product” (Electrocoat Association 2007). The body
parts are electrically charged, then immersed in a bath consisting of
80–90 percent oppositely charged deionized water and 10–20 percent
resin and pigments. Plastic bumpers and other exterior body parts are
coated with adhesion promoters, such as conductive resins and chlo-
rinated polyolefi (CPO), to chemically bond the paint fil to plastic
parts in injection molding machines. The paint particles are attracted
to the metal or plastic surface, neutralized, and baked into a film The
charged particles adhere to the electrically grounded surfaces until they
are heated and fused into a smooth coating in a curing oven.
Use of powder coating is increasing in part because of environmen-
tal regulations (Powder Coating Institute 2007). Conventional paint sol-
vents discharge into the air during the drying process, but powder coat-
ings contain no solvents. Much of the half-billion-dollar cost of a paint
shop goes into ensuring that the waste paint and fluid are disposed of
safely (Miel 2002).

Leading Paint Suppliers

Two companies—DuPont and PPG—have been leading paint sup-

pliers through the history of the U.S. motor vehicle industry. A prede-
cessor of PPG was closely associated with Ford’s early success, and
DuPont was closely associated with GM’s early success.
 The Body Builders 97

PPG
The source of Ford’s black enamel paint was the early twentieth
century’s leading automotive paint supplier, a predecessor of PPG
known as Ditzler Brothers. Peter Ditzler, who had been providing paint
for carriages since 1880, joined with his brother Fred to open an au-
tomotive paint shop in 1902. Their firs automotive customer was the
newly formed Cadillac Auto Company in 1902, and Ford followed a
year later.
The Ditzlers sold the business to T.W. Conner and Associates in
1913, just as the company was expanding production to meet Ford’s
increasing demand for black enamel. When Ford belatedly introduced
colors for the Model T in 1926, Ditzler was the paint supplier. PPG
purchased the Ditzler Color Company in 1928.
PPG transferred Ditzler’s operations in 1964 from Detroit to the
Forbes Varnish Co. facility in Cleveland. Forbes, founded in 1907,
originally produced automotive varnishes, but it switched to industrial
coatings during the 1920s. PPG acquired Forbes in 1947 and made the
Cleveland facility its principal automotive coatings center.

DuPont
General Motors passed Ford as the leading car seller during the
1920s in part by offering brightly painted cars. General Motors Re-
search Laboratories, under the leadership of Charles F. Kettering, es-
tablished a Paint and Enamel committee in 1921 to develop colorful
fast-drying paint. The committee collaborated with DuPont, which then
held a controlling financia interest in GM.
DuPont had been founded as an explosives manufacturer in 1802 by
Eleuthère Irénée du Pont (1771–1834), a French citizen and employee
of France’s central gunpowder agency, who immigrated to the United
States in 1799 after being briefl imprisoned during the French Revolu-
tion. Black gunpowder was the only product produced by DuPont until
1880. Pierre S. du Pont (1870–1954), the fourth generation of the fam-
ily to control the company, transformed it from an explosives specialist
into a manufacturer of paints, plastics, synthetic fibers and chemicals.
DuPont’s link with GM began when Pierre du Pont bought GM
stock in 1914 and was elected a GM director and chairman of the board
a year later. When Billy Durant was forced to leave GM in 1920, Pierre
98 Klier and Rubenstein

du Pont became GM president and his brother Irénée succeeded him

as president of DuPont Corporation. The DuPont Corporation, with
ownership of one-third of GM stock, rescued the carmaker from near
bankruptcy by imposing its then-innovative financia management. The
close relationship between the two companies eventually attracted the
attention of federal antitrust prosecutors, who file suit in 1949. Eight
years later the U.S. Supreme Court ruled against DuPont, and the com-
pany finalize the disposal of its GM shares in 1961.
DuPont developed colorful fast-drying paint during the early 1920s
through application of nitrocellulose, which it had been using to make
smokeless gunpowder. DuPont chemists, working with cellulose mo-
tion picture fil in 1920, produced a thick lacquer that was durable and
quick drying and could be colored. Trying to prevent fil from blowing
up or turning to goo, the chemists found that a batch of cellulose, acci-
dentally left in a drum for three days, turned to light-brown syrup. This
“syrup” became Viscolac and was sold beginning in 1921 as a fast-dry-
ing lacquer for toys and other small objects.
GM engineers found that Viscolac dried too fast for use on cars,
but after two years of experiments in collaboration with DuPont, a suit-
able lacquer called Duco was produced. Duco reduced the amount of
time needed for drying from several weeks to two hours. The firs car
painted with Duco was GM’s 1924 Oakland, available in a light-blue
color called True Blue.

Paint Colors: Changing Fashion

Color has no impact on a vehicle’s performance, and consumers

claim in surveys that color is not an important consideration in their
purchase decisions. Yet the paint shop is the most expensive portion of
an assembly plant—one-half billion dollars per assembly plant—and a
color is the most commonly selected adjective when people are asked
to describe their vehicles.
Early cars were painted bright primary colors using India enamel
paint that lacked durability and faded when exposed to the sun. Henry
Ford’s black-only policy captured the public imagination as one of his
many strategies to keep the price of the Model T low. So-called Japan
black enamel (ground pigment in linseed oil) was the only type of paint
that dried quickly enough to keep up with the moving assembly line
 The Body Builders 99

that Ford installed in 1914. Black dried faster than other colors because
of the chemical composition of the pigment and resins. To paint other
colors on 1,000 cars a day, Ford would have had to set aside 20 acres of
covered dust-free space to dry the bodies between coats (Yanik 1993).
Lost in Model T mythology is the reality that all but a handful of luxury
cars were also being painted black for the same reason.
Forecasting colors that will appeal to consumers is a high-stakes
science, not an art. The Color Marketing Group is an organization of
1,100 color designers, and about 50 of them work in the auto industry.
Members meet twice a year to forecast the colors that will be featured
in manufacturing and services during the next few years.
The motor vehicle industry is often one fashion trend late, according
to G. Clotaire Rapaille, founder of Archetype Discoveries Worldwide, a
consumer research fir that advises carmakers on what colors to paint
vehicles. In the clothing industry, colors are decided a few months in
advance, but in the motor vehicle industry, with its relatively long lead
time, colors must be decided several years in advance. Popular clothing
colors often appear on motor vehicles several years later, by which time
clothing designers have moved on to other colors. “Colors represent the
mood of the time,” according to Rapaille. But motor vehicle designers
run the risk that colors may not match the national mood by the time
they are introduced (Hakim 2004).
Drab colors of the economically austere 1930s and 1940s gave
way to two-toned pastels of turquoise, aqua, pink, and coral during the
1950s. The social turbulence of the 1960s was accompanied by vehicles
that were painted lively orange, lemon yellow, candy apple red, and
yellow-green. Muted grey and black tones marked the calmer 1970s,
and bright reds and blues accompanied the go-go 1980s. The prosper-
ous 1990s brought elegant gold and copper, as well as environmentally
aware dark greens (Hakim 2004; Krebs 1997; Sawyers 1993). The som-
ber mood after the attacks on September 11, 2001, increased demand
for black, white, gray, silver, and beige.
DuPont and PPG have long tracked color preferences. They agree
that silver has been the most popular color in the United States during
the firs decade of the twenty-firs century, having displaced green in
2000. Silver has also been the most popular color throughout the world
during the period. The two paint suppliers also agree that white, black,
red, and blue follow silver in popularity. However, they don’t agree on
100 Klier and Rubenstein

the market share: silver had 24 percent market share in 2006 according
to PPG and only 19 percent according to DuPont.

FROM BUMPERS TO FASCIA

The bumper arguably delivers the biggest bang for the buck of any
component. A several-hundred-dollar component can save the motorist
thousands of dollars in repair costs. The bumper also provides suppliers
with one of the principal entries into the body sector of the industry. Ac-
cording to Harbour Consulting, the percentage of bumpers outsourced
by the Detroit 3 increased from 27 percent in 2000 to 56 percent in 2007
(Wortham 2007a).
Today’s bumper typically includes a reinforcement bar made of
steel, aluminum, or fibe glass sheathed in a TPO (thermoplastic olefi
elastomer) cover. Polypropylene foam or plastic “eggcrate” honeycomb
is packed between the bar and cover to cushion the impact. Bumpers
account for one-fourth to one-third of the motor vehicle industry’s pur-
chases of plastics.
During the 1920s thin metal bumper strips attached to the front
and rear of the body became standard equipment on cars. As the name
implied, the original purpose of the bumper was to reduce damage to
the vehicle from inevitable encounters with parked cars, pedestrians,
and other hazards on increasingly congested streets. After a bump, re-
placing a crumpled metal strip was easier and cheaper than repairing
a dented body. Elaborately shaped three-dimensional chrome bumpers
were added as decoration to complement the aggressive tail fin of the
1950s. Turn signals, parking lights, and back-up lights were sometimes
placed inside bumpers that wrapped around headlamps and taillights in
the designs from the 1960s.

An Important Safety Feature

The bumper evolved from decoration to a safety feature during the

1970s. The impetus was the correction of a fatal fla in the Ford Pinto:
at least 59 people died from explosions of Pinto fuel tanks crushed in
accidents between the rear bumper and axle.
 The Body Builders 101

The 1972 Motor Vehicle Information and Cost Saving Act required
the National Highway Traffi Safety Administration (NHTSA) to set
bumper standards that yielded “the maximum feasible reduction of
costs to the public, taking into account the cost and benefit of imple-
mentation, the standard’s effect on insurance costs and legal fees, sav-
ings in consumer time and inconvenience, and health and safety consid-
erations.” Beginning in 1972, the NHTSA required bumpers to protect
the fuel tank, headlamps, and other body and safety features during
front-end impacts of 5 mph and rear-end impacts of 2.5 mph. The rear-
end standard was raised to 5 mph in 1979. Bumper standards reached
historically high levels between 1980 and 1982, when the bumpers
themselves also had to withstand damage in 5 mph impacts.
Regulations have been less stringent since 1983. Bumpers must
protect cars from front and rear impacts of 2.5 mph, but the bumpers
themselves may now be damaged. The NHTSA defended the relaxation
as consistent with the intent of the 1972 law. The new standard contrib-
uted to fuel economy because it allowed carmakers to reduce average
bumper weight from 85 pounds in 1982 to 72 pounds in 1983. How-
ever, the Insurance Institute for Highway Safety, which tests damage to
bumpers at 5 mph, claimed that the lower standard added $1,000 to the
average vehicle repair cost.
As truck sales soared in the 1990s, the lack of compatibility between
car and truck bumpers was heavily criticized by the insurance industry
and consumer groups. The bumper on a truck is designed with high
clearance—allegedly for off-road capability. It is higher off the ground
than the bumper of a car. As a result, in a collision a truck bumper would
override a lower car bumper, telescoping the front end of the car back
into the passenger compartment. Voluntary standards adopted by nearly
all motor vehicle producers, effective in 2009, reduced incompatibility
in one of two ways: either by lowering the truck’s bumpers and frame
rails to the level of cars or by attaching a steel bar called a blocker beam
to the truck frame at the same level as car bumpers.
The bumper is playing an increasingly important role in vehicle ap-
pearance. Carmakers are designing the front bumper to be integrated
with the grille and headlamps into a front-end module and the rear bum-
per to be integrated with the trunk and taillights into a rear-end module.
These integrated front and rear modules are sometimes called fascia in
102 Klier and Rubenstein

the United States, although the British use the term fascia to describe
the interior cockpit combining the instrument panel and dashboard.
Volkswagen’s turn-of-the-century New Beetle was regarded as
a prototype—it had front- and rear-end modules integrating bumper,
fascia, and lights supplied by Plastic Omnium. Bumpers may also in-
tegrate electronic systems that assist with parking and maintaining a
safe distance in traffic “‘We feel very much that front-end modules are
the future,’ says Plastic Omnium President Marc Szulewicz. Although
some carmakers will initially produce the modules in-house, ‘long term
they will certainly begin to outsource them’” (Chew 2003).
Carmakers have outsourced bumper production to a number of
component-specifi specialists who are not major players in provision
of other components. The bumper accounts for a major expense, ac-
counting for several billion dollars in annual OEM sales. Consequently,
the market for bumpers is highly competitive. Three companies each
had about $1 billion of the market.

Flex-N-Gate Corp.
Flex-N-Gate Corp. was founded in 1956 in Urbana, Illinois, to make
racks for pickup trucks that featured a flexibl roll-up rear gate, hence
the company name. The product line was expanded in the 1960s to in-
clude truck bumpers. The company remained a small family-owned
operation until it was sold in 1980 to Shahid Khan, a native of Paki-
stan, who started working there in 1970 as an engineering student at
the University of Illinois. Khan left Flex-N-Gate in 1978 to start his
own bumper company, but he returned two years later as CEO and sole
owner. Under Khan, revenues increased from $17 million during the
1990s to $1 billion in 2006. Its 19 U.S. factories as of 2007 were heav-
ily clustered in the Midwest, including six in Michigan, four in Illinois,
and three in Indiana.

Meridian Automotive Systems

Meridian Automotive Systems originated as the American Bumper
and Manufacturing Co. in Ionia, Michigan. Its largest bumper customer
has been Ford trucks and sport utility vehicles. Meridian grew rapidly
during the late 1990s through acquisitions, but it entered Chapter 11
in 2005, citing the high price of plastic resin. The company emerged
 The Body Builders 103

from Chapter 11 a year later, with financia restructuring provided by

a consortium of private equity firms Like Flex-N-Gate, it had 19 U.S.
manufacturing facilities in 2007, including seven in Michigan and six
in Indiana.

Plastech Engineered Products

Plastech Engineered Products was one of the largest minority-owned
Tier 1 suppliers and the second-largest minority-owned plastics fir
in the United States, behind Sigma Plastics Group. The company was
founded in 1988 when Julie N. Brown acquired a small plastic molding
plant in Caro, Michigan. Like Meridian, Plastech grew rapidly during
the 1990s through acquisitions, the largest of which was the United
Screw and Bolt Co. in 1997. Although a major OEM bumper supplier,
Plastech’s most rapid expansion came as a Tier 2 supplier of interior
trim to Johnson Controls (see Chapter 7). Its three dozen facilities in the
United States were also heavily clustered in the Midwest, including 18
in Michigan and nine in Ohio.
In 2008, Plastech file for Chapter 11 bankruptcy protection. “[L]ike
virtually all parts suppliers in Detroit’s automotive ecosystem, Plastech
has been caught between rising production costs and falling demand for
the products in which its parts are used” (McCracken 2008).

OUTSOURCING COMPLETE EXTERIOR MODULES

The pioneering effort to outsource integrated exterior modules was

the Chrysler assembly plant in Toledo, Ohio. Chrysler opened the Tole-
do Supplier Park in 2006 to supply exterior modules, as well as chassis
modules, ready for installation at the adjacent Jeep fina assembly plant.
The bodies moved by conveyors from the Supplier Park to the fina as-
sembly line minutes before they were needed, and “Chrysler will have
inspectors in the suppliers’ plants and has the right to reject assemblies
that don’t meet quality standards” (Jewett 2004).
Hyundai Mobis subsidiary Ohio Module Manufacturing Co. was
given responsibility for assembling “rolling” chassis. The term rolling
refers to the fact that the chassis, which includes wheels, axles, and
104 Klier and Rubenstein

powertrain, could literally be rolled on tires from the supplier shop to

where it was needed on the fina assembly line.
South Korea’s largest supplier, Mobis, was already delivering roll-
ing chassis to Kia’s plant in Hwasung, Korea. Mobis was part of the
Hyundai chaebol through interlocking ownership. Hyundai owned 60
percent of Kia, which in turn owned 16.2 percent of Mobis, which in
turn owned 13.2 percent of Hyundai. Mobis had no North American
manufacturing operations when it won the Jeep contract. But Mobis
expected to rank among the world’s top 10 suppliers by 2010 as an
ultra-low-cost supplier.
In awarding the contract to Mobis, DCX passed over Toledo’s
hometown supplier of rolling chassis, Dana. In the throes of Chapter 11
proceedings, Dana was caught asleep at the switch in its own backyard
(see Chapter 11 in this volume; Chang and Chappell 2004).
German-based Kuka Roboter GmbH was given responsibility for
welding bodies in a 250,000-square-foot body shop, with an annual ca-
pacity of 150,000. Europe’s leading manufacturer of industrial robots,
Kuka had no experience as an auto parts manufacturer. Its previous auto
industry work was building equipment for body shops and assembly
lines and helping Chrysler design minivan seats that folded into the
floo .
Outsourcing Toledo’s paint shop proved more difficul for Chrysler.
The contract was firs awarded to Durr Industries, which, like Kuka,
was a German company with experience in providing equipment rather
than parts. Durr planned and built paint shops, as well as cleaning and
filtratio systems. After two months, Chrysler dropped Durr as paint
supplier, citing an unspecifie contract impasse (Connelly 2004).
Haden International was next to be given responsibility for the To-
ledo paint shop. Haden, too, had no experience as a parts supplier. It had
developed air pollution abatement and wastewater removal programs
for GM’s Arlington and Spring Hill assembly plants and water recy-
cling programs at Toyota’s Georgetown and Chrysler’s Detroit assem-
bly plants. The British-based company was founded in 1816 by brothers
George and James Haden. It was best known in the United States for
acquiring Carrier (the air conditioning firm in 1970. Palladium Equity
Partners LLC gained controlling interest in Haden in 2001.
Four months before production began, in 2006, Haden “vanished,”
and its managers “disappeared” from the site. Haden also walked away
 The Body Builders 105

from contracts to remove paint sludge at Toyota’s plant in George-

town and Ford’s plant in Wayne; to complete a renovation of the New
United Motors Manufacturing Inc., California, paint shop; and to treat
wastewater at Georgetown. Financial problems were blamed (Chappell
2006a,b; Nussel 2006).
Chrysler assumed responsibility for liens against Haden held by
subcontractors at Toledo and placed its own employees in the paint
shop. Former Haden employees at Toledo formed a new company to
continue to do business with Chrysler.
Replacing Haden as paint shop manager in 2006 was Magna Steyr,
a subsidiary of Magna International. Despite Chrysler’s original inten-
tions, Magna Steyr does not have an equity interest in the Toledo Sup-
plier Park.

OUTLOOK AND UNCERTAINTIES

Most exterior suppliers appear likely to remain in the Midwest. As

was the case with powertrain, the exterior sector of the parts industry
has been heavily clustered in the Midwest because of a similar combi-
nation of proximity to inputs and to customers.
Even more so than the powertrain, the exterior is difficul to ship
long distance. Body panels and fascia are bulky and fragile and, com-
pared to the powertrain, are lower in value. Furthermore, carmakers
have retained much of the body stamping work as a core competency.
At the same time, some exterior production will drift out of the Mid-
west, again for the same reason as powertrain, namely for proximity to
foreign-owned assembly plants further south within Auto Alley.
The supplier that may make a particularly strong contribution to the
future geography of exterior parts production is Magna International’s
Magna Steyr division. Magna Steyr did not even have a U.S. production
facility until 2005, when it opened a paint shop adjacent to Chrysler’s
Toledo assembly plant. Magna Steyr at the time was a major supplier in
Europe and was set to become one in the United States as well.
Magna International acquired Magna Steyr, then known as Steyr-
Daimler-Puch, in 1998. Steyr-Daimler-Puch was created in 1934
through the merger of Steyr-Werke AG and Austro Daimler Puchwerke
106 Klier and Rubenstein

AG. Steyr Werke’s predecessor was established in 1864 near Steyr,

Austria, to make armaments. Puchwerke’s predecessor was established
in 1899 near Vienna to make bicycles and merged in 1928 with a Daim-
ler body supplier.
From its core competency of making bodies, Magna Steyr expanded
into so-called contract assembly, that is, producing entire vehicles for
carmakers such as Chrysler and Daimler. Magna Steyr assembled niche
vehicles that were sold in volumes too low to be economic for car-
makers to assemble themselves, such as convertibles or an American-
style Chrysler minivan for the European market. Magna Steyr was also
contracted to assemble vehicles whose sales exceeded capacity of the
carmakers’ own assembly plants. In 2007, Magna Steyr assembled a
quarter of a million vehicles at its Austrian plant, including 10 different
models for four carmakers.
Magna Steyr made no secret that it wanted to build a similar plant
in the United States. “Do we see potential for a North American as-
sembly plant for (subsidiary) Magna Steyr? Absolutely,” stated Magna
president Mark Hogan (Sherefkin 2007b). “Steyr came within a hair of
using that design for such a plant in the U.S.,” said [Manufacturing Vice
President Wolf-Dietrich] Shulz. He said that “earthmoving equipment
was on the ground” at a site somewhere in the South, ready to break
ground for a U.S. vehicle project. The project was canceled at the last
minute (Chappell 2006c).
When Chrysler was sold to Cerberus in 2007, one of the unsuc-
cessful suitors was Magna. Magna Steyr’s experience with assembling
entire vehicles and producing modules in Toledo, as well as its position
as Chrysler’s leading supplier, made it a credible candidate, but ana-
lysts have been skeptical of Magna Steyr’s ability to bring the European
model to the United States. “Magna Steyr has hit a wall . . . [It] has
concluded that it has a problem: To grow, big changes are necessary”
(Sherefkin 2007b). The firs challenge was efficiency to build 10 dif-
ferent models for four carmakers, Magna Steyr had to provide fiv as-
sembly lines, six body shops, and two paint shops.
The second challenge was excess capacity in carmakers’ own assem-
bly plants. “European contract manufacturing is under pressure. That’s
because excess capacity at many automakers is making them take back
production previously outsourced” (Meiners 2007). Finally, according
to Harbour and Associates President Ron Harbour, as carmakers have
 The Body Builders 107

become more efficient they “don’t have to outsource those low-volume

cars anymore” (Sherefkin 2007b).

Notes

1. The City of Detroit purchased the closed stamping plant in 1982 but had to un-
dertake an expensive hazardous materials clean-up operation at the site during
the 1990s. Chrysler used the site to construct a new engine plant, which opened
in 1998 to supply engines for the Jeep Grand Cherokee, assembled one-half mile
south at the company’s new Jefferson Avenue assembly plant.
2. Walter Nelson, manager of Ford’s Iron Mountain, Michigan, lumber operations,
quoted in Sorensen (2003).
 5
Supplying the Suppliers

They were a very minor supplier to us, so we don’t have an

issue. We have replaced them.1

The supply base of today’s carmakers is structured like a pyramid.

On top of the pyramid is the carmaker. Below the carmakers are a small
number of Tier 1 suppliers that sell parts directly to carmakers. Tier 1
suppliers in turn purchase materials from Tier 2 suppliers, who pur-
chase from Tier 3 suppliers, and so on down the supply chain.
Tier 1 suppliers and carmakers have different perspectives on the
motor vehicle industry than do lower-tier suppliers. For example, is a
motor vehicle essentially an aggregation of several thousand parts, or is
the whole greater than the sum of the parts? Carmakers favor the holis-
tic view. A motor vehicle is greater than the sum of the individual parts
because it is ultimately define and distinguished primarily through
such features as performance, handling, and styling. Large Tier 1 sup-
pliers, responsible for integrating modules and systems, reinforce this
holistic perspective.
The perspective of lower-tier suppliers is fundamentally opposite.
They are in the business of building a motor vehicle one part at a time. A
smoothly performing engine depends on tight-fittin pistons and valves
and on well-built brackets and hinges. An attractively styled interior
depends on tight-fittin doors and mirrors and on well-built latches and
knobs.
Enthusiast magazines such as Car & Driver and Motor Trend rein-
force holistic perspectives in their reviews and commentaries. The qual-
ity of an engine is characterized by overall performance in speed and
acceleration, and the quality of the interior is characterized by harmoni-
ous integration of materials and controls. On the other hand, consumer
surveys such as those by J.D. Power and Associates and Consumers
Union reinforce a particularistic perspective. Quality is measured by
aggregating the frequency with which dozens of specifi items cause
trouble in particular vehicles.

109
110 Klier and Rubenstein

Ultimately, of course, a motor vehicle is both an aggregation of

thousands of individual parts and something greater than the sum. The
fundamental challenge—and opportunity—for lower-tier suppliers de-
rives from differences with carmakers and Tier 1 suppliers concerning
the relative importance of the two perspectives.

TYPICAL Lower-tier SUPPLIERS

Getting a handle on lower-tier suppliers is difficul for the following

reasons:
• Lower-tier suppliers are much more numerous than Tier 1 suppli-
ers; major Tier 1 suppliers number in the dozens, whereas lower-
tier suppliers number in the thousands.
• Leading databases do not distinguish between Tier 1 and lower-
tier suppliers.
• Lower-tier suppliers may make objects with multiple uses, not
just for use in motor vehicles.
• Some lower-tier suppliers provide commodities and raw materi-
als from which other suppliers actually fashion the parts.
• Suppliers rarely fall 100 percent into only one tier, so classific -
tion is a case-by-case determination based on the tier occupied
by most of a supplier’s customers. It is even possible for a sup-
plier to operate some of its plants as Tier 1 plants and others as
lower-tier plants.
Leading data sources do not permit straightforward identificatio
of a supplier’s tier. In the case of a publicly traded company, the an-
nual report and Form 10-K may name the major customers and share of
business if it is more than 10 percent. But most lower-tier suppliers are
privately owned and therefore do not reveal this information.
The U.S. Census of Manufactures classifie about one-sixth of all
suppliers as “other” or “NEC” (not elsewhere classified) Similarly,
the database developed for this book, derived from ELM International,
classifie one-sixth of all suppliers as providing so-called generic parts,
such as brackets, clamps, and fasteners. Another one-sixth of all sup-
 Supplying the Suppliers 111

pliers are allocated to “miscellaneous” categories within particular sys-

tems, such as “miscellaneous engine components.” Based on all avail-
able information about individual plants, it is likely that most of the
companies making “generic” parts are lower-tier suppliers, but this is
not a certainty.

Characteristics of Lower-Tier Suppliers

A walk through a typical lower-tier supplier plant reveals little that

looks like a contribution to putting together a motor vehicle. Oddly
shaped parts are cut or pressed and perhaps several of the pieces are
screwed or welded together to form another unfamiliar shape.
The motor vehicle industry includes several thousand lower-tier
suppliers, most of which are unfamiliar even to carmakers, let alone to
the wider public. Given this arithmetic, summarizing the characteristics
of the many thousands of lower-tier suppliers is a formidable challenge.
Nevertheless, this chapter attempts to do so. We fin that a typical lower-
tier supplier is:
• owned by a single individual or family, rather than by a publicly
traded corporation. The current owner is often not the firs gen-
eration of the family involved in the business. Like other small
businesses, a lower-tier supplier reflect the values and priorities
of the owner.
• a small business, with an average workforce of less than 200
housed in a single facility. In comparison, the 150 largest sup-
pliers in 2007 averaged 11 U.S. plants with 300 employees per
plant. Annual sales for lower-tier suppliers are likely to be in the
millions of dollars, whereas they are in the billions of dollars for
the larger Tier 1 suppliers.
• a specialist in a small number of manufacturing processes, such
as stamping or cutting. Compared with large Tier 1 suppliers and
carmakers, these firm possess a limited number of capital-inten-
sive presses of a particular size or dies of a particular shape. The
distinctive features, assets, and quirks of these specifi pieces
of equipment, though, are understood in detail. Equipment con-
strains the variety of products.
112 Klier and Rubenstein

• too small to have a professional sales force. Instead, it hires sales

representatives, or the owner may do the job.
• sited in a specifi community because “the founder lived here.”
Other communities might now prove more profitable but even
leaving aside the high capital cost of relocation, lower-tier sup-
pliers are rarely footloose firm chasing tax breaks. Instead, it
is more likely to be rooted in the owner’s hometown through
sports, religion, and other community programs.
• feeling pressure from its Tier 1 customers to invest in Mexico,
China, and other low-wage countries. Despite strong community
roots, lower-tier suppliers are being urged to produce overseas in
order to help Tier 1 firm reduce costs. Some lower-tier suppliers
have gone along, but most have preferred to stay put.
• located in the Midwest (Figure 5.1). More than three-fourths of
plants making brackets, clamps, hinges, fasteners, screws, nuts,
bolts, and washers were in the Midwest (Table 5.1). Bearings,
seals, and gaskets were less likely to be made there. Overall,
more than two-thirds of plants classifie as “generic” in our da-
tabase were in the Midwest.
Although it is difficul to say that any single lower-tier supplier can
be considered typical of the thousands, we can offer some good ex-
amples of lower-tier suppliers.

Table 5.1 Plants Producing Generic Parts in the Midwest

Generic parts Number of plants % in Midwest
Fasteners 118 81.4
Screws, nuts, bolts, and washers 124 79.8
Brackets, clamps, and hinges 186 78.0
Bushings, gears, housing, plugs, 258 65.5
and springs
Seals and gaskets 204 52.9
Bearings 60 36.7
Other generic parts 394 64.5
Total generic 1,344 66.4
SOURCE: Adapted by the authors from the ELM International database and other
sources.
 Supplying the Suppliers 113

Figure 5.1 Location of Plants That Supply Generic Parts

SOURCE: Adapted by the authors from the ELM International database and other
sources.

Oakwood Group
The Oakwood Group produces metal speaker grilles and plastic im-
pact absorbers for vehicle interiors. Large Tier 1 interior suppliers such
as Johnson Controls and Lear were its major customers. Francois Audi
founded the company in 1945, and his son succeeded him as presi-
dent. The company employed 221 at manufacturing facilities in Taylor,
Michigan.

Mid-American Inc.
Mid-American supplies molded thermoplastic parts used in the
engine, chassis, and body. Other products include valve shafts, valve
lift guides and assemblies, chain tensioners and guides, air shock and
fittin assemblies, structural braces, compression caps, and coolant
114 Klier and Rubenstein

fittings Major Tier 1 customers for these products have included JCI
and Bosch. The company has also made window latch assemblies for
Guardian Industries. Mid-American is a minority-owned fir with 180
employees and established in 1972 in Jackson, Michigan.

Shane Steel Processing Inc.

Shane prepares steel before it is used to manufacture engine com-
ponents (e.g., valves) and chassis components (e.g., stabilizer and tor-
sion bars). Shane detects defects in the steel, and straightens, grinds,
and shears steel bars to standards demanded by parts makers. Founded
in 1949, Shane employs 80 at its facility in Fraser, Michigan. Tier 1
customers have included Collins & Aikman, Dana, Delphi, Lear, and
Siemens.

LARGE Lower-tier SUPPLIERS

Although most lower-tier suppliers are small, a handful are large

corporations. A lower-tier supplier may have grown large by specializ-
ing in producing large volumes of standardized parts, such as bearings,
brackets, and latches. Other large lower-tier firm are suppliers of com-
modities and materials, such as steel and plastic. The distinctive skill
demonstrated by these large suppliers is the ability to be the low-cost
manufacturer of particular “generic” parts.
Some of the large “generic” parts suppliers were Tier 1 suppliers
until “demoted” to lower-tier status by carmakers focusing on module
and systems integrators. Others dropped to Tier 2 when Delphi and Vis-
teon were separated from GM and Ford, respectively, in the late 1990s.
Finally, from a business strategy perspective, it might be desirable for a
company to move to a lower tier. Some large suppliers have deliberately
positioned themselves at a lower tier, thereby escaping the not-always-
desirable spotlight focused by carmakers on their Tier 1 suppliers.

Large Bearings Suppliers

Bearings are “the invisible heroes inside many mechanical devices”

(Nice 2007). Bearings reduce the friction that would otherwise result
 Supplying the Suppliers 115

when one surface slides against another surface. In motor vehicles, bear-
ings play an especially important role in the transmission and wheels.
Ball bearings, the most common and oldest type of bearing, con-
sist of metal balls sandwiched between two ring-shaped liners called
races. The smooth steel balls, loosely restrained and separated in a cage,
are able to roll with minimal friction in a tight space carved out of the
smooth metal surfaces of the two races. Ball bearings were found to be
of limited use in motor vehicles, however, because they could not sup-
port a heavy load.
Carmakers turned instead to roller bearings, in which cylinders
rather than balls are sandwiched between two races. A cylinder can
withstand a heavier load than a ball because weight is spread out over
a line rather than a single point. Transmissions most commonly have
a variation of a roller bearing that is called a roller thrust bearing and
is placed between the gears and the rotating shafts. Wheels most com-
monly have another variation, the tapered roller bearing, which is coni-
cally rather than cylindrically shaped.

Timken Co.
Four of the 75 largest suppliers in the United States in 2007 special-
ized in bearings. The leading U.S. supplier of roller bearings through
the century-plus history of motor vehicle production has been Timken
Co. Henry Timken, a St. Louis carriage builder, patented the tapered
roller bearing in 1898 and one year later, at the age of 68, founded Tim-
ken Roller Bearing Axle Co. to make axles equipped with tapered roller
bearings. Timken moved the company from St. Louis to Canton, Ohio,
in 1901, to be near both its primary customers (the rapidly growing mo-
tor vehicle industry) and its principal input (steel).
Axle and bearings businesses were separated in 1909, with Timken
Roller Bearing Co. remaining in Canton and Timken-Detroit Axle Co.
relocating to Detroit. To control the supply and quality of steel for the
bearings, Timken added a steel production facility to its Canton com-
plex in 1916.
Timken has long been the largest employer in Canton, where it is
universally known as “Timken’s,” reflectin the close association of the
company with fiv generations of the Timken family, much as the Ford
Motor Co. is often called “Ford’s” in Detroit. At its peak in the 1920s,
Timken supplied 80 percent of the roller bearings in the U.S. motor ve-
116 Klier and Rubenstein

hicle industry. Timken remains the largest bearing supplier in the United
States, with one-sixth of the market, but it has fallen to sixth place in
worldwide sales. The company’s Web site claims that its market share
has declined because carmakers, especially Ford, have insisted on hav-
ing multiple sources of bearings.

Other bearings suppliers

Swedish-based SKF has become the world’s largest bearings sup-
plier, and the German-based FAG Group has been the second-largest
Europe-based bearing supplier. These two firm have held small shares
of the U.S. market. Timken’s three chief bearings competitors in the
U.S. market are Japanese-based.

NSK. Short for Nippon Seiko Kabushiki Kaisha, NSK is credited

with producing the firs ball bearings in Japan in 1916. NSK became a
major bearings supplier in the United States when it acquired Hoover
Ball and Bearing in 1975. The breakup of Hoover also gave Johnson
Controls its start in the seat business during the 1980s (see Chapter 7).

NTN Bearings. NTN Bearings, according the company’s Web site,

entered the bearings business through happenstance: “In 1922 a Swedish
vessel carrying a cargo of bearings sank in Kobe harbor. The bearings
were auctioned off by the insurance company and the successful bidder
was Mr. [Noboru] Niwa. This turned out to be a bonanza, and with the
profit Mr. Niwa purchased three foreign-made grinding machines. He
installed them in the Nishizono Ironworks, asking Mr. [Jiro] Nishizono,
a wizard at technology, to study bearing manufacturing technology”
(NTN Bearing Corporation 2007).
Niwa and Nishizono accounted for the two “N’s” in the NTN ac-
ronym. The “T” came from Niwa’s trading company, Tomoe Trading
Co., which sold the Swedish cargo, presumably originally produced by
NSK. NTN acquired Federal-Mogul’s ball bearing division in 1996.

Koyo Corp. Koyo Corp. was founded in Osaka to make bearings

in 1921. The company began producing bearings in the United States
in South Carolina in 1973. The company, one-fourth owned by Toyota,
was merged with Toyoda Machine Works in 2005.
 Supplying the Suppliers 117

Large Metal-Forming Suppliers

Large Tier 2 suppliers of metal parts, such as brackets and shafts,

remain heavily clustered in the Midwest. Proximity to iron and steel
inputs as well as carmakers and Tier 1 powertrain suppliers makes a
Midwest location important for these suppliers. Two leading examples
are Illinois Tool Works and Metaldyne.

Illinois Tool Works

Founded in 1912 by Chicago financie Byron L. Smith to manufac-
ture gears and metal-cutting tools, Illinois Tool Works (ITW) became a
manufacturer of thousands of different types of fasteners, latches, and
other generic automotive parts. A few of the company’s products, such
as door handles and seat latch releases, may be recognizable parts of
motor vehicles, but the overwhelming majority of its nuts, screws, and
clips are not.
ITW has gained a reputation on Wall Street for its unconventional
corporate structure: it is decentralized into several hundred highly au-
tonomous operating units, including a couple of dozen that focus on
motor vehicle parts. Conventional Wall Street wisdom is that extreme
decentralization increases overall corporate overhead because each unit
replicates some of the same functions. In rebuttal, ITW claims that high
profi margins have been generated by its distinctive “80/20” manage-
ment system.
ITW operating units are required to rank products, customers, and
suppliers from largest to smallest. Invariably, 80 percent of revenues are
generated by 20 percent of customers and 20 percent of products, and
80 percent of materials are obtained from 20 percent of suppliers. Unit
managers are told to pay attention primarily to the top 20 percent of
customers, products, and suppliers, and minimize reliance on or discard
altogether the remaining 80 percent. An operating unit may not increase
gross revenues and profit until it has increased the rate of return at cur-
rent level of sales through “80/20.”
The Detroit 3 have encouraged ITW to step up as a larger, more
prominent Tier 1 supplier, but ITW has declined. Tier 1 suppliers are
under a great deal of pressure (e.g., letting in unions) that lower-tier
suppliers can escape. By adding engineered parts that require skilled la-
bor, a lower-tier supplier can have more leverage up the supply chain.
118 Klier and Rubenstein

As the company name implies, ITW has most of its automotive

plants in Illinois, especially in Chicago’s outer suburbs. Most of the
remainder are in Wisconsin.

Metaldyne
Metaldyne is a leading supplier of sintered powder metal compo-
nents for powertrains and chassis, including wheel spindles, steering
knuckles, hub assemblies, engine dampers and covers, and differential
and transfer cases. In 2006 the company merged with Japanese com-
petitor Asahi Tec.
Metaldyne illustrates the blurred distinction between Tier 1 and Tier
2 suppliers. The company sold 38 percent of its output to Tier 1 sup-
pliers, such as Dana, Delphi, International, Magna, TRW, and Visteon.
As a Tier 3 supplier, Metaldyne has sold wheel hubs to Tier 2 supplier
Timken, which has incorporated them with bearing units before sending
them to a Tier 1 supplier.
Carmakers accounted for 62 percent of Metaldyne sales in 2006,
and the company expected to gain more Tier 1 business as carmak-
ers outsourced the manufacture of more powertrain parts. In 2003, for
example, Metaldyne acquired a metal forging facility in New Castle,
Indiana, from its largest customer, Chrysler. Metaldyne’s annual report
(2006, p. 6) stated, “Currently, OEMs satisfy a significan portion of
their metal forming and assembly requirements with in-house produc-
tion and assembly of purchased components. We [at Metaldyne] believe
that, as OEMs seek to outsource the design and manufacture of parts,
they will choose suppliers with expertise in multiple metal processing
technologies and the ability to design, engineer and assemble compo-
nents rather than supply independent parts.”
Metaldyne has maintained most of its facilities in the Midwest, no-
tably “saving” the former Chrysler New Castle plant from closure by
acquiring it and negotiating a more competitive contract with the union.
At the same time, Metaldyne has been especially proactive at initiating
production activities in China.

Other metal-forming suppliers

Other large metal-forming suppliers produce a wide variety of ge-

neric parts that are sold primarily to Tier 1 customers.
 Supplying the Suppliers 119

Gecom. Gecom is the acronym for Greensburg Equipment and

Components Manufacturing, which was opened in 1987 in Greensburg,
Indiana, by the Japan-based Mitsui Kinzoku Company. Gecom special-
izes in closure components such as latches, brackets, and other metal
hardware. Gecom has been the principal supplier of closure compo-
nents to Japanese-owned assembly plants in the United States. A major
boon to the company’s fortunes came when Honda selected the same
community for a new assembly plant in 2007.
Gecom’s growth has illustrated a challenge for some suppliers of
“generic” parts. For Gecom, the lowly latch has become an electronic
component. Embedded in latches are electronics that automatically lock
and unlock doors, open gates remotely, protect the vehicle from theft,
and warn that doors are ajar.

Grede Foundries, Inc. Grede Foundries, Inc. was founded in 1920

when William J. Grede purchased Liberty Foundry in Wauwatosa, Wis-
consin. Grede’s grandson was running the company in the twenty-firs
century. The company produced parts such as cases and hubs from duc-
tile iron castings and bearing caps and pump bodies from gray iron cast-
ings. All of the facilities were heavily clustered in the Midwest.

Intermet. Founded in the nineteenth century to produce ductile

iron castings, Intermet supplies arms, brackets, covers, cases, housings,
and shafts for steering, suspension, and powertrain. Its largest Tier 1
and Tier 2 customers have included Delphi, Metaldyne, Siemens, TRW,
and Visteon. The company’s dozen plants were generally outside the
Midwest, including fiv in the South and three in Missouri. Intermet
file for Chapter 11 protection in 2004, blaming the rising cost of scrap
steel, and it emerged two years later as a private company.

Large Nonmetal Suppliers

Large lower-tier suppliers that make parts from materials other than
metal are much less likely to be located in the Midwest. Three examples
are ABC Group, Foamex International Inc., and Tomkins.
120 Klier and Rubenstein

ABC Group
ABC Group has been the third-largest Canadian-owned parts maker
behind Magna and Linamar. ABC, founded in 1974, has claimed to be
the number one plastic blow molder. Principal products have included
interior parts for instrument panels, seats, and trim, as well as exterior
parts for bumpers, running boards, spoilers, and trim. The company
supplied the North American market primarily from plants in Canada.

Foamex International Inc.

The leading supplier of polyurethane foam for cushions, headlin-
ers, backrests, armrests, and headrests, Foamex was established in 1983
through the acquisition of Scott Paper’s foam division. It became a ma-
jor Tier 1 supplier in 1986 by acquiring Firestone Tire & Rubber’s foam
division, which had been using the Foamex name. With the emergence
of interior integrators, JCI became Foamex’s largest customer, account-
ing for one-half of automotive sales and one-sixth of total corporate
sales. Most of Foamex’s remaining automotive sales were to Collins &
Aikman, Faurecia, Lear, and Magna.

Tomkins
The third-largest British-owned supplier in North America, Tom-
kins specialized in rubber and polyurethane belts for powertrains. It was
the largest supplier of transmission belts. Started in 1925 as a buckle
and fastener manufacturer, Tomkins became a major U.S. parts supplier
and the leading rubber parts supplier when it acquired U.S.-based Gates
Rubber Co. in 1996. Gates traced its origins to 1911 when Charles
Gates acquired Colorado Tire and Leather Co., which made steel-stud-
ded leather bands that were fastened to car tires to extend their mileage.
Gates became a specialist in synchronous timing belts and V-belts.

LEADING SUPPLIERS OF COMMODITIES

Iron and steel are the most important commodities used in motor
vehicles, accounting for nearly two-thirds of a car’s weight in the early
twenty-firs century.2 Plastics and aluminum are a distant second and
 Supplying the Suppliers 121

third, respectively, in materials used by carmakers and suppliers (less

than 10 percent each), but both are gaining on steel in terms of overall
motor vehicle content.

Iron and Steel

The motor vehicle industry buys much more iron and steel than any
other material and is the largest customer of the iron and steel industry.
“[B]y far the most influentia material during the auto industry’s firs
100 years was steel” (Winter 1996). Approximately 24 percent of steel
produced in the United States was destined for motor vehicles in 2005
(Schnatterly n.d.).
Iron was used to make early engines, but steel was not used in large
quantities until the 1920s, when open wooden carriages were replaced
with enclosed bodies. Iron and steel content per vehicle rose from 1,500
pounds in 1918 to 3,500 pounds during the 1950s. The weight dropped
to 2,600 pounds in the early twenty-firs century (Sherefkin 2006a).
Steel is rolled into a thin product through either hot rolling or cold
rolling. Motor vehicle producers rely primarily on hot rolled steel for
chassis components, such as brake drums, wheels, and suspensions;
body components, such as cross and side members, roof frames, pillars,
and doors; and drivetrain components, such as transmissions, differen-
tials, gearboxes, and clutches. Because of its appealing surface finish
cold rolled steel is commonly used to stamp the hood, roof, fender, and
door panels.
Although the motor vehicle and steel industries have been closely
associated for a century, the relationship between them has often been
uneasy. Carmakers have reduced steel content in favor of substitute ma-
terials, notably plastic and aluminum. For their part, the steel industry,
unlike other suppliers, has been independent and powerful enough to
stand up to carmakers.
The fundamental divergence of interests between the two industries
has been the price of steel. Essentially, low steel prices are good for
carmakers and parts suppliers and bad for steelmakers, whereas high
steel prices have the reverse effect. Policies such as tariffs and quotas
on foreign imports designed to protect U.S.-based steel producers may
limit the supply of steel and drive up prices, thereby harming U.S.-
based carmakers and parts suppliers. Conversely, open market policies
122 Klier and Rubenstein

may lower the cost of steel for the U.S. motor vehicle industry, but they
expose the U.S. steel industry to foreign competition.
Of the world’s six largest steel companies, only Arcelor Mittal
owned mills in the United States in the twenty-firs century. The oth-
er five—Nippon Posco, JFE, Tata, and Shanghai Baosteel—were all
based in Asia and have concentrated on the rapidly growing markets in
China, India, and other Asian countries.
In the early twenty-firs century, four steelmakers accounted for
one-half of sales to the U.S. motor vehicle industry: Arcelor Mittal, AK
Steel, U.S. Steel, and Severstal. One-fourth was supplied through small-
er steelmakers and minimills. The remaining one-fourth was imported.

Arcelor Mittal
The world’s leading producer by a wide margin, Arcelor Mittal was
probably the most compelling story in the steel industry in the late twen-
tieth and early twenty-firs centuries. Mittal was the brainchild of one
man, and it remained a family-run business while becoming the world’s
largest steelmaker. In 2006 Mittal consolidated its number one position
by acquiring Luxembourg-based Arcelor, Europe’s leading steelmaker
and the second-leading steelmaker worldwide.
Founder, firs CEO, and firs chairman of the board, Lakshmi N.
Mittal was a native of India and son of the owner of a small steel mill
in Calcutta. Mittal’s wife ran an Indonesian subsidiary, his son was
on the board of directors, and other family members held leadership
positions.
Mittal Steel and its predecessor LNM Group, founded in 1976, spe-
cialized in turning around steel mills viewed as underperforming under
previous management. Government privatization programs were the
source of several mills.
Mittal entered the U.S. market when its subsidiary Ispat Interna-
tional acquired Inland Steel Company in 1998. Inland, founded in 1893,
became a major supplier of automotive steel from its Indiana Harbor
Works integrated steel mill located in East Chicago, Indiana. The Indi-
ana Harbor plant supplied about 10 percent of the steel used in motor
vehicle production and 5 percent of the total U.S. steel market.
Mittal became the leading steel supplier to the U.S. motor vehicle
industry when it acquired International Steel Group (ISG) in 2004. ISG
had been formed only two years earlier and had grown rapidly by res-
 Supplying the Suppliers 123

cuing several prominent U.S. steel companies from bankruptcy. The

financia backing came from the equity investment fir W.L. Ross &
Co., and leadership from president and CEO Rodney Mott, previously
vice president and general manager of Nucor Steel, one of the most
successful minimills.
ISG started in 2002 by acquiring LTV Steel, which had declared
bankruptcy two years earlier. LTV began as an electrical construction
and engineering firm Ling Electric Company, in Dallas in 1947. Fol-
lowing several mergers during the 1950s, the company was renamed
Ling-Temco-Vought in 1961, which was shortened to LTV during the
1970s. LTV Steel was the country’s second-largest steelmaker after a
1984 merger with venerable Cleveland-based firm Jones & Laughlin
Steel Corp. (J&L) and Republic Steel Corp.
J&L was established by Benjamin Franklin Jones and James Laugh-
lin in 1853 in Pittsburgh to produce iron. J&L secured a prominent pres-
ence along the banks of the Cuyahoga River in 1942 by acquiring Otis
Steel Co., which was founded by Charles A. Otis in 1852, also original-
ly an iron forger and the firs U.S. fir to make steel in an open-hearth
furnace in 1873. Republic Steel, founded in 1899 in Youngstown, ex-
panded rapidly during the 1920s and 1930s to become the third-lead-
ing steelmaker in the United States. In 2003, ISG took over Bethlehem
Steel Co., which was the nation’s second-leading steelmaker behind
U.S. Steel when it declared bankruptcy in 2001. Bethlehem, founded
in 1857 as Saucona Iron Works in South Bethlehem, Pennsylvania, had
the newest large-scale integrated steel mill in the United States, built
at Burns Harbor, Indiana, during the 1960s. Acquisition of Acme Steel
in Riverdale, Illinois (2002), Weirton Steel in Weirton, West Virginia
(2004), and Georgetown Steel in Georgetown, South Carolina (2004),
gave ISG three more integrated mills.

AK Steel
AK was smaller than its competitors in overall production, but it
held a leading position in supplying the motor vehicle industry. The
company sold a higher percentage of its output to carmakers than have
the other major steelmakers, although the percentage was declining rap-
idly in the early twenty-firs century.
AK was established in 1989 as a joint venture between U.S. steel-
maker Armco Steel (the “A” in the company name) and Japanese steel-
124 Klier and Rubenstein

maker Kawasaki Steel Corp. (the “K”). Armco began as the American
Rolling Mill Co. in Middletown, Ohio, in 1899. Kawasaki, Japan’s
third-largest steelmaker and world’s tenth-largest, was incorporated as
a company independent of Kawasaki Heavy Industries, Ltd. in 1950.
Kawasaki Heavy Industries began in 1878 as a shipyard company and
expanded during the twentieth century to encompass other transporta-
tion equipment and machinery as well as steel. AK acquired its one-
time parent Armco in 1999.
AK’s largest customers were GM and Ford, but its principal com-
petitive advantage was with Japanese-owned carmakers. Toyota bought
nearly all of its steel from AK, and other Japanese carmakers were com-
fortable dealing with another Japanese-managed company in the United
States. AK’s largest integrated mill, Armco’s former home base in Mid-
dletown, Ohio, was located further south and closer to Japanese-owned
assembly plants than competitors’ mills. AK’s other integrated mill at
Ashland, Ohio, was near Honda’s central Ohio complex.

U.S. Steel
U.S. Steel was created in 1901 when the nation’s second-largest
steel producer, J.P. Morgan’s Federal Steel Co., acquired the largest
steel producer, Andrew Carnegie’s Carnegie Steel Co. Faced with fierc
competition from Morgan and a desire to devote full attention to philan-
thropy, Carnegie agreed to sell his steel company for $480 million, the
largest transaction in American industrial history at the time. U.S. Steel
immediately became the dominant U.S. steel producer, accounting for
two-thirds of production in 1900.
U.S. Steel’s principal operations have been in Gary, Indiana, a city
built by the steel company to accommodate workers and named for the
company’s firs president, Elbert Gary. Its other integrated steel mills
are located in Braddock, Pennsylvania; Fairfield Alabama; Gary; De-
troit; and Granite City, Illinois. The latter two plants were taken over in
the Republic acquisition.
Although no longer the monopoly of a century ago, U.S. Steel has
remained the largest steelmaker in the United States. The company has
been less heavily invested than competitors in the automotive industry,
which accounted for only about 14 percent of its sales.
 Supplying the Suppliers 125

Severstal
Russia’s largest steelmaker, Severstal, has not been widely recog-
nized as a major producer of steel in the United States. With $1.8 billion
in sales in 2006, Severstal was the fourth-largest supplier of steel to the
U.S. auto industry, holding 8 percent of the market (Severstal 2006, p.
45). The company was incorporated in 1993 through the restructuring
of Cherepovets Steel Mill, which had been created by the Soviet Union
in 1940.
Severstal’s U.S. facility was probably the motor vehicle industry’s
best-known integrated steel mill—the one originally built by Henry
Ford as part of the River Rouge complex in Dearborn. In 2004, Sever-
stal acquired the bankrupt Rouge Industries Inc., which Ford had set up
as an independent company in 1989.

Other sources of steel

More than one-fourth (28 percent) of steel used by U.S. carmak-
ers in 2006 was imported (AK Steel 2006). Carmakers and other large
purchasers of steel typically have not negotiated direct purchases from
overseas. The principal channel by which foreign steel enters the United
States is through service centers. Service centers purchase bulk quanti-
ties of steel from both domestic and foreign sources and perform finis -
ing operations, such as cutting, shearing, and grinding, that otherwise
would have to be done by the parts makers. The construction, electron-
ics, shipbuilding, and aerospace industries have also been major cus-
tomers of steel service centers.
Some automotive steel comes from intermediate processors, such
as Shiloh Industries. Founded as a tool and die company in 1950, Shi-
loh sold $600 million worth of steel products to the auto industry in
2005. Shiloh manufactured blanks, which are two-dimensional shapes
cut from flat-rolle steel. Shiloh cleaned, coated, trimmed, and cut
steel into shapes that carmakers could stamp into body panels, such
as doors and fenders. Blanks were also sent to suppliers to stamp seat
frames, bumpers, frames, rails, and other interior, exterior, and chassis
components.
Minimills have captured one-fourth of the overall U.S. steel market.
Less expensive than integrated mills to build and operate, minimills
can locate near their markets where their main input—scrap metal—is
126 Klier and Rubenstein

widely available. Because the motor vehicle industry utilizes primarily

fla steel products, it is not a major direct purchaser of steel from mini-
mills, although some steel produced at minimills is purchased indirectly
through service centers. The largest minimill company, Nucor, has not
made steel for motor vehicles and asserts that it cannot be done by a
minimill. The primary use of minimill steel in the auto industry has
been for wiring.
ThyssenKrupp, Germany’s leading steel producer, entered the U.S.
market by constructing a mill in Mobile, Alabama, scheduled to open in
2010. “Proximity to automakers and their suppliers was a key factor in
ThyssenKrupp’s decision to build in the South” (Wortham 2007b).
Despite these alternatives, the number of sources of steel in the
United States has become too small for carmakers’ comfort. “GM once
negotiated with nine steel makers. Now just four major integrated steel
mills are at the table today” (Sherefkin 2006a). Carmakers have tradi-
tionally negotiated simultaneously with three steel producers during the
engineering phase before awarding contracts for actual manufacturing.
A savvy steelmaker would submit designs that, if adopted, placed it in
a strategic advantage when manufacturing contracts were issued. How-
ever, as the number of steelmakers willing to play the game declined,
carmakers could no longer count on getting three independent designs
and bids.

Plastics

The average plastic content per passenger vehicle increased from

150 pounds (6 percent of total vehicle weight) in 1988 to 250 pounds (9
percent) in 1997 and to 300 pounds (11 percent) in 2007. Plastic com-
ponents accounted for $11 billion, or 5 percent of the overall supplier
industry, in 2000 (Flanagan 2001; Miller 2005).
Leading suppliers of plastic products to carmakers and suppliers
have been BASF Corp. and Dow Automotive, each with about $600
million in annual North American motor vehicle sales in 2005. The mo-
tor vehicle industry has accounted for only about 10 percent of overall
sales at both companies. BASF has been the world’s largest supplier
of plastics to the motor vehicle industry and Dow the largest in North
America.
 Supplying the Suppliers 127

BASF
BASF has supplied the motor vehicle industry primarily with sty-
renes and polyurethanes used for molding plastic parts. Because of its
ability to withstand high thermal and mechanical stresses, BASF plastic
has been used in the engine, including camshaft timing gears, engine
covers, air intake modules, oil filte housings, and cylinder head cov-
ers. Several fuel line components have been molded from plastic, and
electrical components have also been encased in plastic. In other sys-
tems, BASF plastic has been used to make gearshifts for the drivetrain,
steering columns for the chassis, and headlamp reflector for the body.
BASF has also supplied chemicals to the motor vehicle industry, in-
cluding antifreezes, brake fluids and coatings.
Badische Anilin- & Soda-Fabrik AG (BASF) was founded by
Friedrich Engelhorn in 1865 to produce dyes from coal tar. The com-
pany became heavily involved in developing fuels, synthetic rubber,
and coatings for motor vehicles during the 1920s. BASF merged with
Hoechst, Bayer, and others into I.G. Farbenindustrie AG in 1925, but
the companies were separated again in 1952. The company had about
40 plants in the United States, specializing in particular segments, such
as coatings, polyurethanes, styrenes, or chemicals, but none was exclu-
sively devoted to motor vehicle production.

Dow
Dow Automotive has been a small piece of Dow Corporation. It
employed only 1,500 of the company’s 46,000 employees. Dow Au-
tomotive has supplied plastics, plastic parts, adhesives, and sealants to
carmakers and suppliers. Products have included polypropylene, ny-
lon, ABS, polycarbonate, SAN, crystalline polymers, thermoplastic
urethanes, adhesive films engineering plastic blends (like PC/ABS),
polyurethane, and vinyl ester resins.
Dow Chemical Co. was incorporated in 1897 by Herbert H. Dow
to manufacture bleach. Dow Automotive was formed in 1988 as a busi-
ness group and became a separate industry-focused business unit in
1999. As with BASF, Dow has been organized into several operating
segments, such as chemicals, hydrocarbons and energy (called oil &
gas at BASF), agriculture, plastics, and so-called performance plastics
(which includes motor vehicle parts).
128 Klier and Rubenstein

Compared with BASF, Dow has focused more on interior trim, such
as instrument panels, knee bolsters, glove boxes, and airbag covers. It
has also supplied body trim, panels, and lighting surrounds, as well as
electrical, cooling, and fuel systems for the engine.
Only two Dow plants have been devoted primarily to automotive
parts, and both are located in the Midwest—in Hillsdale, Michigan, and
Kankakee, Illinois. Dow Chemical has maintained 34 other manufac-
turing facilities in North America.

Aluminum

Aluminum was the third most used material in vehicles in 2000, and
its use was growing the fastest. The amount of aluminum in an average
car increased from 90 pounds in 1977 to 236 pounds in 2005 and to
an anticipated 345 pounds in 2009 (American Iron and Steel Institute
2005).
Aluminum has been relatively expensive to cast, about $2.50 per
pound compared with 40.5¢ per pound for iron in the early twenty-firs
century. Nonetheless, aluminum was being used more because it has
been the most effective way to cut vehicle weight and therefore im-
prove fuel economy. Fascia, fenders, hoods, doors, and trunks of higher
priced vehicles have been molded from aluminum rather than plastic.3
The major supplier of primary aluminum and fabricated aluminum
products to carmakers and suppliers has been Alcoa Inc. Alcoa’s prede-
cessor, Pittsburgh Reduction Co., was established in 1888 to produce
pure aluminum. The company’s name was changed to Aluminum Com-
pany of America in 1907.
Alcoa has several dozen business segments, including four that have
supplied the motor vehicle industry. Alcoa-Fujikura Ltd. Automotive, a
joint venture with Japanese wire- and cable-maker Fujikura, made cop-
per and fibe optic wiring harnesses. The Alcoa Automotive Castings
segment made chassis components, such as subframes, cradles, knuck-
les, brackets, control arms, and other suspension parts. The Alcoa Cast
Auto Wheels segment, as the name implies, was a major supplier of
aluminum wheels. The Alcoa Automotive segment supplied aluminum
bodies for niche vehicles, as well as body parts such as hoods, tailgates,
van doors, radiator enclosures, and engine cradles.
 Supplying the Suppliers 129

REDUCING PRICE WHILE RAISING VALUE

Tier 1 suppliers, who are the principal focus of this book, have re-
garded lower-tier suppliers as necessary, but very junior, partners in the
motor vehicle production process. Carmakers have viewed lower-tier
suppliers as even more marginal to their core operations. Lower-tier
suppliers, providers of generic bin parts, manufactured to specifications
have been seen as answerable only to price. Low price has not been
merely the most important consideration in negotiations with lower-tier
suppliers—it has usually been the only consideration.
Lower-tier suppliers have few direct contacts with carmakers be-
cause they work primarily with Tier 1 suppliers. The exception is com-
panies that are both Tier 1 and Tier 2 suppliers. By necessity, they work
both directly with carmakers as Tier 1 suppliers and indirectly with car-
makers through their Tier 1 customers. Despite—or perhaps because
of—their relatively limited direct contact with carmakers, lower-tier
suppliers hold especially outspoken opinions on the behavior of the De-
troit 3. Systematic differences are seen between doing business with the
Detroit 3 and with international carmakers. In short, the Detroit 3 are
characterized as specification oriented, whereas international carmak-
ers are results oriented.
By specification oriented, lower-tier suppliers are referring to two
particular characteristics of Detroit 3 purchasing. First, the perception
is widespread among lower-tier suppliers that the Detroit 3 care only
about price. Before lower-tier suppliers are called, a Tier 1 supplier has
already made a pricing commitment to a carmaker. A lower-tier sup-
plier must provide a price quotation quickly to the Tier 1 supplier, then
engineer and produce the part within the set price.
Lower-tier suppliers are being asked to participate more in the de-
sign and engineering of integrated modules and systems. But because
they are manufacturing only a small piece of the system or module, they
feel that they are the last in the industry to know about new product
development—barely in advance of the general public. As a result, they
claim to receive information too late in the process to be able to identify
cost savings before a design is frozen.
For their part, carmakers and Tier 1 suppliers feel they need to in-
trude into the performance of lower-tier suppliers because of quality
130 Klier and Rubenstein

control issues. Lower-tier suppliers are held accountable for quality

through “traceability.” Every part is bar-coded at each stage in the pro-
duction process. A steel part, for example, can be traced back to the heat
treatment at the steel mill.
Lower-tier suppliers see themselves as performing a very different
role in the production process. They believe that carmakers and Tier 1
suppliers have become primarily assemblers and marketers, while shed-
ding engineering capabilities they once possessed. Carmakers and Tier
1 suppliers once had more knowledge of mechanical engineering than
lower-tier suppliers, but they now allegedly have less.
Lower-tier suppliers believe that they are being asked to design and
engineer individual parts that carmakers and Tier 1 suppliers no longer
actually know how to make. This loss of knowledge, lower-tier suppli-
ers allege, stems from decisions by carmakers and suppliers to employ
fewer mechanical engineers than in the past while outsourcing more
responsibilities to lower-tiers.
For example, when GM made most of its own parts, it also did most
of its own stampings. Even when still part of GM during the 1980s,
Delphi started outsourcing stamping. Stamping equipment was moved
out of Delphi facilities into Tier 2 suppliers. As an independent com-
pany, Delphi owned the stamping dies, but the dies were actually made
and used by Tier 2 suppliers. Theoretically, Delphi could pull the dies
from the suppliers, although it never did.
Delphi no longer has the knowledge to use the dies because it no
longer employs knowledgeable mechanical engineers. Lower-tier sup-
pliers view Delphi’s gap in knowledge of dies as a money-making op-
portunity—the longer a die lasts and the fewer times it must be refur-
bished, the more profitabl it is.

OUTLOOK AND UNCERTAINTIES

Lower-tier suppliers believe that they are now the guardians of two
critical types of knowledge about manufacturing. Lower-tier suppliers
assert that they are being asked to make the parts that are too complex
for carmakers and Tier 1 suppliers given their diminished engineering
expertise. Lower-tier suppliers claim that they know how to design indi-
 Supplying the Suppliers 131

vidual parts to perform assigned duties. They understand how parts be-
have in real-world conditions, depending on choice of material, shape,
and size. The hard-to-make parts are allegedly being passed down the
supply chain: the lower the tier, the harder the part is to make.
Second, lower-tier suppliers believe that only they understand the
manufacturability of an individual part, in other words the relationship
between the process and the product. Because a particular product is
made on a particular machine, sensitive product design is based on
understanding the mechanics and tolerance of the machine on which
the product will be made. Lower-tier suppliers claim that, because of
their knowledge of manufacturability, they are called in—belatedly—
to solve costly production problems that are too detailed for carmak-
ers and Tier 1 suppliers to address. For example, Tier 1 suppliers may
not be considering how new stronger lightweight metals behave when
pressed into shapes, or how dies and presses operate when lubricated
with different liquids.
Lower-tier suppliers report that they are often brought into the pro-
duction process to solve a problem caused by an inferior part that an-
other company supplied at a lower price. The challenge for lower-tier
suppliers is to convince carmakers and Tier 1 suppliers that their manu-
facturing expertise can add value in the production process and that
they should not be regarded merely as sources of generic parts.

Notes

1. Bo Andersson, GM worldwide purchasing chief, referring to the plant closure of

Tier 3 supplier Chatham-Borgstena Automotive Textiles in Sherefkin (2005).
2. The average vehicle weighed 3,927 pounds and contained 2,419 pounds of steel,
or 61.6 percent, in 2005 (American Iron and Steel Institute 2007) .
3. Aluminum’s penetration has increased from 39 kg (3 percent) in 1976 to about
89 kg (7 percent) in the mid 1990s (Becker 1999 cited in Kelkar, Roth, and Clark
2001).
 Part 2

Carmaker–Supplier Networks:
How Close Is Close Enough?

Parts plants are like planets revolving around a star, the fina assembly
plant. Some parts plants are arrayed in very tight orbits within a few miles of
an assembly plant, whereas others are in wide orbits thousands of miles away;
most lie between these two extremes. This section of the book explores three
key elements of the auto industry’s producer–supplier networks: the tightness
of the collection of orbits around the various assembly plants, the distinctive
character of suppliers orbiting most closely around assembly plants, and the
physical ties facilitating movement of parts within networks.
Parts production and fina assembly operations are among the most co-
located industry pairs in the United States (Ellison and Glaeser 1997). Colo-
cation has long been of interest to both economists and geographers. Alfred
Marshall argued in 1920 that businesses localize in response to a number of
factors, including capturing technological spillovers, achieving a greater vari-
ety and lower costs of intermediate inputs, and pooling labor markets to pro-
mote a larger and deeper supply of workers.
Colocation is a distinctive feature of many “bulk-gaining” products. A
bulk-gaining product weighs more or takes up a greater volume than its inputs,
whereas a bulk-reducing product weighs less or takes up less volume than its
inputs. Bulk-gaining products are more likely to be made near their customers
because shipping costs tend to be less for the relatively compact inbound parts
than for the relatively bulky outbound finishe goods. Conversely, bulk-reduc-
ing products are more sensitive to the location of inputs.
Motor vehicle assembly is a classic example of a bulk-gaining industry
because finishe vehicles are much bulkier than the sum of their parts. Conse-
quently, fina assembly plants are located primarily to minimize transportation
costs to customers. Parts that are bulky, awkward, and fragile, and therefore
more expensive to ship (e.g., seats and bumpers), are more likely to be made

133
near the customer (the fina assembly plant) to minimize shipping costs.
Some carmakers have constructed relatively tight networks of suppliers
around their assembly plants, with a high percentage of parts plants less than a
one-day drive away, whereas others have preferred looser networks. Underly-
ing the development of closely linked networks of suppliers and carmakers
has been the widespread adoption of just-in-time (JIT) delivery in the auto
industry. Carmakers now require that parts arrive at their fina assembly plant
shortly before needed rather than far in advance.
As a result, suppliers have been forced to locate facilities in places where
JIT delivery to a fina assembly plant is feasible. However, JIT delivery does
not mean that suppliers must be immediately next door to fina assembly
plants. The distance from parts plants to the assembly plant “node” actually
can be divided into three groups: those within a one-hour driving radius, those
within a one-day radius, and those further than one day away.
The tightness of the network of suppliers around an assembly plant de-
termines its regional economic footprint. That is important because states
and localities often provide large sums to attract fina assembly plants. These
subsidies have been justifie because they are said to attract not only a fina
assembly plant but a large number of parts plants as well. Some of these fore-
casts may have been overstated because they got the geography wrong.
 6
The Closely Linked Supply Chain

Kia has told Georgia officials that it envisions only five or six
new supplier plants being necessary to support the Georgia
auto plant.(Chappell 2006d)

U.S. assembly plants together receive 2 billion pounds worth of

parts per day in 20,000 shipments, some from nearby and some from
the other side of the planet (Cottrill 2000; Penske Logistics 2007). In an
industry characterized by colocation, physical proximity is mutually re-
inforcing. Assemblers prefer to have multiple suppliers located nearby
to ensure reliable delivery of parts. Suppliers in turn prefer to have sev-
eral assembly plants within a day’s drive of their operations.
Lean production has sought to root out and eliminate waste wher-
ever it exists in the production process. One of the most striking ex-
amples of a wasteful practice in mass production has been the stockpil-
ing of parts in the fina assembly plants. Parts would be piled high and
crammed into every corner of the shop floo .
The parts that piled up in the fina assembly plants may not have
been needed in actual production for some time—if at all. At the end of
the model year, leftover parts would be thrown away. Ford’s Chester,
Pennsylvania, assembly plant was said by David Halberstam (1986) to
have “dumped thousands and thousands of useless parts into the nearby
Delaware River . . . The people in Chester joked that you didn’t have to
swim the Delaware, you could walk across on the rusted parts of 1950
and 1951 Fords.”
Lean production has changed these wasteful practices. Not every
carmaker may have absorbed all the lessons of Japanese-inspired lean
production, but they have all recognized the economic benefit of elimi-
nating inventory. The diffusion of JIT has caused a significan decline
in inventory of parts and finishe goods at assembly plants as it is now
standard practice for most parts to arrive at fina assembly plants only
shortly before they are needed on the assembly line. The burden of
making JIT work has fallen primarily on the suppliers. Helper and Sako

135
136 Klier and Rubenstein

(1995) found that the practice of making more frequent deliveries of

smaller batches has resulted in some increase in stockpiling at supplier
companies.
Does the application of JIT influenc where supplier plants locate
relative to their assembly plant customers? One would expect tighter
operational linkages with suppliers to lead to tighter physical linkages
between assembly and supplier plants. Yet only some parts must be pro-
duced within an hour of the fina assembly plant to meet JIT delivery re-
quirements. Suppliers of such parts needed to relocate their production
facilities. Chapter 7 highlights the seat, the most prominent example
of a part that is invariably produced within an hour of a fina assembly
plant. JIT production, however, does not require all parts makers to lo-
cate that close to a fina assembly plant. For most parts, being within
one day’s driving distance from an assembly plant is sufficient Other
parts can be made even further away and still reach the assembly plant
when needed because the availability of a well-developed transporta-
tion infrastructure in combination with state-of-the-art logistics servic-
es allows production facilities to be closely linked operationally even
though physically they can be quite far apart from one another.

JUST-IN-TIME PRODUCTION

The production of seats illustrates how tight today’s linkages be-

tween assembly and supplier plants can be. At the seat-making plant,
action is triggered when the fina assembly plant sends a fax or e-mail
outlining the schedule of seats needed for the next 10 days. A second
communication pinpointing the precise moment when each seat is
needed arrives only eight hours in advance of actual delivery.
The detailed communication from the fina assembly plant docu-
ments not merely the specifi vehicles that will be assembled during
the day but, even more importantly, the order in which they will be
built. The seat plant subsequently has to put together various styles
of seats from leather, foam, frame, and wiring in accordance with the
assembler’s specifi needs. After a hundred or so seats have been pro-
duced—sufficien to keep the fina assembly line rolling for a couple of
hours—they are loaded onto a truck in “backward” order; that is, the
 The Closely Linked Supply Chain 137

firs one needed at the fina assembly plant is the last one loaded onto
the truck.

Elements of JIT

The concept of JIT, which was pioneered in postwar Japan as a

survival strategy, has been one of the foundations of lean production
(Womack, Jones, and Roos 1990). “Supply chain managers have two
primary goals: reduce inventory and avoid delays. For years, just-in-
time delivery has been the preferred method for meeting those goals”
(Haight 2004). “[A] 1991 survey conducted by Advanced Manufactur-
ing resulted in a PriceWaterhouseCoopers white paper that found that
92 percent of manufacturers believe that just-in-time delivery by key
suppliers is now a critical success factor” (Pescon [2001] cited in Polito
and Watson [2006]).
Under lean production, parts do not arrive where needed along
the fina assembly line until shortly before installation in the vehicle.
Related to the implementation of JIT has been a considerable change
in the relationship between assemblers and suppliers. In the past car-
makers relied on hierarchical coordination of information and control
over technology within their own company to solve the complex task
of manufacturing cars. Now, in order to allow for JIT to achieve its full
potential, tight organizational and informational linkages are extended
outside a plant’s boundaries to include its suppliers and their operations,
and possibly their suppliers in turn (Klier 1995).
Aided by widespread use of information technology to track parts
and orders, JIT has become the standard for carmakers, as well as for
other manufacturers and retailers. According to this approach, the vari-
ous operations within the assembly plant are linked with one another so
as to expedite the process of fillin orders. The underlying principle of
JIT production is to reduce the time from when an order for a product is
placed until the finishe product is shipped to the customer. Such link-
ages now extend to an assembly plant’s supply base, ideally connecting
the entire supply chain.
For parts makers, JIT starts with an order from a carmaker. Instead
of producing according to a preset schedule, suppliers operate accord-
ing to a so-called pull system, in which the flo of materials through the
various stages of production is triggered by what is needed in the next
138 Klier and Rubenstein

stage, and ultimately by the customer. For carmakers, maintaining a

continuous and tightly controlled flo of parts allows for flexibl modi-
ficatio of production changes in the demand for the fina product.1
To capture the financia advantages of JIT, suppliers have devel-
oped production techniques that reduce inventory. As a result of lower
inventory inside a plant, problems affecting production quality such as a
faulty machine tool will become apparent more quickly. In addition, the
production process itself can be continuously improved. Implementing
JIT therefore can improve a plant’s production quality.
Prior to JIT, the traditional supply chain of the Detroit 3 automakers
was characterized by the carmaker procuring most parts and compo-
nents from their own parts divisions. For parts sourced from outside
companies, the Detroit 3 typically dealt directly with several thousand
independent supplier companies. Contracts with suppliers were bid on
spec and typically ran no longer than a year. After one year they were
put up for bid again and typically awarded to the lowest bidder for the
next year.
Under JIT, contracts between assemblers and Tier 1 suppliers tend
to be longer term, covering the life of a particular model. Carmakers
directly interact only with a handful of Tier 1 suppliers responsible for
entire subsystems or modules, who in turn procure parts and services
from their own suppliers to deliver a highly integrated part to the as-
sembly line. Many of these suppliers have also taken on research and
development functions. A number of carmakers have set up so-called
supplier support organizations to help improve the efficienc of opera-
tions at their suppliers.
To help their suppliers master the challenges of JIT, Japanese car-
makers have created a disciplined system of delivery time periods. They
also deliberately smooth their production schedules to avoid big spikes
in demand. Suppliers in turn are encouraged to ship only what is needed
at the time.

Challenges in JIT Delivery

JIT has proven an effective tool for improving a manufacturer’s

bottom line, but it is not without its challenges. Pescon ([2001] cited
in Polito and Watson [2006]) identifie fiv major constraints in JIT:
1) customer-driven and economic conditions, such as raw material price
 The Closely Linked Supply Chain 139

fluctuations 2) logistics and interruption in the supply chain as a result

of, for example, labor disputes and natural disasters; 3) organizational
culture conflict with JIT, such as piecework rather than hourly wages;
4) intractable accounting and financ practices; and 5) slow adoption of
JIT because of resource constraints on small suppliers.
In the auto industry, the second constraint has been especially im-
portant. Chapter 8 specificall addresses the logistics aspect of the sup-
ply chain. Even the most carefully made plans are subject to myriad un-
controllable factors—labor issues, equipment failure, political unrest,
and severe weather (Haight 2004).
A tightly linked supply chain has proven vulnerable to labor dis-
putes. In 1998, for example, the UAW struck GM parts plants in Michi-
gan that were the sole suppliers of such parts as spark plugs, filters
fuel pumps, and instrument clusters. Loss of output quickly fed through
the company’s entire supply chain and essentially shut down the vast
majority of its North American production facilities in less than two
weeks. Absent JIT, larger buffer stocks of these parts would have been
able to better insure against the strike-related loss of output.
The most significan political factor constraining logistics has been
the need to move parts across international borders. Large amounts of
material and components are crossing into the United States from Can-
ada and Mexico (for a detailed discussion, see Chapter 13). If trucks
experience delays crossing the Canadian and Mexican borders, it can
be difficul to meet JIT requirements.
Canada’s Ontario auto-producing center is within one day’s driv-
ing distance of most U.S. assembly plants, and parts plants in Windsor
are within one hour of Detroit assembly plants. Conversely, Ontario
assembly plants are within one day’s drive of most U.S. parts plants.
After the September 11, 2001, attacks, the issue of the security of the
Canada–U.S. border became suddenly much more visible. Commerce
between Michigan and Canada halted when the United States closed all
of its borders for fiv days.
Under normal conditions, assembly plants in Detroit set the same
delivery schedules for suppliers regardless of whether they are locat-
ed in Michigan or Ontario, essentially treating the border as invisible.
Though traffi delays at the two Detroit River border crossings are com-
mon occurrences, the complete shutdown of trade after 9/11 was un-
precedented. Thousands of parts shipments required at U.S. assembly
140 Klier and Rubenstein

plants were then stuck at the border. Assembly plants on the Detroit side
of the border scrambled to maintain production without parts that rou-
tinely arrived from the supplier base in southwestern Ontario. To main-
tain deliveries from Canadian suppliers after the border was closed,
U.S. companies ferried Canadian-built components on barges across
the Detroit River, with the tacit approval of immigration officials
Beyond the immediate impact of 9/11, the border has remained a
serious logistics issue for Canadian suppliers. “Some Canadian com-
panies have responded by lengthening delivery schedules or setting up
warehouses across the border to stockpile parts” (The Economist 2008,
p. 40).
Particularly acute has been congestion on the Ambassador Bridge
from Windsor into Detroit. Goods carried on the Ambassador Bridge—
primarily auto parts—account for one-fourth of the value of all trade
entering the United States from Canada. The only other border crossing
in the Detroit area, the Detroit–Windsor Tunnel, is too narrow to ac-
commodate large trucks. Otherwise, the nearest border crossing is the
Blue Water Bridge between Sarnia, Ontario, and Port Huron, Michigan,
about 60 miles north of Detroit.
Two engineering problems have hampered traffi entering the Unit-
ed States on the Ambassador Bridge. First, the Canadian side of the
bridge has not been directly linked to the country’s high-speed road
network. Route 401, the principal expressway through Ontario’s auto-
motive production corridor, terminates 5 miles from the bridge. Dur-
ing peak delivery times, trucks face considerable delays in stop-and-go
traffi through the streets of Windsor.
Second, once on the Ambassador Bridge, truckers often face fur-
ther delay because of backups at the U.S. customs and immigration sta-
tion on the Detroit side. Large corporations making frequent deliveries
have expedited clearance through special bays, but the bridge itself has
only one lane entering the United States, so during peak periods, trucks
designated for expedited clearance may be caught in a backup on the
bridge itself, intermingled with vehicles subject to more intense scru-
tiny and therefore unable to maneuver to their special clearance lane on
the U.S. side.
Compounding the challenge of adding capacity from Canada to
Michigan is the fact that the Ambassador Bridge is privately owned
by Manuel J. (Marty) Moroun, through the U.S.-based Detroit Interna-
 The Closely Linked Supply Chain 141

tional Bridge Company and its Canadian subsidiary Canadian Transit

Co. Both the State of Michigan and Moroun have proposed building a
new bridge across the Detroit River (Davey 2007).
Similarly, on the border between the United States and Mexico, ma-
terial moves more easily out of the United States than into it. Movement
of material south from the United States to Mexico has been relatively
straightforward.
Northbound has been another matter. “Notwithstanding the free-
doms of NAFTA, Mexican law requires that all domestic over-the-road
shipments be handled by Mexican carriers” (Bowman 2000). The north-
bound Laredo crossing has proved especially notorious. “Veterans of
U.S.–Mexico trade have long complained of the punishing delays that
trucks experience in crossing the border, especially at Laredo. Compet-
ing with armies of passenger cars, and depending on the attitude of
customs official toward a particular shipment, they may take hours or
even several days to reach the broker on the other side. A busy day find
trucks backed up for several miles” (Bowman 2000).

NETWORKS OF SUPPLIERS AND ASSEMBLERS

Data for each of the 4,268 supplier plants in the United States,
Canada, and Mexico identifie in this study included the names of the
carmakers that served as customers for the products. Some suppliers
shipped exclusively to one carmaker, but most had multiple custom-
ers per plant. Networks of suppliers could be constructed around the
fina assembly plants of each of the carmakers. These networks can be
depicted through maps of suppliers surrounding the assembly plants of
individual carmakers.
Distances between suppliers and assembly plants were calculated as
straight-line distances between the respective coordinates of the plants’
Zip codes. Due to the presence of an excellent road network, straight-
line distances rather accurately approximate travel times (Klier 1995,
2000). The principal limitation in constructing the networks is that the
database shows customers by name of the carmaker rather than address
of the assembly plant. For example, a parts maker located in Ypsilanti,
Michigan, might report its customers as Ford and Mitsubishi. If the
142 Klier and Rubenstein

customer operates only one assembly plant in the United States (like
Mitsubishi), then the address of the parts plant’s customer is identifi-
able and the distance between the parts plant and the assembly plant
can be computed. When this database was constructed, fiv companies
were assembling vehicles at only one plant: 1) AutoAlliance in Flat
Rock, Michigan; 2) BMW in Greer, South Carolina; 3) Mercedes-Benz
in Vance, Alabama; 4) Mitsubishi in Normal, Illinois; and 5) Subaru in
Lafayette, Indiana.
The three largest Japanese-owned carmakers—Honda, Nissan, and
Toyota—all had more than one U.S. assembly plant at the time this
database was created. Nonetheless, networks of suppliers around their
assembly plants could be constructed in all three cases.
Honda started operating its Marysville, Ohio, assembly plant in
1982 and built a second one in 1989 three miles away in East Liberty;
because the two were so close to each other, it did not matter for this
analysis which one was the customer for a particular supplier. Honda’s
assembly plants in Lincoln, Alabama, which opened in 2003, and in
Greensburg, Indiana, which opened in 2008, were too new to affect the
database.
Nissan built its firs U.S. assembly plant in Smyrna, Tennessee,
in 1983 and added a second assembly plant in 2001 in Canton, Mis-
sissippi, which was also too new to affect this study. Similarly, at the
time of this study, Toyota had one assembly complex, with two lines,
in Georgetown, Kentucky. Toyota added plants in Princeton, Indiana
(2001); San Antonio, Texas (2006); and Tupelo, Mississippi (2008).
Again, however, these were too new for the database. Toyota’s joint
venture assembly plant with GM in Fremont, California, was identifie
separately in the database as NUMMI (New United Motors Manufac-
turing Inc.). Honda and Toyota also built assembly plants in Ontario
during the 1980s, Honda in Alliston and Toyota in Cambridge. Toyota
added another Ontario plant in Woodstock in 2008.
The Detroit 3 together operated about 30 U.S. assembly plants at
the time of this study, so the data did not permit construction of indi-
vidual supplier networks for each of the assembly plants. The exception
was GM’s Saturn division, which was identifie by parts makers as a
customer distinct from the rest of GM, and at the time of this study, the
vast majority of Saturns were produced at the assembly plant in Spring
Hill, Tennessee.
 The Closely Linked Supply Chain 143

The Key Networks

Each of the network maps presented in this section of the book

has included three concentric circles drawn around an assembly plant.
These circles represented quartiles of the distance from the suppliers to
the assembly plant. The closest one-fourth of all suppliers to that car-
maker were located within the inner circle, the next closest fourth were
between the inner and middle circle, the third closest quartile were be-
tween the middle and the outer circle, and the fina quartile were beyond
the outer circle. In other words, one-half of suppliers were within the
middle circle and three-fourths within the outer circle. Thus, the radius
of the middle circle represents the median distance for shipment of parts
to the particular assembly plant.
Mitsubishi, for example, had one-fourth of its parts suppliers lo-
cated within 245 miles of its assembly plant in Normal, Illinois. Most
of these suppliers were in Illinois, Indiana, western Michigan, and west-
ern Ohio. Another one-fourth of the suppliers were between 245 and
337 miles from Normal, primarily in southeastern Michigan, central
Ohio, and Kentucky. Three-fourths of suppliers were within 557 miles
of Normal, with the additional suppliers coming primarily from eastern
Ohio and Ontario (Figure 6.1). The median distance from the Mitsubi-
shi plant for all suppliers was thus 337 miles.
For carmakers with more than one assembly plant in the United
States, decisions had to be made concerning the location of the cen-
troid of the concentric circles. For Honda and Toyota, the selected cen-
troid for the circles was their firs and still largest assembly operation at
Marysville and Georgetown, respectively. The Big 3 centroids were all
placed in southeastern Michigan because the area was home to about
one-half of their U.S. assembly plants in 2007.

Honda’s supplier network

Honda, the firs Japanese carmaker to assemble vehicles in the
United States, put together a supplier base clustered tightly in west-
ern Ohio, near its Marysville and East Liberty assembly plants, which
were constructed 3 miles from each other on opposite sides of a disused
test vehicle track acquired from the State of Ohio. Most of the engines
destined for Marysville and East Liberty were made in Anna, Ohio, 35
miles west of the assembly complex. Transmissions came from a plant
144 Klier and Rubenstein

Figure 6.1 Location of Mitsubishi’s Suppliers Relative to Its Final

Assembly Plant in Normal, Illinois

SOURCE: Adapted by the authors from ELM International database and other sources.

in Russells Point, Ohio, 25 miles west. Seats were made 30 miles east of
the complex by Honda affiliat TS Tech in Reynoldsburg, Ohio.
In 2006 the company announced the construction of an engine plant
near its Alliston, Ontario, assembly facility. That move made available
much needed production capacity at its Anna, Ohio, engine plant, sup-
porting the construction of a new assembly plant in eastern Indiana to
open in 2008.
One-fourth of Honda’s North American suppliers were within 149
miles, one-half within 288 miles, and three-fourths within 449 miles
(Figure 6.2). Thus, around three-fourths of Honda suppliers were within
one day’s drive of Marysville and East Liberty. “[A]s trucking costs
rise, the idea of moving some suppliers closer to Honda’s property ‘is
beginning to make more financia sense.’”2 Yet, even though Honda
had one of the tightest supplier networks, only 2 percent of its inde-
 The Closely Linked Supply Chain 145

pendently owned suppliers were located within 60 miles of the western

Ohio assembly plant complex. JIT has not meant “right next door” for
Honda.
Two decades after arriving in Ohio, Honda decided to build its third
U.S. assembly plant in Lincoln, Alabama, 40 miles east of Birmingham.
The Ohio supplier plants lay 700 miles to the north, well beyond the
one-day delivery range. Consequently, Honda constructed a second set
of facilities in the Deep South. An engine plant was placed in the same
Lincoln campus with the assembly plant. Transmissions came from Tal-
lapoosa, Georgia, 60 miles to the east, just across the Alabama state
line. TS provided seats from Boaz, Alabama, 50 miles to the north.
Honda’s Deep South facilities were not expected to induce a large
number of suppliers to locate new facilities in their immediate vicinity.

Figure 6.2 Location of Honda’s Suppliers Relative to Its Final Assembly

Plants in Marysville and East Liberty, Ohio

SOURCE: Adapted by the authors from ELM International database and other sources.
146 Klier and Rubenstein

“Most of Honda’s suppliers operate factories nearer to Honda’s older

assembly plants in central Ohio and Ontario. Although Honda used 620
North American Tier 1 suppliers, only about 20 operated near its Ala-
bama plant” (Chappell 2004c).
Honda’s limited commitment to the Deep South was revealed in a
response to a reporter’s question, “Will we see another wave of [Honda]
supplier plants coming into Georgia?” Honda’s answer was, “No, not
really. We will continue to make transmissions in Ohio. Transmission
manufacturing is such a capital-intensive operation that it probably
wouldn’t make sense for our suppliers to invest in two locations to sup-
port us.”3

Toyota’s supplier network

Toyota’s network of suppliers was not as spatially clustered as
Honda’s. The heart of Toyota’s U.S. network was tied to a 300-mile
east–west stretch of I-64 between its assembly plant in Princeton, Indi-
ana, and its powertrain plant in Buffalo, West Virginia. A second 300-
mile north–south corridor extended south from I-64 to an engine plant
in Huntsville, Alabama, and an assembly plant in Tupelo, Mississippi
(to open in 2009). Near the intersection of the two corridors, in central
Kentucky, was positioned Toyota’s largest North American manufac-
turing complex, at Georgetown (Figure 6.3).
Toyota had seven fina North American assembly plants opened or
announced as of 2007. They were located in Georgetown; Princeton;
Tupelo; San Antonio, Texas; and Cambridge and Woodstock, Ontario.
In addition, there was the NUMMI joint venture in Fremont, Califor-
nia. Adjacent to the Georgetown and Cambridge assembly plants were
facilities that supplied most of their engines. Gaps were fille in part by
the Buffalo, West Virginia, engine plant. The Buffalo plant also supplied
some of the engines installed at Fremont. The Princeton and San Anto-
nio assembly plants received some of their engines from the Huntsville
plant. Thus, in 2007 approximately
• 40 percent of Toyota’s engines were made adjacent to fina as-
sembly plants;
• 15 percent were shipped about 300 miles north (from Alabama to
Indiana);
 The Closely Linked Supply Chain 147

Figure 6.3 Location of Toyota’s Suppliers Relative to Its Final Assembly

Complex in Georgetown, Kentucky

SOURCE: Adapted by the authors from ELM International database and other
sources.

• 15 percent were shipped about 300 miles north (from West Vir-
ginia to Ontario);
• 15 percent were shipped west about 2,500 miles (from West Vir-
ginia to California); and
• 15 percent were shipped across the Pacifi from Toyota facilities
in Japan.
In other words, Toyota eschewed Honda’s strong preference for
close spatial linkage between assembly and powertrain sources. Where-
as nearly all of Honda’s powertrain needs were produced within an hour
or so of fina assembly operations, Toyota triaged its captive powertrain
supply base into roughly equal portions by distance. A bit more than
148 Klier and Rubenstein

one-third of Toyota engines were delivered to fina assembly plants

within one hour, one-third within one day, and one-third in more than
one day.
Like Honda, Toyota had only 2 percent of its suppliers positioned
within one hour of assembly plants. The notable exception, as always,
was the seat assembler. Most of the seats were shipped to Toyota’s
Georgetown assembly plant from Nicholasville, Kentucky, 25 miles
away, and to the Princeton assembly plant from Lawrenceville, Illinois,
35 miles away.
By assembling vehicles in California, Texas, and Baja, Toyota
stretched its supply chain wider than other carmakers. The NUMMI
joint venture in California, opened in the early 1980s, could be regarded
as Toyota’s preliminary investigation for testing the ability to conduct
lean production in North American factories. Separated by the Pacifi
Ocean from Japanese suppliers and by several thousand miles from the
U.S. parts production center, NUMMI has depended on especially com-
plex logistics arrangements.
With 80 percent of its parts sourced east of the Mississippi, NUMMI
relied on a number of parts consolidation centers. Parts suppliers shipped
their output to one of these centers, located in El Paso, Memphis, Chi-
cago, and Detroit. From there the parts were transported to the assembly
plant. This system allowed the assembly plant inventory to be no larger
than four hours (Ward’s Automotive Reports 1997). The Baja plant did
not add much additional weight to the Southwest in Toyota’s footprint
because it produced only a small number of pickup trucks from little
more than knocked-down kits.
The decision to build an assembly plant in Texas, though, could not
be dismissed as an anomaly. Toyota official justifie the location for
marketing reasons. What better way to establish credentials as a sell-
er of large trucks—Toyota’s weakest product segment—than to build
them in Texas, the world’s largest V-8 truck market. But even if Toyota
increased net revenue by prying away many of Texas’s loyal Ford and
GM truck owners, the operative word was “net.” Someone had to cover
the “tyranny” of geography—the additional costs of shipping parts into
Texas and shipping out assembled vehicles, which was at least several
hundred dollars per vehicle. If Toyota did not absorb the penalty, then it
would fall to its suppliers, haulers, or customers or all of the above.
 The Closely Linked Supply Chain 149

Detroit 3 supplier networks

Differences are immediately visible in the distribution of the sup-
plier networks of the Detroit 3 and of Japanese-owned carmakers. The
Detroit 3 networks contained more suppliers, were more tightly clus-
tered around assembly plants, and were located further north.
The supplier networks of Chrysler, Ford, and GM were nearly iden-
tical (Figures 6.4, 6.5, and 6.6, respectively). One-fourth of the suppliers
to each of the Detroit 3 were located within approximately 135 miles of
Detroit, essentially southern Michigan with the addition of small por-
tions of western Ontario and northern Ohio. One-half of all suppliers
were within 275 miles of Detroit, encompassing the Great Lakes region
between Milwaukee and Buffalo, as well as the auto-producing por-
tion of Ontario. Another one-fourth of suppliers were located between
275 and 613 miles away, extending primarily into the South. The most
distant one-fourth of Detroit 3 suppliers were widely scattered, with the
largest number in Mexico.
Suppliers to GM’s Saturn brand were identifie separately in the
database for this project. Saturn’s supplier network was scattered over a
much larger area than was the case for other Detroit 3 assembly plants.
Relatively few suppliers chose to locate close to Saturn’s Tennessee as-
sembly plant. The circle encompassing one-fourth of Saturn suppliers
had an extremely large radius of 321 miles (Figure 6.7). One-half of
Saturn suppliers were within 482 miles, and three-fourths within 559
miles. Saturn used many suppliers based in the Great Lakes that did not
choose to add facilities in Tennessee to be near Saturn. With most of
its suppliers located more than one day away, Saturn had to depend on
logistics operations to meet JIT requirements.

Comparing Networks by Location

Networks of suppliers around assembly plants located in the Deep

South could be compared to those located in the Upper South and Mid-
west. Differences—and similarities—among the networks illustrate
fundamental features underlying the geography of carmaker–supplier
linkages.
The four Deep South assembly plants for this comparison were
BMW in South Carolina, Mercedes-Benz in Alabama, and Nissan and
Saturn in Tennessee. Five assembly plants in the Upper South and Mid-
150 Klier and Rubenstein

Figure 6.4 Location of Chrysler’s Suppliers Relative to Its Final

Assembly Plants in Southeastern Michigan

SOURCE: Adapted by the authors from ELM International database and other sources.

west were Honda in Ohio, AutoAlliance (Mazda) in Michigan, Mitsubi-

shi in Illinois, Subaru in Indiana, and Toyota in Kentucky.
The fiv Upper South and Midwest assembly plants were relatively
old, having all been opened during the 1980s (Table 6.1). Three of the
four Deep South plants were opened more recently, in the 1990s. This
reflecte the southern drift of the U.S. motor vehicle industry, which is
discussed in more detail in Chapter 11.
The nine fina assembly plants had a mean of 425 suppliers and a
median of 340. The fiv Upper South and Midwest plants had a mean
of 457 suppliers, 19 percent more than the average of 385 for the four
southern plants. The three best-selling brands—Toyota, Honda, and
Nissan—had a much higher mean of 692 suppliers. Assembly plants
that produced fewer vehicles had correspondingly fewer suppliers.
 The Closely Linked Supply Chain 151

Figure 6.5 Location of Ford’s Suppliers Relative to Its Final Assembly

Plants in Southeastern Michigan

SOURCE: Adapted by the authors from ELM International database and other sources.

Five more assembly plants were added to the analysis of suppli-

ers located within a one-day drive, including three in the Upper South
and Midwest (Honda and Toyota in Ontario and Toyota in Indiana) and
two in the Deep South (Honda in Alabama and Nissan in Mississippi).
The average median distance from the 14 fina assembly plants listed
in Table 6.2 to each of their several hundred suppliers was 440 miles.
In other words, half of the suppliers were located beyond 440 miles,
which is just within the 450-mile industry standard for the distance a
truck can cover in one day. The average median distance to suppliers
was considerably less from the eight Upper South and Midwest plants
than from the six Deep South ones, 317 miles from the eight northern
plants compared with 602 miles from the six southern ones. Median
distance from the eight Upper South and Midwest assembly plants to
152 Klier and Rubenstein

Figure 6.6 Location of GM’s Suppliers Relative to Its Final Assembly

Plants in Southeastern Michigan

SOURCE: Adapted by the authors from ELM International database and other
sources.

their suppliers ranged from 238 miles for AutoAlliance to 372 miles for
Toyota/Indiana. For the six Deep South plants, the median ranged from
497 for Saturn to 776 for Nissan Mississippi.
The supply base of the Upper South and Midwest assembly plants
was much more likely than the Deep South ones to be located within
the one-day driving range of 450 miles. All eight of northern plants had
between 60 percent and 75 percent of their supplier base located within
450 miles. Together they averaged 68 percent. Incidentally, all eight of
the assembly plants were also located within 450 miles of Detroit. The
six Deep South assembly plants had an average of just under one-third
of their suppliers within 450 miles, with figure ranging from 14 to 41
percent.
 The Closely Linked Supply Chain 153

Figure 6.7 Location of Saturn’s Suppliers Relative to Its Final Assembly

Plant in Spring Hill, Tennessee

SOURCE: Adapted by the authors from ELM International database and other
sources.

Results were different for the percentage of suppliers within 60

miles, or roughly within a one-hour driving distance, of the various as-
sembly plants (Table 6.3). The 60-mile distance was chosen to capture
plants that locate close enough to allow multiple daily deliveries using
the same truck. On average, only 5 percent of suppliers were located
within 60 miles of their customers. Thus, locating within one hour of
a fina assembly plant was not a critical factor for the vast majority of
suppliers.
The percentage of suppliers within 60 miles did not vary signifi-
cantly between the two groups of assembly plants. The six Deep South
plants together had 6 percent of their suppliers within one hour, whereas
the eight Upper South and Midwestern ones had 4 percent. The actual
count was also virtually identical: an average of 21 parts plants were
154 Klier and Rubenstein

Table 6.1 Location, Year Opened, and Number of Suppliers for Selected
Assembly Plants
Number of
Carmaker State Year opened suppliers
Upper South and Midwest
AutoAlliance Michigan 1987 336
Honda Ohio 1982 667a
Mitsubishi Illinois 1987 335
Subaru Indiana 1989 340
Toyota Kentucky 1987 606b
Deep South
BMW South Carolina 1994 158
Mercedes-Benz Alabama 1997 234
Nissan Tennessee 1983 803c
Saturn Tennessee 1990 346
a
Honda’s suppliers to its Alabama and Ontario assembly plants are included in the
Ohio total.
b
Toyota’s suppliers to its Indiana and Ontario assembly plants are included in the Ken-
tucky total.
c
Nissan’s suppliers to its Mississippi assembly plant are included in the Tennessee
total.
SOURCE: Adapted by the authors from the ELM International database and other
sources.

within 60 miles of the 8 Upper South and Midwest assembly plants and
19 were within 60 miles of the 6 Deep South ones.
The variation in percentage and number of suppliers within 60 miles
fluctuate much more within groups than between them. Nine assembly
plants had less than 5 percent of suppliers and two had about 15 percent.
The number of suppliers within 60 miles ranged from 48 for AutoAl-
liance to 3 for Mitsubishi and Toyota/Indiana. That AutoAlliance had
the highest number of suppliers located within a 60-mile radius was not
surprising, because the plant is located in southeastern Michigan, just
south of Detroit, surrounded by the highest concentration of supplier
plants anywhere in the country.
The location of suppliers by country was similar across networks
(Table 6.4). Honda and Toyota both had assembly operations in Canada,
hence their elevated share of suppliers based in Ontario. By the same
token, Nissan had a large share of Mexican suppliers due to its greater
 The Closely Linked Supply Chain 155

Table 6.2 Suppliers within One Day’s Driving Distance of Selected

Assembly Plants
Median distance to Suppliers within
Carmaker State or province suppliers (miles) 450 miles (%)
Upper South and 317 68
Midwest
AutoAlliance Michigan 238 71
Honda Ohio 268 75
Mitsubishi Illinois 342 65
Subaru Indiana 282 69
Toyota Kentucky 321 73
Honda Ontario 369 62
Toyota Indiana 372 66
Toyota Ontario 345 64
Deep South 602 29
BMW South Carolina 523 41
Mercedes-Benz Alabama 688 23
Nissan Tennessee 505 35
Saturn Tennessee 497 39
Honda Alabama 621 22
Nissan Mississippi 776 14
Mean 440 51
SOURCE: Adapted by the authors from the ELM International database and other
sources.

footprint there. Nissan’s North American supplier network was large

because it included a sizeable number of suppliers based in Mexico.
With the exception of Volkswagen, Nissan was the only “foreign” au-
tomaker that has a notable presence in Mexico, where it operates two
assembly plants.
Data for suppliers around the NUMMI plant were also examined.
As the only remaining assembly plant in California, far from the heart
of the U.S. auto industry, median distance to suppliers was 2,007 miles,
much higher than for any other assembly plant. Only 6 percent of
NUMMI’s suppliers were within 450 miles, and only fiv suppliers, or
2.5 percent of its total, were within 60 miles.
156 Klier and Rubenstein

Table 6.3 Suppliers within One Hour’s Driving Distance of Selected

Assembly Plants
Number of Suppliers
suppliers within within 60 miles
Carmaker State 60 miles (%)
Upper South and 21 4
Midwest
AutoAlliance Michigan 48 14
Honda Ohio 29 4
Mitsubishi Illinois 3 1
Subaru Indiana 7 2
Toyota Kentucky 11 2
Honda Ontario 34 5
Toyota Indiana 3 1
Toyota Ontario 35 6
Deep South 19 6
BMW South Carolina 26 17
Mercedes-Benz Alabama 22 9
Nissan Tennessee 13 2
Saturn Tennessee 8 2
Honda Alabama 20 3
Nissan Mississippi 23 3
Mean 20 5
SOURCE: Adapted by the authors from the ELM International database and other
sources.

OUTLOOK AND UNCERTAINTIES

Close linkage between an assembly plant and its network of suppli-

ers is crucial for efficien operation in the contemporary environment
of lean inventory with JIT delivery. For most suppliers, close linkage
means a physical location within a one-day delivery range of the as-
sembly plant. Regardless of whether an assembly plant is located in
the Great Lakes or the southern portion of Auto Alley, roughly three-
fourths of its suppliers will be situated within one day.
At the same time, close linkage does not mean suppliers must locate
next door to the assembly plant. In fact, few suppliers are within a one-
 The Closely Linked Supply Chain 157

Table 6.4 Mexican and Canadian Suppliers to Selected Assembly Plants

Suppliers in Suppliers in
Carmaker State Canada (%) Mexico (%)
Upper South and
Midwest
AutoAlliance Michigan 9.8 6.0
Hondaa Ohio 10.6 6.8
Mitsubishi Illinois 9.3 3.6
Subaru Indiana 7.1 5.0
Toyota b
Kentucky 10.1 6.4
Deep South
BMW South Carolina 1.9 13.9
Mercedes-Benzc Alabama 8.1 31.2
Nissand Tennessee 4.0 32.0
Saturn Tennessee 9.8 2.6
a
Honda’s suppliers to its Alabama and Ontario assembly plants are included in the
Ohio total.
b
Toyota’s suppliers to its Indiana and Ontario assembly plants are included in the Ken-
tucky total.
c
The Mercedes network includes a number of Chrysler suppliers, some of which are
located in Mexico.
d
Nissan’s suppliers to its Mississippi assembly plant are included in the Tennessee
total.
SOURCE: Adapted by authors from ELM International database and other sources.

hour drive of an assembly plant. Invariably, the seat supplier will be

within the one-hour radius, as are some stamping and trim shops.
That most suppliers are within one day but not within one hour is
critical to local government attempts to entice new plants. Government
subsidies exceeding $100,000 per job for fina assembly plants have
been justifie because of the multiplier effect: each new assembly job
generates several new supplier jobs. However, most of the new supplier
jobs are destined for political jurisdictions other than the one enticing
the fina assembly plant.
Especially challenging for the future of tightly linked networks of
carmakers and suppliers is the globalization of supply chains. With fina
assembly plants in the United States receiving more than one-fourth of
their components from other countries—as discussed in Chapter 13—
JIT has become harder to sustain when it is stretched around the world.
158 Klier and Rubenstein

“How do suppliers maintain JIT delivery when weeks are added to a

delivery cycle that previously was measured in hours or days? ‘Current
automotive supply chains were built around just-in-time production and
very short lead times,’ notes Mark Bünger, senior analyst at Forrester
Research, Cambridge, Massachusetts. ‘When these companies start
sourcing from overseas, this dramatically increases the complexity’”
(Murphy 2004).

Notes

1. For an extensive description of lean manufacturing, see Schoenberger (1987).

2. Larry Jutte, Honda of America Manufacturing senior vice president and general
manager of parts and procurement, quoted in Chappell (2005d).
3. Larry Jutte, Honda of America Manufacturing senior vice president and general
manager of parts and procurement, quoted in Chappell (2004d).
 7
Seat Supplier Right Next Door

Automakers encouraged Tier 1s to get big enough to handle

the outsourcing of big chunks of the vehicle, but then re-
versed course and reassumed some of those responsibilities.
(Sherefkin 2006b)

The previous chapter showed that three-fourths of parts plants are

located within a one-day drive of the fina assembly plants, but only
a few were within a one-hour drive. Invariably, one of the handful of
parts plants within the one-hour radius of the assembly plant is a seat
supplier.
Finding seat suppliers very near fina assembly plants derives in
part from the economic geography of seat production. A vehicle seat
comprises three principal components. The frame, which is mainly
metal, provides the basic skeleton for the seat and transfers the load to
the body of the vehicle. The padding is primarily polyurethane foam
molded to shape. The external skin is cut from fabric, leather, or vinyl
and sewn to shape.
A finishe seat occupies a much greater volume than the sum of
these individual inputs. Thus, like other bulk-gaining products, seats
will normally be produced most efficientl near the customer. A seat is
fragile as well as bulky, and it comes in a rather large number of variet-
ies for a given model. So long-distance shipping of a finishe seat is
much more difficul and expensive than long-distance shipping of the
constituent parts of a seat.
The distinctive organization of this sector of the auto industry has
also favored especially tight colocation with fina assembly. A low
value-added component that was considered peripheral to the vehicle’s
performance or profit the seat was one of the firs parts that the Detroit
3 carmakers outsourced to independent suppliers and placed on JIT de-
livery to fina assembly plants. Clearing out the massive inventory of
cushions, frames, and covers from Detroit 3 fina assembly plants was

159
160 Klier and Rubenstein

the most visible harbinger of JIT delivery during the 1980s. Japanese-
owned carmakers in the United States outsourced seats from the start.
Also contributing to the distinctive geography of seat production
has been the consolidation of the sector into a handful of major sup-
pliers. An assembly plant obtains most if not all its seats from a single
source, and the supplier in turn typically dedicates a single facility to
producing seats for that assembly plant.
The fate of an assembly plant determines the fate of a seat plant. For
example, assembly plant closures by GM in Atlanta and by Chrysler
in Newark, Delaware, resulted in the closure of nearby Lear seat-mak-
ing plants. By the same token, to support Honda’s assembly plant in
Greensburg, Indiana, which opened in 2008, TS Tech, Honda’s primary
seat supplier in North America, opened a new plant in 2008, just 45
miles away in New Castle, Indiana. This colocation recalls the pattern
used during the era of vertical integration, when the Detroit 3 carmakers
typically located a stamping facility near each assembly plant to supply
it with bodies (see Chapter 4).
The seat may play a less central role than other systems in vehicle
performance, but the powertrain, chassis, and electronics perform their
functions largely unseen, and the exterior catches the eye of motorists
only fleetingl as they get in and out of the vehicle. It is while sitting
in the interior that the driver most experiences the convenience of a
modern vehicle, and the passenger experiences its comfort. In addition
the interior is one of the most self-contained parts of the vehicle, so it is
relatively easy to isolate it for outsourcing.
As a result, the interior has been the portion of the vehicle where
producer–supplier relations have been most transformed. “The process
of outsourcing entire modules to Tier 1 suppliers and delegating respon-
sibility for the design and subcontracting has probably gone furthest in
interiors and seats” (Van Biesebroeck 2006, p. 209). A handful of com-
panies stand ready, willing, and able to supply carmakers with entire in-
teriors ready to snap into place on the fina assembly line. Other interior
suppliers, including some of the industry’s largest, have been relegated
to Tier 2 status, shipping much of their output to the three interior sup-
pliers rather than directly to carmakers. Consequently, the interior has
been the most rationalized sector of the auto supplier industry. It is also
the least globalized—both of the leading interior suppliers in the United
States are U.S.-based.
 Seat Supplier Right Next Door 161

IT ALL STARTED WITH SEATS

Nowhere is the name Johnson or Lear visible inside a motor ve-

hicle; it is Ford or Toyota stamped on the steering wheel, instrument
panel, and doorpost. Yet Johnson Controls Inc. (JCI) and Lear Corp.
deserve as much credit as the carmakers for the look and feel of the pas-
senger compartment. These two interior specialists have ranked among
the largest suppliers in North America.
In contrast with many of the other leading North American suppli-
ers, which are venerable survivors from the early days of the automo-
tive industry, these two large interior suppliers rose to prominence much
more recently. Neither Lear nor JCI has a long history in the automotive
industry: Lear entered the parts business in 1964 and JCI in 1978. Both
grew rapidly during the late twentieth century by being in a position to
respond to carmakers’ demand for JIT delivery of complete seats ready
to install on the fina assembly line. Into the twenty-firs century, they
evolved from mere “suppliers” to “integrators” of interiors.
The lowly seat made an unlikely candidate to spearhead a revo-
lution in producer–supplier relations. The seat was an afterthought
through the firs century of motor vehicle production. For its firs
Model A in 1903 Ford spent a mere $16 per vehicle (representing 4
percent of production costs) on seats, which were cushions purchased
from body builder C.R. Wilson to cover wooden slats (Table 2.1). In
2006, the seat represented 30 to 40 percent of the total interior cost
(Lear Corporation 2006, p. 7).
Replacement of open carriages with enclosed passenger compart-
ments in the 1920s generated demand for more substantial seats. Mini-
mally structured sofas, not unlike those typically found in the living
rooms of modest American homes, were chopped down to fi the more
limited space and installed in cars. Most new car buyers bought after-
market covers to protect the seats from wear and tear as well as throw a
dash of style and color over the drab gray factory-delivered surface.
GM’s empire within an empire, Fisher Body division, produced
most of GM’s seats, mainly in the same Flint plant where the famous
1937 sit-down strike forced the company to recognize the UAW union.
Ford naturally made most of its seats inside its sprawling Rouge com-
plex. Chrysler too made most of its seats in Michigan. To manufacture
162 Klier and Rubenstein

seats, the Detroit 3 purchased most of the parts from multiple sources
through annual contracts awarded by price.
When the Detroit 3 started to demand delivery of complete seats on
a JIT basis during the 1980s, the numerous suppliers of frames, cush-
ions, and covers were thrown into disarray. To deliver complete seats,
suppliers once content to specialize in one seat-related component had
to figur out how to get the other components—by acquiring competi-
tors, setting up new facilities, or subcontracting to specialists. And to
assure JIT delivery, a seat supplier had to build a fina seat assembly
plant adjacent to the customer’s fina assembly plant. The required in-
vestment and risk proved too much for most seat makers.
Left standing from the shakeout were JCI and Lear; each controlled
roughly 40 percent of the North American market during the firs decade
of the twenty-firs century. Magna International (discussed in Chapter
4) had about 10 percent of the North American seat market, and several
foreign-based companies divided the rest. For both JCI and Lear, sup-
plying seats represented a significan departure from long-standing core
competencies in other industrial sectors. Both had esoteric connections
to the early motor vehicle industry, but these connections were unre-
lated to making seats.
The JCI–Lear battle for the seat market turned into the auto indus-
try’s version of the nuclear arms race (a rump race?). Never mind alter-
native fuels, variable transmissions, and electronic suspension, billions
were poured in researching the derriere of the American motorist (it’s
getting larger). What better opportunity was there to envelop the Ameri-
can motorist in more comfort? With the market long since cornered,
seat makers have had to search for new ways to add content. Cavernous
minivans and sport utility vehicles have offered especially fertile terri-
tory for suppliers to configur endless seating permutations.
Sofa-style “bench” seats have long given way to what were origi-
nally called “bucket” seats. No longer can a tired motorist (or amorous
couple) stretch out across a bench—each passenger is now individually
wrapped up inside a self-contained “captain’s chair.” Seats are being
shaped to be more ergonomic, and the addition of headrests and child
supports make them safer. Materials are more durable, waterproof, stain
resistant, and breathable. Thinner seats leave room to stuff yet more
features into the interior.
 Seat Supplier Right Next Door 163

Ultimately, though, the seat supplier battle between JCI and Lear
has been waged largely on trim, colors, and other cosmetic features. An
executive at one of the two dominant seat suppliers, unable to restrain
his enthusiasm for the company’s newest seat, apologized that the spe-
cifi features had to remain secret, although assurance was given that
the new seat would “shock and awe” the authors, not to mention the
American public, when it was unveiled.

Lear: From Jets to Seats

The name Lear is probably most widely recognized as a brand of

small jet airplanes, and in fact, inventor and entrepreneur William Lear
(1902–1978) started the firs company bearing his name during the
1930s to fi planes for use by executives. Lear Inc. grew rapidly during
World War II as a supplier of electronic aviation guidance to the mili-
tary. Unable to convince his business partners to invest in the up-and-
coming but still economically risky passenger jets, Bill Lear sold his
interest in Lear Inc. in 1959. The company merged with Siegler Corp.
three years later to form Lear Siegler, Inc., a major defense contractor
during the Vietnam War.
Bill Lear went on to create Learjet in 1962. The Wichita, Kansas,
company soon became the leading supplier of corporate jets to execu-
tives and other wealthy individuals who could afford a private and fle -
ible alternative to scheduled airlines. He sold Learjet in 1967 to Gates
Rubber Co., by coincidence also a major automotive parts supplier at
the time. After several more transfers, Learjet became a division of
Québec-based Bombardier Aerospace.
Bill Lear was restless. He would develop an innovative consumer
product with high-tech electronics by the standards of the time, estab-
lish a company to manufacture it, sell his interest in the company a
few years later, and then repeat the cycle with a fresh idea. Prior to his
work in aviation, he was an early contributor to the development of car
radios. He patented the firs workable car radio in 1922, and formed
the Radio Wire and Coil Co. to build them. He assigned the patent two
years later to a newly established company called Motorola (short for
“Motor Victrola”; see Chapter 14). Four decades later, he invented a
more fleetin contribution to automotive audio equipment—the eight-
track tape system—firs offered on 1966 Ford models.
164 Klier and Rubenstein

Lear Siegler expanded rapidly during the 1960s in a variety of sec-

tors, many unrelated to defense work. One of the more obscure of its 47
divisions and subsidiaries was American Metal Products, a producer of
metal tubes, founded in 1917 in Detroit by Frederick Matthaei (1892–
1973). Aircraft companies bought some of them, but its largest custom-
ers during the 1920s were Ford and GM, which shaped the metal tubes
into seat frames. American Metal added Chrysler and several automo-
tive parts makers as customers during the 1930s, exceeded $1 million
sales for the firs time in 1939, and expanded from 18 employees in
1917 to 900 in 1941. When it was acquired by Lear Siegler in 1964,
American Metal had become the largest independent supplier of parts
for seat frames in the United States. American Metals was renamed
General Seating Division in 1975.
A leveraged buyout by investment bankers Forstmann & Little in
1987 resulted in the sale of all Lear Siegler assets except General Seat-
ing, which was incorporated as Lear Siegler Seating Corp. About 30 of
the seating division’s managers acquired the company a year later and
took the company public, on the New York Stock Exchange, in 1994.
Lear emerged in the 1990s as one of the two leading suppliers of
complete seats primarily through acquisition of seat facilities from Ford
in 1993, GM in 1998, and ITT (its Automotive Seat Sub-Systems Unit)
in 1997. Lear also established a joint venture in 1987, called General
Seating of America, with Japanese supplier NHK Spring Co., to sup-
ply seats to Subaru’s Lafayette assembly plant, from nearby Frankfort,
Indiana.

Johnson Controls: From Thermostats to Seats

JCI similarly originated as a manufacturer of a product unrelated

to the auto industry, in this case, the thermostat. Warren S. Johnson, a
professor at the State Normal School in Whitewater, Wisconsin (now
University of Wisconsin Whitewater), invented the electric room ther-
mostat in 1883. With a group of Milwaukee investors, he incorporated
Johnson Electric Service Co. in 1885 to manufacture, install, and ser-
vice automatic temperature regulation systems for office and other
nonresidential buildings. The company was renamed Johnson Controls
in 1974.
 Seat Supplier Right Next Door 165

Johnson developed other products during the late nineteenth cen-

tury, including beer carbonators, steam couplers for trains, and push-
button toilets. The company also built some cars and trucks during the
firs decade of the twentieth century. After Johnson’s death in 1911, the
company concentrated solely on nonresidential temperature controls. It
did enter the automotive aftermarket parts business in 1978 by acquir-
ing Globe-Union, Inc., the country’s largest producer of private-label
lead-acid automotive batteries.

Hoover Universal
JCI became an original equipment interior parts supplier in 1985
when it bought Ferro Manufacturing Corp. and Hoover Universal, Inc.
Ferro, a privately held company founded in 1915, made car door latch-
es, window regulators, seat tracks, and recliners.
The key acquisition was Hoover Precision Products Inc., founded in
1913 by Leander J. Hoover in Ann Arbor, Michigan, to make steel balls
for the automotive industry. Hoover became a seat supplier through ac-
quisition of Universal Wire Spring Inc., which made seat springs, in
1960, and Stubnitz Greene Corp., which made seat frames and molded
urethane foam, in 1964. When acquired by JCI, Hoover had recently
become the firs supplier able to deliver complete seats on a JIT basis
ready for installation on the fina assembly line.
As its seat business expanded rapidly—from $200 million in 1985 to
$1.2 billion in 1991 and $2.6 billion in 1993—JCI disposed of Hoover’s
other businesses. Eighteen plants were sold to Citicorp Venture Capi-
tal, which formed Hoover Materials Holding Group Inc. Hoover’s Ball
Products Division was sold in 1990 to Japanese bearing-maker NSK.
JCI did retain its original thermostat business.

JCI’s Joint Ventures

JCI grew in part through acquiring Chrysler’s seat operations in
1994, but it could not keep pace with Lear’s torrid buying spree. In-
stead, JCI fueled much of its expansion through several joint ventures
with Japanese suppliers and minority-owned U.S.-based suppliers.
JCI’s firs joint venture, called Trim Masters, was established in
1987 with Toyota keiretsu Araco Corporation to supply seats to Toy-
ota’s U.S. assembly plants. Araco remained in the shadow of JCI until
166 Klier and Rubenstein

2004, when it became part of Toyota Boshoku Co. Following in the

footsteps of other Toyota keiretsu firm Aisin and Denso, Toyota Bo-
shoku emerged as a major interior integrator and competitor to JCI in
the early twenty-firs century (see Outlook and Uncertainties at the end
of the chapter).
Trim Masters had seat assembly plants in Nicholasville, Kentucky,
to serve Toyota’s Georgetown assembly plant, and in Lawrenceville,
Illinois, to serve Toyota’s Princeton assembly plant. The joint venture
also had facilities to cut and sew leather, cloth, and vinyl in Harrods-
burg and Leitchfield Kentucky; Muncie, Indiana; and Torreon, Mex-
ico. Trim Masters also did injection molding and vacuum forming for
door trim at Bardstown, Kentucky, and Modesto, California, as well as
Lawrenceville.
The Lawrenceville plant, which supplied Toyota, became entangled
in a complex web of ownership. Trim Masters sold the plant in 2001
to a newly formed company named Automotive Technology Systems.
Trim Masters—itself a joint venture between JCI and Araco—retained
49 percent ownership in the new company. Majority control passed to
Ernie Green Industries, Inc.
Why Ernie Green? With Ernie Green holding majority control, Au-
tomotive Technology Systems could apply for minority-ownership cer-
tificatio from the National Minority Supplier Development Council.
Ernie Green was a football star at the University of Louisville between
1958 and 1961 and with the Cleveland Browns in the National Football
League between 1962 and 1968.
The one-time football star claimed that his success at selling to Japa-
nese carmakers began with a chance encounter with a Toyota executive
in 1988. Green had recently acquired Florida Production Engineering
Inc., a small supplier of plastic wheel trim: in Green’s words “a horrible
company.” Although Green was not one of its suppliers, Toyota agreed
to send a consultant team to reorganize Florida Production along Toyota
Production System principles.
Ernie Green Industries, founded in Dayton, Ohio, started supplying
Honda with plastic wheel covers in the early 1990s. Honda asked Green
to acquire and run a troublesome plastics supplier and repaid the favor
in 1999 with a large contract to supply front and rear suspensions to its
Marysville and East Liberty assembly plants. Honda had been making
the components at its Anna, Ohio, engine plant, and wanted to devote
 Seat Supplier Right Next Door 167

more plant space to engine production. With no experience producing

that component, Ernie Green Industries official spent a year observing
how Honda made suspensions before opening a parts plant in Marion,
Ohio (Chappell 2001). Sourcing parts from Ernie Green gave Honda
an opportunity to increase purchases from minority-owned suppliers.
More than half of Ernie Green’s $636 million sales in 2003 comprised
original equipment to Honda. GM and Toyota were also important
customers.
To supply Nissan’s Smyrna, Tennessee, assembly plant, JCI set
up a 50–50 joint venture in nearby Murfreesboro with Nissan keiretsu
Ikeda Bussan Co. When Nissan, under the leadership of Carlos Ghosn,
severed many of its keiretsu links, JCI bought out Ikeda’s half of the
Murfreesboro joint venture. In 1996 JCI created a third joint venture,
called Bridgewater Interiors, with Epsilon, LLC to produce seats and
other interior components. Because Epsilon was minority owned, the
joint venture was also certifie as minority owned. Bridgewater sup-
plied seats to Honda’s truck plant in Lincoln, Alabama.
The joint ventures gave JCI a strong tactical advantage in the seat
market. The Detroit 3, under pressure to increase sourcing through mi-
nority-owned suppliers, could buy seats from Bridgewater. And the
leading Japanese transplants, reluctant to deal with a heavily unionized
purely “American” company like Lear, could still source seats to JCI
indirectly. One-third of JCI’s North American sales were being gener-
ated by transplant business into the twenty-firs century. “The thing that
jumps out about Johnson Controls is their broad customer base . . . They
do probably the best job of any American company with the new do-
mestics, especially the Japanese transplants.”1 Only one-third of JCI’s
sales went to the Detroit 3 in 2006, compared to 61 percent for rival
Lear (Merrill Lynch 2007, pp. 71, 74).

Other Seat Suppliers

To increase competition, the Detroit 3 encouraged new entrants into

the seating business. “The car companies are uncomfortable having just
two choices in global seating suppliers.”2 Especially uncomfortable has
been GM, still hoping for a return to the good old days of multiple
sourcing and annual competitive bidding. Magna International, Faure-
cia, and TS Tech hold most of the market not held by JCI and Lear.
168 Klier and Rubenstein

Magna International
Magna International was the third leading seat supplier in the Unit-
ed States, with 10 percent of the market (see Chapter 4). Magna became
a major seat supplier in 1996 when it acquired Douglas & Lomason, the
fifth-la gest seat maker at the time.

Faurecia
Faurecia was Europe’s leading seat maker and third worldwide
behind Lear and JCI. Faurecia was created when French seating spe-
cialist Bertrand Faure acquired Ecia, a former PSA Peugeot Citroën
captive that had been spun off. Bertrand Faure had already entered the
U.S. market through a joint venture with Japanese supplier Fuji Kiko
Co. called Dynamec, Inc., which made seat reclining devices and seat
adjusters at a plant in Walton, Kentucky. GM encouraged French seat
maker Faurecia to enter the North American market by awarding it a
contract in 1999 to deliver fully assembled seats for its high-volume
Chevrolet Malibu beginning in 2004.
Faurecia may have expanded too quickly in North America. Its
North American operations lost $108 million in 2006, fueled by poor
initial contracts that failed to adjust for the rising cost of steel and res-
ins. After opening 14 new facilities in North America in three years,
Faurecia had to put further growth on hold. “You can’t build a castle
on quicksand. We’ve got to throw some cement into the quicksand pool
before we continue,” was the picturesque way its North American presi-
dent James Orchard put it in 2007 (Wortham 2007c).

TS Tech
Honda’s principal seat supplier, TS Tech, was founded in 1954 as
the seat division of Teito Fuhaku Kogyo Corp. The division was made
an independent company in 1960 and was known as the Tokyo Seat
Co. until 1997 when it changed its name to TS Tech Ltd. TS initially
made seats for motorcycles, Honda’s firs product line. In addition to
seat assembly plants near Honda’s Alabama, Indiana, and Ohio fina
assembly plants, TS Tech has set up Tri-Con Industries to stamp seat
frames and TS Trim Industries to make foam, seat covers, and other seat
components. TS Tech and Bridgewater split the seat contract at Hon-
da’s Lincoln, Alabama, truck plant. TS Tech also built a dedicated seat
 Seat Supplier Right Next Door 169

plant near the Honda assembly plant in Greensburg, Indiana, opened in

2008.

Seat Plant Locations

Overall, seats are less likely than most components to be made in

the Midwest. Half of seat parts are made in the Midwest (Table 7.1).
The distribution of seat plants closely resembles that of fina assembly
plants, as expected given the especially high degree of colocation be-
tween the two.
The overall share of seat plants in the Midwest has also been low-
ered by the fact that plants of nonmetal parts do not depend on Midwest
sources of steel. Covers and padding in particular have been sourced to
plants in the South along with the majority of the U.S. textile and furni-
ture industries (see the next section).

Lear Plant Locations

Lear operated 29 seat-making facilities in 2006, including 12 in
Michigan; 4 in Missouri; 3 in Indiana; 2 each in Alabama and Ohio; and
1 each in Delaware, Kentucky, South Carolina, Tennessee, Texas, and
Wisconsin (Lear Corporation 2006, p. 18). A number of the Michigan
plants specialized in seat parts, such as frames and foam. Most of the
plants outside Michigan were sited to provide finishe seats to nearby
assembly plants.
For example, Ford assembly plants in Hazelwood, Missouri, and
Louisville, Kentucky, and GM assembly plants in Wentzville, Missouri,

Table 7.1 Interior Parts Plants in the Midwest

Type of plant Number of plants % in Midwest
Seats and seat components 269 49.4
Headliners, carpeting, sound deadeners 234 56.0
Interior door panels 136 63.2
Handles, mirrors, labels, pedals 95 78.9
Dashboard 86 60.5
Miscellaneous and not specifie 350 64.6
Total interior 1,170 60.1
SOURCE: Adapted by the authors from ELM International database.
170 Klier and Rubenstein

and Arlington, Texas, received seats from Lear in the same communi-
ties. Ford’s Chicago assembly plant and GM’s Lordstown, Ohio, as-
sembly plant received seats from Lear facilities in nearby Hammond,
Indiana, and Warren, Ohio, respectively.

JCI Plant Locations

JCI had 34 seat-related plants in 2006, including seven in Michigan;
four each in Kentucky and Ohio; three in Tennessee; two each in Geor-
gia, Missouri, and Texas; and one each in Alabama, California, Illinois,
Indiana, Louisiana, Mississippi, New Jersey, Oklahoma, Virginia, and
Wisconsin. As with Lear, the JCI seat plant distribution closely followed
fina assembly plant distribution, with the addition of plants primarily in
the Midwest to produce seat parts.

THE REST OF THE INTERIOR

Suppliers have used the term “trim” to refer to the portions of the
interior other than seats. The interior trim sector struggled much more
than the seat sector in the early twenty-firs century. While seat sup-
pliers were able to add value to their product, interior trim suppliers
faced the opposite trend. Trim became an increasingly low-cost prod-
uct driven by commodity prices. Interior trim suppliers tried to survive
through involvement of equity investment firm motivated entirely by
squeezing costs from the production process, but not all succeeded.

Interior Trim Modules

Interior trim consists of four principal modules: dashboard, door

panels, floo cover, and headliner. Interior trim also includes smaller
hardware such as handles, labels, and pedals.
The dashboard houses the gauges that are supplied by electronics
specialists, who are responsible for adding most of the value to this
component (see Chapter 14). The dashboard was originally a metal
plate that separated the passengers from the engine. By the 1930s, the
plate was being stamped into a decorative shape. Since the late twen-
 Seat Supplier Right Next Door 171

tieth century, the dashboard has been made of softer plastic to protect
occupants in a crash.
Early doors were little more than slats of wood hinged to one pil-
lar and latched to another. Today’s doors are quite different. They are
more like sandwiches with different “bread” on each side of the filling
The outer side of the sandwich is usually stamped from metal. The in-
ner side was also once stamped from metal with bits of fabric glued
to it. Now, the inner side of the door is typically molded from plastic,
such as thermoplastic olefi (TPO). Between the inner and outer door
panels are acoustical and restraint systems, as well as locks, regulators,
speakers, adjusters, wiring, and other electronic components mounted
on steel or plastic carriers.
As with other interior components, door panels were once con-
structed at fina assembly plants but are increasingly shipped as com-
plete modules. A full door module (a level 3, in industry vernacular)
includes inner door trim panel, hardware, glass, and outer body panel.
Painted door structures arrive at a module manufacturer’s plant, where
latches, regulators, glass, electronics, soft trim, and other parts are at-
tached. In North America, about 8 percent of front doors, 11 percent of
rear doors, and 33 percent of rear liftgates were delivered as modules
by outside suppliers in 2001. The leading supplier of door modules,
with 40 percent of the world market, was Brose Fahrzeugteile GmbH
(Broge 2002).
When passenger compartments were enclosed in the 1920s, textiles
were placed on the roof and floo for decoration, as well as for insula-
tion from noise and cold. Carpet was laid on the floo , and fabric glued
to a shell known as a headliner was fitte into the roof (Fung and Hard-
castle 2001).
Headliners and floorin have played leading roles in making the
passenger compartment quieter. Allowing some outside noise to reach
the interior was traditionally regarded as a necessary safety feature, per-
mitting drivers to listen for horns, emergency sirens, squealing brakes,
skidding tires, and other evidence of traffi and road hazards. Keeping
out exterior noise became increasingly important as American motor-
ists chose instead to listen to music and chat on cell phones. “When
a consumer test drives a car, they notice how quiet it is in the com-
partment.”3 “The traditional way to make a car quiet was to determine
where noise was coming in and then stick enough engineered weight
172 Klier and Rubenstein

between the listener and the noise to stop the sound. The problem is that
that ties your noise performance directly with the weight. In a world
where we’re looking at composites and aluminum bodies, I’d have to
put back in all that weight they just took out of the body.”4
Headliners and carpets were made of woven fabric for most of the
twentieth century. Carpet could be laid directly on the floo , whereas
headliner fabric was glued to a foam backing that was in turn glued to
the roof. Woven fabrics suitable for the home did not hold up well under
the rougher conditions of the motor vehicle. Headliners sagged when
intense summer sun heat melted the glue. Mats were placed on top of
the carpets to protect them from dirt and punctures.
Nonwoven fabric became popular in Europe and Japan during
the 1990s and in North America a decade later. Nonwoven headliners
were made of polyester fiber locked together through a process known
as needle-punch technology. They were also made of a composite of
porous materials like foam, fibers synthetics, and cotton (Armstrong
2004b). The foam base was no longer needed, thereby making nonwo-
ven fabric cheaper, lighter, and more durable than woven fabric (Kisiel
1996).
Faced with demand for a quieter passenger compartment, leading
headliner and carpeting suppliers became acoustical systems suppliers.
An acoustical expert could ensure that each component contributed to
the desired overall sound and noise conditions. Acoustics once sourced
piecemeal have been purchased from single suppliers with expertise in
balancing materials in the various components to achieve the desired
overall effect (Wilson 2002a).
Interior parts other than seats are more likely than average to be
produced in Michigan and other Midwest states (Figure 7.1). About
one-third of these interior plants have been located in Michigan and
another one-third elsewhere in the Midwest (Table 7.1).

Struggling Interior Trim Suppliers

Suppliers of these various interior parts have struggled. Of the two

largest U.S.-owned suppliers of interior parts other than seats in 2006,
one (Dura) entered Chapter 11, and the other (Collins and Aikman)
went out of business.
 Seat Supplier Right Next Door 173

Figure 7.1 Interior Parts Plants

SOURCE: Adapted by the authors from ELM International database and other
sources.

Collins & Aikman

The leading supplier of interior components other than seats at the
beginning of the twenty-firs century was Collins & Aikman Corpora-
tion (C&A). It accounted for one-half of the seat fabric and floorin and
one-fourth of the headliners in 2004. It was also the largest supplier of
dashboards, with one-third of the market, and the second-largest suppli-
er of door panels, with one-sixth of the market. The company claimed
to be supplying parts for 90 percent of the vehicles assembled in the
United States. Yet, in 2005, it was bankrupt.
C&A’s predecessor, G.L. Kelty & Co., was founded in 1843 by Gib-
bons L. Kelty as a window shade shop in New York City. Kelty’s neph-
ew Charles M. Aikman joined the fir as a partner in 1870 and bought
half ownership after Kelty’s death in 1889. The other half was owned
174 Klier and Rubenstein

by William G. Collins. The two formed Collins & Aikman in 1891, with
Aikman as president and Collins as secretary and treasurer. The retail
business was closed in the late nineteenth century in order to specialize
in heavy upholstery-type fabrics.
Management of C&A for most of the twentieth century came from
two generations of the McCullough family. Willis G. McCullough, who
started at C&A as a salesman, rose through the ranks to serve as presi-
dent from 1929 until his death in 1948, and his son Donald served as
president from 1961 until his death in 2000. The McCulloughs trans-
formed C&A into an automotive-oriented manufacturer beginning in
the 1920s with seat and headlining fabric. Motor vehicle fabric account-
ed for 75 percent of C&A business when civilian production was halted
during World War II.
C&A diluted its motor vehicle focus when it acquired several car-
peting and wall covering firm during the 1960s and 1970s. In response
to increased outsourcing, C&A sold off most of its nonautomotive busi-
nesses during the 1990s. Motor vehicle parts increased from 59 percent
of C&A revenues in 1994 to 96 percent in 1999.
C&A was bought in 1986 by Wickes Companies, a conglomerate
with interests in furniture, home improvement stores, and women’s
clothing. Private equity fir Heartland Industrial Partners acquired
C&A in 2001. One of Heartland’s founders, David A. Stockman, be-
came chairman of the board of C&A in 2001 and CEO in 2003.
Stockman had been elected to Congress in 1976 at age 29. His ar-
ticulate advocacy of supply-side economics gained him appointment as
director of the Offic of Management and Budget (OMB) from 1981
to 1985. After resigning from OMB, he became a managing director at
Salomon Brothers, Inc., and an original partner and a senior managing
director of the Blackstone Group, before setting up Heartland in 1999,
in part because of Blackstone’s reluctance to invest in C&A.
Heartland struggled to achieve the cost savings promised in its
many acquisitions, especially at C&A, which lost $35.6 million in 2001.
Stockman took over as CEO in 2003, and immediately cut 14 percent
of the workforce in a bid to reduce losses. However, the company had a
very high exposure to the Detroit 3, and it was highly leveraged. When
the company ran into trouble refinancin its debt, it was forced to fil
for Chapter 11 bankruptcy protection in 2005. Stockman was forced to
resign as CEO and was charged with falsifying information about the
 Seat Supplier Right Next Door 175

company’s perilous financia condition. After auctioning off or closing

down its operations, C&A went out of existence in 2007.

Dura Automotive Systems

Dura was the leading supplier of interior control components, such
as seat adjusters, gear shifters, parking brakes, pedals, cables, and steer-
ing columns. The company also produced glass components, door mod-
ules, and exterior trim.
Dura was formed in 1990, when the Minneapolis-based holding
company Hidden Creek Industries acquired Wickes Dura Automotive
Hardware and Mechanical Components division from New York fina -
cial investment fir Wasserstein Perella. The founder and firs chair-
man of Hidden Creek was S.A. (Tony) Johnson, an 18-year veteran of
Cummins Engine Co. He was also president and chief executive office
of Onan Corp. from 1981 to 1985 and chief operating office of Pentair,
Inc. from 1985 to 1989.
In addition to Dura, Hidden Creek operated three other parts mak-
ers: Automotive Industries, J.L. French Automotive Castings, and
Tower Automotive. Johnson “kept costs low at his operating companies
through a centralized management team of just 10 people” (Sherefkin
2006b). However, French and Tower joined Dura in seeking bankrupt-
cy protection, and Automotive Industries was sold to Lear, where it
formed the basis of a struggling interior trim segment of Lear’s interior
integration strategy. “All four [Hidden Creek parts-making] companies
illustrated the grow-at-all-costs roll-up strategy used by financier in
the 1990s to win more Detroit 3 outsourcing business. Typically the
strategy involved investors who made serial acquisitions of parts sup-
pliers to offer one-stop shopping for automaker customers” (Sherefkin
2006b).
Dura Automotive file for bankruptcy protection in 2006 following
a sharp drop in revenue. “A significan part of that revenue loss came
from Lear Corp.’s decision to take in-house the seat adjusters Dura man-
ufactured . . . Most of Dura’s business was with the Detroit 3 carmak-
ers, but one-fourth was with other tier one suppliers, especially Lear,
its third leading customer behind GM and Ford. However, Dura found
itself in competition with Lear. Instead of buying seat tracks from Dura
for GM vehicles, Lear started making them itself” (Sherefkin 2006b).
176 Klier and Rubenstein

INTERIOR SYSTEMS INTEGRATORS

At the beginning of the twenty-firs century sourcing an integrated

interior from a single supplier appeared very attractive to carmakers.
A single supplier could ensure that the main interior modules were de-
signed as a harmonious whole and fi together well. Fibers for seat cov-
ers, headliners, and carpets could be obtained from the same batch and
colored together, as could plastic and wood trim on the door panels and
cockpit.
The importance of the interior for comfort and convenience, rather
than for performance, seemed to make it especially appropriate for out-
sourcing as a single integrated module to a single supplier. An attractive
interior must blend materials harmoniously, match colors closely, fi
pieces snugly, arrange controls conveniently, and provide ergonomics
suitably. Expertise in creating and building interiors has less to do with
advanced engineering than with coordination of hundreds of parts. This
seemed a suitable job for an integration specialist.
JCI and Lear were the two principal suppliers to emerge as interior
integrators into the twenty-firs century. Their strategy was implement-
ed by way of numerous acquisitions during the 1990s.

Interior Integration at JCI

JCI’s major acquisition was Prince Corp., the sixty-first-la gest parts
supplier at the time, with $425 million in North American OEM sales at
the time of the acquisition in 1996. Prince was founded in 1965 by Ed-
gar Prince in Holland, Michigan, to make machine tools and auto parts.
Under Edgar Prince’s long-time leadership, the company remained ex-
tremely insular. All seven of its U.S. manufacturing facilities as well as
research and corporate office were in Holland, Michigan. The com-
pany had a minimal presence overseas other than one plant in Mexico,
and it did not even maintain a sales offic in the Detroit area.
Prince made headliners, door panels, and other individual interior
components, such as consoles, grab handles, visors, armrests, and stor-
age compartments. The Prince acquisition gave JCI the ability to supply
all fiv major interior systems except instrument panels. Adding Prince
increased JCI’s share of the U.S. headliner market, for example, from 9
percent to 21 percent.
 Seat Supplier Right Next Door 177

Edgar Prince gave only one authorized media interview, around

1980, and vowed never to speak on the record again because he felt he
had been misquoted (Gardner 1996). After he died in 1995, his widow
Elsa briefl ran the company and then sold it within a year to JCI. The
machine tool business, Prince Machine, was sold in 2000 to Italy-based
Idra Presse, and the combined company known as IdraPrince became
the world’s largest supplier of die casting equipment.
Despite its insularity, Prince had a reputation for innovation, such
as buttons on the sun visor that open garage doors and enable security
systems. Prince claimed to hold more patents than any other parts sup-
plier except one—JCI—which was thus its most logical merger partner.
JCI gave Prince considerable autonomy and maintained the corporate
office and technology center as well as the manufacturing facilities in
Holland.
To make instrument panels, JCI established a joint venture with
Japanese manufacturer Inoac Corp. in 1996. The joint venture produced
instrument panels and other interior components under the name Inter-
tec Systems, LLC, at a plant in Bardstown, Kentucky.

Interior Integration at Lear

Lear made 14 major acquisitions between 1995 and 1999. The three
most significan acquisitions in Lear’s transformation from seat supplier
to interior integrator were Automotive Industries Holding Inc. (AIHI)
in 1995, Masland Corp. in 1996, and United Technologies Automotive
(UTA) in 1999. The AIHI, Masland, and UTA acquisitions gave Lear
the ability to produce all major interior components.
AIHI was an interior door panel specialist with 8,000 employees
at 14 U.S. and 8 foreign manufacturing facilities. The acquisition also
brought Lear capabilities in armrests, center consoles, sun visors, pack-
age shelves, and other interior molded trim.
Masland Corp., acquired in 1996, was a leading manufacturer of
carpeting, acoustical products, and luggage compartment trim. It was
the fifty-fifth-l gest supplier in 1996, with $500 million in sales and
3,000 employees. Founded in 1866 by Charles H. Masland to make tex-
tiles, the company produced automotive carpet beginning in 1922 with
the Ford Model T. UTA had been the automotive division of United
Technologies Corp. (UTC).
178 Klier and Rubenstein

UTC’s predecessor, United Aircraft and Transport Corp., was cre-

ated in 1929 through the merger of several pioneering aviation firms
including Pratt and Whitney, which made aircraft engines; Sikorsky,
which made helicopters; and Boeing Airline & Transport, which made
airplanes and offered scheduled service. Federal government opposi-
tion to consolidation of airlines with manufacturers resulted in division
of United into three companies in 1934: United Air Lines Transport
(predecessor of United Airlines), Boeing Airplane Co. (manufacturer
of airplanes), and United Aircraft Co. (manufacturer of engines and
helicopters).
United Aircraft changed its name to United Technologies Corp. in
1975 when it began to diversify away from aircraft production through
such acquisitions as Otis Elevator in 1976 and Carrier heating and air
conditioning in 1979. UTC was one of the largest motor vehicle sup-
pliers during the 1990s, but the sector accounted for only 10 percent of
the company’s total sales and an even lower share of profit when it was
sold to Lear.

System Integration in Reverse?

JCI and Lear may be ready, willing, and able to supply entire interi-
ors, and a few such orders were received from the Detroit 3. But early in
the twenty-firs century carmakers pulled back and hesitated to continue
single sourcing of entire interiors.
Despite clear benefit of efficienc and quality in having a single
supplier, carmakers were reluctant to turn over so much authority to a
single supplier, fearing loss of control in the development and manu-
facturing processes. “[T]hey [GM officials are re-examining their total
interiors strategy . . . They have said they want to increase their involve-
ment in the Tier 2 and Tier 3 sourcing decisions and relationships.”5
Consequently, carmakers have taken back control over interior design
and selection of Tier 2 suppliers of interior components. “GM believes
it can more effectively control costs and quality by bringing more work
in-house” (Van Biesebroeck 2006, p. 209).
Forced to sell components and modules one at a time, the large
interior integrators have struggled to make each portion of their firm
profitable In particular, the interior trim segment has proved less profi -
able than the seat assembly segment, calling into question the business
 Seat Supplier Right Next Door 179

model of interior integration. This has dragged down profit for the en-
tire companies and forced them into cutbacks (Bowens and Sedgwick
2005).
Lear felt a “severely negative impact” on its financia position (Mer-
rill Lynch 2007). As a result, the company shed its low value-added in-
terior trim portion of the business. Collins & Aikman decided to auction
itself off when it could not come up with a profitabl business plan that
would have allowed it to emerge from Chapter 11.

OUTLOOK AND UNCERTAINTIES

Regardless of the structure of the interior sector, seat plants in a JIT

production environment continue to be located within 60 miles of an as-
sembly plant. This relationship holds for every assembly plant in North
America. It is driven by the bulkiness of seats and the large number of
variations in seats for a given car model.
What is in play, however, is the future role of interior suppliers. As
the Detroit 3 have backed away from commitments to interior integra-
tors, market leader Toyota has moved in the opposite direction. In 2004
Toyota Boshoku, through the merger of several Toyota keiretsu com-
panies, became Toyota’s interior integrator. In its 2006 annual report,
the company described itself as “an automotive systems supplier that
considers the automobile’s interior space in its totality, including seats,
door trim, headliners and carpets (but excluding instrument panels). It
integrates everything from conceptualization through product develop-
ment, design, procurement and production” (Toyota Boshoku 2005,
p. 3). Given its high dependency on a single customer, the fate of Toy-
ota Boshoku as a systems integrator was tied to the future of Toyota.
As Toyota was growing rapidly, Toyota Boshoku was likely to do so
as well.
The wildcard in the restructuring of the interior sector has been pri-
vate equity investors, which were especially active in investing in the
motor vehicle parts sector during the firs decade of the twenty-firs
century. Starting in 2005, Wilbur Ross, a self-made billionaire turned
private equity investor, created International Automotive Components
(IAC), designed to be “an interiors powerhouse in North America
180 Klier and Rubenstein

and abroad through the select purchase of financiall troubled assets”

(Barkholz 2007a). IAC’s rationale was one of scale, not of systems in-
tegration. Prominent among its assets were interior trim plants formerly
operated by Collins & Aikman and Lear (Snavely 2007a). The company
quickly became one of the world’s 40 largest suppliers. Instrument pan-
els and door panels were responsible for more than half of IAC’s sales
(International Automotive Components 2007).

Notes

1. Donald Montroy, CSM Worldwide analyst, quoted in Wernle (2005c).

2. Eric Goldstein, Bear Stearns analyst, quoted in Sherefkin (1999b).
3. Betsy Meter, KPMG partner, quoted in Armstrong (2004b).
4. Jeff VanBuskirk, vice president of systems engineering and development for Rieter
Automotive North America Inc., quoted in Armstrong (2004b).
5. Doug DelGrosso, Lear COO, quoted in Bowens and Sedgwick (2005).
 8
Delivering the Goods

We see a transmission not as a whole part, but as hundreds

of boxes of parts of all different shapes and sizes, each with
its own part number and its own location in warehouses we
have to manage.1

The task of connecting the complex chain that links parts makers
with fina assembly plants has been outsourced to logistics specialists.
Transport management is not a core competence of either carmakers or
parts suppliers. With widespread diffusion of just-in-time delivery, de-
mand for pinpoint timing of several hundred daily deliveries per assem-
bly plant has exceeded the capabilities of carmakers and suppliers, many
of whom traditionally relied on hand-drawn production flo charts. So
logistics specialists now sort out scheduling and hauling of parts from
lower tier to higher tier suppliers and from suppliers to assemblers.
“Logistics is a key foundation of our production system,” accord-
ing to Glenn Uminger, who was general manager of logistics at Toyota
Motor Manufacturing North America Inc. in 2004, “because if we don’t
move material efficientl and in small lots we might lose many of the
benefit our production system principles stand for” (Terreri 2004).
“Logistics” is most simply “having the right thing, at the right place, at
the right time,” according to Logistics World magazine (2008). For all
of its vaunted production system, Toyota was still sorting out delivery
routes with “plastic and crayons” in 2001, according to Uminger (Shea
2001).
“[M]anufacturing gurus” effectively assume that the economic
universe revolves around manufacturing . . . Those evaluating the
economy and the future without the manufacturing bias typically
see quite a different economic universe. The “supply chain” uni-
verse would seem to provide an alternative concept to the “manu-
facturing” universe—a universe where manufacturing is simply
viewed as a link in the worldwide supply chain that includes all of
the activities required to supply worldwide need. (McKee 2004a)

181
182 Klier and Rubenstein

3PLS: MOVING THE FREIGHT AND MANAGING THE CHAIN

Logistics are provided by specialists known as third-party logistics

(3PL) providers. A 3PL is an outsourced provider that manages all or a
significan part of an organization’s logistics requirements and performs
transportation, location, and sometimes product consolidation activities
(Logistics List 2006).
Logistics costs have risen in the United States from $521 billion in
1985 to $773 billion in 1995 and $1,305 billion in 2006. As a percent-
age of GDP, though, logistics costs declined from 12.3 percent in 1985
to 10.4 percent in 1995 and 9.9 percent in 2006. A sharp decline in
inventory, as noted in Chapter 6, has accounted for most of the decline
(Andel 2007; Wilson 2007).
The distinctive contribution of 3PLs in the production process
has been to arrange two types of services for their customers: freight
management and supply chain management. Freight management is
arrangement of shipment of goods either through direct ownership of
transport companies or through negotiations with other carriers. Sup-
ply chain management is coordination of pickup, storage, and delivery,
often on a just-in-time basis.
In the logistics industry freight management is known as asset-based
service because it involves the physical transfer of the goods. Supply
chain management is known as non-asset-based service because it in-
volves the flo of information about the goods. According to O’Reilly
(2006), 46 percent of 3PLs were asset based in 2006, 19 percent were
non-asset based, and 37 percent were both (O’Reilly’s numbers totaled
more than 100 percent). “Asset-based providers tout their investment
in equipment, and the control they can leverage in coordinating trans-
portation processes; non-asset 3PLs claim to bring a more objective
and flexibl approach to negotiating and securing capacity” (O’Reilly
2006).

Freight Movement

The physical transfer of goods requires two types of tangible as-

sets. One is transportation equipment, including trucks, trains, ships,
and airplanes, for hauling the goods from one place to another. The
 Delivering the Goods 183

second type of tangible assets is buildings for storage and transfer of

the goods.

Shipping
“On the transportation side, 3PLs are all the rage, as businesses fin
it increasingly irksome to manage rising fuel expenses, capacity and
truck driver shortages, and equipment costs . . . reducing transportation
costs is the top concern among their customers” (O’Reilly 2006). Trans-
portation accounted for $801 billion of the $1,305 billion total logistics
cost in the United States in 2006. Trucking accounted for $635 billion,
other transportation for $166 billion, and carrying costs and administra-
tion for the remainder (Wilson 2007).
Passage of the Motor Carrier Act in 1980 substantially deregulat-
ed the trucking industry, enabling subsequent changes in the structure
of the industry. The Motor Carrier Act of 1935 had given authority to
regulate the trucking industry to the Interstate Commerce Commission,
which had been regulating railroads since 1887. “ICC regulation re-
duced competition and made trucking inefficien . . . Truckers with au-
thority to carry a product, such as tiles, from one city to another often
lacked authority to haul anything on the return trip” (Moore 2002).
The regulatory environment made it virtually impossible for a
trucking fir to add a new route except in the rare circumstance that
no competitor opposed it. “The result was often bizarre. For example,
a motor carrier with authority to travel from Cleveland to Buffalo that
purchased another carrier or the carrier’s rights to go from Buffalo to
Pittsburgh was required to carry goods destined for Pittsburgh through
Buffalo, even though the direct route was considerably shorter. In some
cases carriers had to go hundreds of miles out of their way, adding many
hours or even days to the transport” (Moore 2002). The 1980 Motor
Carrier Act eliminated most restrictions on destinations that a carrier
could serve, commodities that could be carried, and routes that could
be used.
In the deregulated environment, trucking companies are offer-
ing three basic types of runs: dedicated contract carriage, less-than-
truckload shipments, and milk runs. Dedicated contract carriage and
less-than-truckload shipments were updated versions of long-standing
forms of shipping. A moving van completely fille with the contents of
184 Klier and Rubenstein

an old house and completely unloaded at a new house is an example

of a dedicated contract carriage. A mattress delivered from a furniture
store that shares space with other furniture destined for other homes is
an example of a less-than-truckload shipment.
In the motor vehicle industry, some trucks have offered dedicated
contract carriage: they were completely fille with a single supplier’s
components and completely unloaded at a fina assembly plant. John-
son Controls, for example, has delivered seats to fina assembly plants
in trucks that it has owned and operated. Less-than-truckload, though,
has become less common in the motor vehicle industry than in the past
because it has been superseded by the milk run.
A milk run or common carrier route is a routine trip involving stops
at many places. A milk run visits a large number of suppliers on a recur-
ring predictable schedule, such as the same time every day or week. It
is more efficien than less-than-truckload for small batch delivery. Once
limited to picking up routine parts from smaller suppliers, the milk run
has become an important tool in just-in-time delivery because smaller
batches can be sent more often than with dedicated truckloads. “We
know we have to sacrific some mileage, but the benefit are steady and
level flow of material and higher order frequencies,” stated Toyota’s
Glenn Uminger (Terreri 2004).

Distribution
The Detroit 3 traditionally took direct responsibility for most of
their warehousing operations. Parts made in Michigan were stored until
a sufficientl long train of fully loaded boxcars was ready to be put
together for shipment to a branch plant. In the trucking era, distribution
centers still play an important role, although parts come and go more
quickly. GM ranked fift in the United States in 2004 in square footage
of privately or exclusively owned warehouse space, with 24 million
square feet, behind UPS, Wal-Mart, Target, and Sysco.
Among logistics firms DHL has been by far the largest owner of
public or shared warehouse space, with 73 million square feet in 2005.
Second-place UPS Supply Chain Services had 28 million square feet,
which was counted separately from UPS delivery service’s 78 million
square feet (McKee 2004b). Warehousing accounts for about 10 percent
of all logistics expenditures, small compared with the actual hauling of
 Delivering the Goods 185

the goods, but production costs increase as inventory sits on the shelf of
a warehouse. Therefore traditional warehousing is being replaced with
cross-docking operations.
Cross-docking represents the physical receipt of goods and their
immediate transfer to the next onward phase without the goods ever
being brought into inventory. The 3PL operating the cross-docking fa-
cility unloads deliveries from multiple sources, sequences the parts, and
delivers them to the appropriate locations along the fina assembly line
as needed. For example, deliveries into Toyota’s assembly plant do not
come directly from each of the company’s 500 parts suppliers. Instead,
parts are firs shipped from suppliers to one of eight crossdocks. Upon
arrival, products delivered from suppliers are unloaded and quickly re-
packed for delivery to an assembly line.
According to Glenn Uminger, “Crossdocks accumulate shipments
from a region. Those shipments then get split according to plant require-
ments and are shipped directly from the crossdock to the plant . . . The
crossdocks are located where we need them, based on volume” (Terreri
2004). Most parts sit at a Toyota crossdock for less than six hours, none
for more than 12 hours. Parts are packaged in small standardized boxes
that fi together like Legos to facilitate transfer from the crossdocks to
the assembly plant.
Toyota no longer includes the term “inventory” in its corporate vo-
cabulary—material flow continuously into its assembly plants, just as
it does into competitors’ plants operated on a just-in-time basis. Instead,
Toyota refers to heijunka, or level flo , as the key concept in its produc-
tion system concerning the movement of parts from its suppliers to its
assembly plants. Reflectin Toyota’s evolving view of materials han-
dling, Mr. Uminger’s job title changed from assistant general manager
for production control in 2001 to general manager of logistics in 2004
(Shea 2001).

Supply Chain Management

The process of planning for the movement of all materials, funds,

and related information, from pickup of raw materials to delivery of fi -
ished products, is called “supply chain management” (Logistics World
2007). “The supply chain is an integral part of the entire manufacturing
process.”2
186 Klier and Rubenstein

To explain the purpose of supply chain management, 3PLs like to

use diagrams. Typically, a “before” diagram shows a customer, such as
a fina assembly plant, at the center, connected to many freight haulers.
The “after” diagram instead places the 3PL fir at the center, connected
to many freight haulers at one end and the customer at the other end.
Penske Logistics, hired by Ford in 1999 as its lead logistics pro-
vider, described the inefficien logistics arrangements that it inherited
from Ford:
Penske Logistics began its relationship with Ford in 1996 as
lead logistics provider (LLP) for Ford’s assembly plant in Nor-
folk, Virginia. At the time, each of Ford’s 20 North American
assembly plants managed its own logistics operations. A decen-
tralized approach provided total control of logistics at the plant
level, but presented costly redundancies in materials handling and
transportation.
Under the plant-centric approach, suppliers would make multiple
deliveries of the same parts to different plants. A supplier would
pick up a small load, deliver it to one plant, pick up another small
load of the same parts and deliver it to another plant. Carriers with
half-empty trucks would often cross routes with each other en
route to the same plant. (Penske Logistics 2007)
At a Ford assembly plant, “it was not uncommon on any day to have
22 different trucks arriving at the same part source to make pick-ups for
22 different locations” (Shister 2005). Aside from being highly inef-
ficient this design allowed for excessive inventory and storage costs at
the plant level.
To better facilitate supply chain management, a 3PL plans the dis-
tribution network for a carmaker, optimizing routes across its plants
to minimize flee size and mileage. The 3PL rarely does all of its own
hauling and some do none, so individual carriers are hired, presumably
at favorable rates given the large scale of freight hauling being pur-
chased by the 3PL. Information technology plays a key role in manag-
ing logistics and supply chain functions, including processing orders,
inventory management, forecasting and planning, warehouse manage-
ment, transport management, and tracking. Systems keep track of parts
and provide visibility for each one from production to delivery.
Tight inventory control is crucial within a lean production process.
Management of in-line sequencing typically begins with broadcasts
 Delivering the Goods 187

from the assembly plant listing which cars are soon to move onto the
assembly line and what components or subassemblies are required and
in what order. “‘What we have noticed is that the time requirements
of the broadcasts keep getting shorter and shorter,’ according to Pen-
ske Logistics senior vice president-automotive Ed Cumbo. ‘We used to
sometimes have four hours, but today it is mostly 90 minutes’” (Mur-
phy 2004).
In accordance with principles of heijunka, Toyota identifie 12 de-
livery times during an eight-hour work shift, 40 minutes apart from
each other. The company specifie the quantity of each part needed dur-
ing each of the 12 deliveries. A typical two-shift daily operation there-
fore has 24 available delivery slots. “How we use those 24 order slots
depends on the supplier, the volume, the distance and the efficiencies,
according to Mr. Uminger (Terreri 2004).
Ideally, equal quantities of the part could be delivered each time,
but that is not always possible. In some cases, the line may be running
at a faster or slower speed during the various 40-minute periods, or the
mix of specifi models coming down the line may vary. In other cases,
the nature of the part itself may not be amenable to 40-minute delivery
intervals. In response to changing volume demand, Toyota can shift the
number of daily deliveries of a particular part to any number that will
divide into 24.
The Detroit 3 have tried to emulate the Toyota system, but they
have some catching up to do. “In regard to supply-chain management,
the Big Three U.S. automakers have publicly adopted some version of
lean manufacturing and JIT logistics. Our [Liker and Wu] data showed,
however, that there was still room for improvement. The same suppli-
ers had much leaner operations within their plants and in their logistics
when serving Japanese customers” (Liker and Wu 2000, p. 92).

Leading Motor Vehicle 3PLs

As 3PL services have expanded rapidly, firm have been consolidat-

ing into fewer larger firms Worldwide, the largest 3PL—DHL—had
$31 billion in revenue in 2006, and the next four combined had $44
billion.
Four of the world’s fiv largest 3PLs in 2007 were European owned:
DHL, Kuehne + Nagel International, Schenker, and Panalpina. UPS,
188 Klier and Rubenstein

based in the United States, was the only non-European fir to crack
the top five
History, empire and exports helped create the large European 3PLs
. . . [The top European 3PLs] have been leading forwarders and
transportation management 3PLs in Europe for decades . . . Euro-
pean countries, which have always had significantl more cross-
border traffic have relied more on outsourcing than Americans,
especially since World War II . . .
Over the last few years nearly every company in Europe has been
able to take some advantage of the free movement of goods across
borders. This shift has been good for the large European 3PLs,
but cultural differences still prevent centralization of operations
at U.S. levels. Most 3PL operations in Europe still have to be de-
signed on a country-by-country basis to be effective. (Foster and
Armstrong 2004)
The fiv largest 3PLs serving the U.S. auto industry in 2007 were
Ryder, Penske Logistics, UPS, CEVA Logistics, and DHL. Only two
of the five—DH and UPS—are also ranked among the fiv largest
3PLs worldwide in 2007. CEVA, Penske, and Ryder were the world’s
eighth, fourteenth, and fifteent largest, respectively (Armstrong and
Foster 2007).

Ryder
The largest 3PL serving the U.S. auto industry has been Ryder Lo-
gistics. The company was started in 1933 by James A. Ryder in Miami,
Florida, with one truck. Ryder was the largest hauler of finishe ve-
hicles in the United States when it decided to get out of the business
of directly running its own trucks. The company sold Ryder Freight
System in 1989, the One Way Consumer Truck Rental division in 1996,
and the Automotive Carrier division in 1997.
Instead, Ryder has concentrated on arranging hauling for its custom-
ers, as well as leasing and renting vehicles. The acquisition of a logis-
tics management company, LogiCorp, in 1994 made Ryder the leading
provider of inbound logistics in the U.S. automotive industry. “Ryder
doesn’t drive trucks or move packages, they manage information: pro-
curement support, carrier relationships and performance, freight billing,
auditing, and payment, and negotiate rates for transportation” (Konicki
2001).
 Delivering the Goods 189

Ryder’s relationship with Chrysler has been particularly strong:

[Chrysler] outlines for Ryder the network surrounding a particular
physical location, including what will be built at that location, the
preferred supplier sources, rate structures, available equipment,
and densities. Ryder then designs a proposed logistics network de-
tailing when certain trucks will be loaded at a particular supplier,
the departure time of these trailers from the supplier, when parts
will be delivered at a particular plant, and when that truck will be
unloaded. (Terreri 2004)
For GM, Ryder has optimized the logistics network and manages
inbound freight at Saturn’s Spring Hill fina assembly plant. Penske
manages the work inside Saturn’s logistics optimization center, while
Ryder manages the milk runs from suppliers to the center as well as
shuttles from the center to the fina assembly plant one mile away.

Penske
The other leading U.S.-owned auto industry 3PL has been Penske
Logistics, a subsidiary of Penske Truck Leasing, the largest truck rental
and leasing company in the United States. Founder Roger S. Penske
was well known as a successful race-car driver during the 1950s and
1960s, then as sponsor of a successful NASCAR racing team after retir-
ing as a driver in 1965. Penske also acquired new-car dealerships and
parts suppliers.
The major work of Penske Logistics has been with Ford. As de-
scribed earlier in the chapter, Penske created, implemented, and oper-
ated a centralized logistics network for handling all inbound materials
handling at Ford’s assembly and stamping plants.
Penske trained more than 1,500 suppliers on a uniform set of pro-
cedures and logistics technologies. Carriers were required to follow
routes set by Penske and to pick up and deliver within 15 minutes of
schedule. Loads were tracked through satellite communications and en-
gine monitoring systems on all trucks. Shipments were consolidated
at 10 Order Dispatch Centers (ODCs). World Trade Magazine named
Ford Manufacturer of the Year for Global Supply Chain Excellence in
2005. The award cited a 15 percent reduction in plant inventory and a
clearer understanding of the variation in freight costs among individual
plants and carriers (Shister 2005).
190 Klier and Rubenstein

UPS
Third among U.S.-owned firm in the auto industry was UPS Sup-
ply Chain Solutions. The company was the largest U.S.-based 3PL
overall, and it was ranked fourth internationally in 2007. UPS created
a Logistics Group in 1993 to provide supply chain management and an
Automotive Services unit within its Logistics Group in 2000. Logistics
accounted for only $8 billion of the company’s $48 billion revenues
in 2006, with the bulk generated by package delivery. UPS has been
a highly recognizable brand in the United States for its flee of brown
package delivery trucks.
The company, originally known as American Messenger Co., was
founded in Seattle, Washington, in 1907, by 19-year-old James E.
Casey. Messages telephoned to the company’s offic were delivered by
Casey’s brother George and several other teenagers on foot or bicycle.
As the messenger business declined, the company refocused on pack-
age delivery, especially for retailers. Large department stores in Seattle
were the company’s major clients. The company also delivered special
delivery mail in the Seattle area for the Post Office
UPS expanded beyond Seattle during the 1920s, but growth was
hindered by federal and state regulations prohibiting common carrier
competition with the Post Office Interstate Commerce Commission au-
thority was needed for each state border that was crossed, and each state
had to authorize the movement of packages within its borders. Packages
often had to be transferred between several carriers before they reached
their fina destinations. UPS battled federal and state regulators for two
decades beginning in the 1950s for the right to carry packages across
state lines. Not until 1975 did UPS become the firs package delivery
company permitted to delivery anywhere in all 48 contiguous states.

CEVA
CEVA, the leading automotive 3PL worldwide, was created in 2006
when the British-based Apollo Management equity fir acquired and
renamed the logistics operations of TNT. Apollo shed underperforming
contracts, standardized processes worldwide, and integrated divisions,
and concentrated on six high-performing sectors, including automotive,
which accounted for 40 percent of CEVA’s revenue in 2006 (Armstrong
and Foster 2007).
 Delivering the Goods 191

The predecessor of TNT was Thomas Nationwide Transport, found-

ed in 1946 by Ken Thomas to provide express delivery service in Aus-
tralia. A logistics division set up in the United Kingdom in 1985 became
the motor vehicle industry’s largest 3PL during the 1990s.
TNT started logistics services in North America during the 1980s
and became a major player when it acquired logistics provider CTI LO-
GISTX in 2000 from rail and shipping company CSX Corporation. CTI,
originally Customized Transportation Inc., was established in 1981 and
became a subsidiary of CSX in 1993.
TNT was acquired in 1996 by the Netherlands postal service Konin-
klijke PTT Nederland (KPN), which had been privatized by the Dutch
government seven years earlier. Until the holding company for TNT
Logistics and Royal TPG Post was sold to Apollo, it was the largest
private employer in the Netherlands.

DHL
DHL was the world’s largest 3PL in 2006, with revenues twice as
high as the second largest 3PL. When it was created in 1969, DHL ini-
tially specialized in international air express. It was named for the ini-
tials of the three founders, Adrian Dalsey, Larry Hillblom, and Robert
Lynn. DHL was sold to the German post offic Deutsche Post World in
2002, and it became the largest 3PL when it acquired the British-based
logistics fir Exel in 2005.
Exel in turn had become the leading 3PL through a 2000 merger
of two venerable British firms National Freight Company Ltd. and
Ocean Steam Ship Company. National had moved into contract logis-
tics using Exel as a brand name in 1989. Ocean, founded in 1865, was a
freight forwarding firm originally (as the name suggested) by sea. Exel
“was made from two British companies meant to be merged together.
[National’s] contract logistics and [Ocean’s] freight forwarding have
complemented each other well” (Foster and Armstrong 2004). Exel’s
distinctive contribution to auto industry logistics had been leadership in
developing supplier parks in Europe (see below).
192 Klier and Rubenstein

COORDINATING AND MANAGING LOGISTICS

“The utter lack of coordination among 3PLs, carriers, parts suppli-

ers and OEMs is a modern equivalent of the Tower of Babel story.”3
Difficultie include the following: inadequately developed company
networks, insufficientl define tasks and responsibilities within com-
pany networks, slow implementation of optimization activities because
of poor information and coordination management, and difficultie in
calculating and allocating cost and savings between partners (European
4PL Research Club n.d.). “Each car manufacturer has its own system
and each logistics provider has its own system. If you’re a supplier that
does 70 percent of your business with one OEM then that’s great. If
you are ArvinMeritor or Robert Bosch and you are doing business with
everybody, then all of a sudden you are working with seven, eight dif-
ferent systems to do the same thing.”4
Two basic strategies have emerged to organize the complexities of
logistics. One has been to add another layer of logistics management:
in other words, to manage the managers. The other has been to add an-
other layer of physical facilities: in other words, the staging areas.

4PL Logistics: Adding Value or Adding Cost?

The term 4PL (Fourth Party Logistics) has sometimes been applied
to the coordination by a single logistics fir of all companies involved
along the supply chain. “The definitio of a 4PL is to manage 3PLs.”5
A 4PL addresses the challenges of coordinating multiple 3PLs
“through the integrative approach of designing, coordinating, and con-
trolling agile supply networks. The decisive task of the 4PL provider
is to embrace the process integration of single, independent companies
in an overall concept with the objective of enhancing the quality and
efficienc of the value chain and thereby unlocking competitive advan-
tage” (European 4PL Research Club n.d.).
A 4PL is different from a 3PL because it plans, steers, and controls
the flo of information and capital, not just material, in accordance
with a client’s long-term strategic objectives (Figure 8.1). The essence
of a 4PL is integrating information management with coordination of
multiple 3PLs. A 4PL does not actually supply the underlying logistical
 Delivering the Goods 193

Figure 8.1 Hierarchy of Supply Chain Management

Management of all
5 PL parties of the supply
E-Business chain in conjunction
with e-Business

4 PL
Supply-Chain Management of the
Management whole supply chain

3 PL Management of
Forwarding / Contract logistics complex service
chains

2 PL Traditional transport
Asset-based Logistics and warehouse
management

1 PL Own operating of
Producer logistics by the
producer

SOURCE: Adapted by the authors from the Hoyer Web site (http://www.hoyer-group
.com/logistikE/html/3pl4pl.html).

services, a job still reserved for 3PLs. “The rise of 4PLs stems in part
from the fact that outsourcing is now a global endeavor. The manage-
ment and integration of dispersed logistics players—each bound by lo-
cal variations in language, currency, trade law, and so on—is an enor-
mous undertaking. In hiring a 4PL, an enterprise must fin a partner
that understands its special logistics needs, one that can share in the
risks and rewards of reinventing a significan portion of its business”
(Schwartz 2003).
A 4PL needs IT capabilities, including Web-based capabilities, so
that it can manage each logistics participant throughout the supply
chain, as well as control inventory and shipments. Armed with this ca-
pability and information from each link in the supply chain, the 4PL can
optimize inventory, transportation, and warehousing.
194 Klier and Rubenstein

The leading IT provider of 4PL services was Accenture, formerly

Andersen Consulting, which actually trademarked the term “4PL” in
1996. Accenture define 4PL as “an integrator that assembles the re-
sources, capabilities and technology of its own organization or other or-
ganizations to design, build, and run comprehensive supply-chain solu-
tions” (Bumstead and Cannons 2002). According to Accenture associate
partner James W. Moore, “The key thing that is happening in the supply
chain is that time now is often more important than geography,” and
management of time is an IT skill. “The core value offered by 4PLs is
in managing and integrating the flo of information between hundreds
of outsourced supply chain partners and the enterprises that employ
them. ‘4PLs manage other 3PLs and transportation carriers to execute
the work and oversee the solution design and performance of those enti-
ties that work for them,’ states Tom McKenna, senior vice president of
logistics engineering at Penske Logistics” (Schwartz 2003).
Leading 3PLs have questioned the need for an additional player.
They argued that putting another layer in the supply chain raised costs
without adding value. Haulers claimed that consultants created the 4PL
concept simply to siphon off an ongoing revenue stream from the 3PLs.
The larger 3PLs were ready and able to provide the coordination servic-
es, which they preferred to call “logistics integrator” or “lead logistics
provider,” both terms that have been around for a long time (Hoffman
2000).
The term “4PL” itself has rankled 3PLs, as it was trademarked, and
by an IT fir to boot. Ryder CEO Gregory Swienton said, “I hate the
term 4PL. I even hate the term 3PL. We say ‘lead logistics’” (Arm-
bruster 2002b). Other 3PLs “deftly hijacked the new 4PL term to give
them license to move into other higher margin areas of the supply-
chain” (Bumstead and Cannons 2002).
Vascor and Vector have been the leading 4PLs associated with the
U.S. motor vehicle industry. The two were created by Toyota and GM,
respectively, specificall to coordinate their complex logistics. How-
ever, because of widespread hostility to the term among the 3PL com-
munity, neither Vascor nor Vector has been referred to as a 4PL.

Vascor, Toyota’s 4PL

Toyota turned over 4PL responsibility for its Georgetown com-
plex to Vascor, Ltd. in 1987. The company’s name was an acronym for
 Delivering the Goods 195

“value-added service corporation.” Vascor was a joint venture between

Fujitrans Corp. and APL Logistics. Fujitrans was a shipping company,
founded in Nagoya, Japan, in 1952. The company owned a flee of ships
and specialized primarily in freight handling and warehousing within
Japan. APL, originally American President Lines, was created in 1848
to carry passengers on the S.S. California from New York to San Fran-
cisco for the gold rush. The company established the firs trans-Pacifi
route between the United States and China in 1867. APL was acquired
in 1997 by the much smaller NOL Group, founded in 1968 as Neptune
Orient Lines, based in Singapore and one-third owned by the Singapore
government.
Vascor has played a dual role for Toyota as operator and coordina-
tor. As operator, Vascor would get a month’s worth of milk-run routes
to pick up from a network of 500 suppliers. Vascor delivered to one of
eight crossdocks that Toyota’s 3PLs operated for the company. In that
function, Vascor also coordinated the outbound movement of finishe
vehicles to dealers.
Vascor has managed the various transportation and distribution ser-
vice providers to get parts into the plants on a just-in-time basis. Routes
have been structured precisely to get seats, interior trim, and other parts
from suppliers or sequencing centers to plants in accordance with pro-
duction schedules. Vascor assigned routes to partner carriers, schedules
less-than-truckload shipments, and organizes intermodal transfers. Giv-
en the need for a precise timetable of truck arrivals at the plant because
of sequencing, global positioning systems have been used to track the
milk-run fleet If a driver encountered an “exception”—that is, is run-
ning late—Vascor immediately informed a large number of people at
Toyota (Terreri 2004).

Vector, GM’s 4PL

Vector was established in 2000 to run GM’s supply chain in the
United States. Controlling interest was originally held by Menlo World-
wide, a leading 3PL that was founded in 1990.
CNF, originally Consolidated Truck Lines, combined several Port-
land, Oregon, freight companies that were acquired in 1929 by Leland
James. A decade later, to provide his freight company with suitable
trucks, James established Freightways Manufacturing Co., later known
as Freightliner Corp. CNF became a leading international freight for-
196 Klier and Rubenstein

warder specializing in heavy air cargo, especially after acquiring Emery

Air Freight Corp. in 1989. Menlo Logistics was established in 1990 to
meet distribution services beyond traditional trucking and air freight.
CNF spun off its original trucking operations into a separate com-
pany in 1996. Viewed as uncompetitive, saddled with a high wage
unionized workforce, the spun-off freight hauler declared bankruptcy
in 2002. CNF was restructured around Emery Worldwide air freight
service and Menlo Logistics (Cottrill 2000).
CNF provided Vector with the initial funding, skills, and technol-
ogy to manage GM’s global network of logistics service providers. GM
provided strategic planning and worked with Vector to identify proj-
ects to move from GM staff over to Vector (Bumstead and Cannons
2002). Vector’s firs accomplishment was a redesign of GM’s Logistics
Inbound Material Network to reduce the aggregate travel of all inbound
carriers by 44 million miles in 2004. At 6.2 miles per gallon per truck,
the reduction saved 7 million gallons of diesel fuel and $59 million.
GM bought out Menlo in 2006 and brought Vector in-house. “GM
apparently came to the conclusion that managing inbound supply chain
operations had become a core competency that it wanted to manage
itself” (Armstrong and Foster 2007, p. 32).

Staging Deliveries

Carmakers have also addressed the complexities associated with the

frequency and volume of deliveries to their assembly plants through
establishment of satellite facilities, including supplier parks and distri-
bution centers. These facilities are not warehouses storing large inven-
tories of not-yet-needed parts. Rather, they move parts quickly from
suppliers to fina assembly in a logical sequence that can be handled
more smoothly in a building dedicated to the purpose rather than inside
the fina assembly plant.

Supplier parks
A supplier park is a campus containing a number of suppliers situ-
ated in close proximity to a fina assembly plant. In Europe, supplier
parks have been opened by Ford near assembly plants in Valencia,
Spain, and Saarlouis, Germany, and by Nissan near its assembly plant
in Sunderland, England. Traffi congestion in Germany and the remote-
 Delivering the Goods 197

ness of southern Spain and northern England from Europe’s supplier

base influence the decision to establish supplier parks there. Supplier
parks have also been opened in developing countries like India, where
poor roads make just-in-time delivery difficult and utilities such as wa-
ter and electricity are hard to get.
In the United States, Ford opened the firs full-fledge supplier park
in Chicago. Ford has been assembling cars at its Torrence Avenue plant
located on the far South Side of Chicago, on the banks of the Calumet
River, since 1924. As production of the Taurus car neared the end of its
run at the Chicago assembly plant, Ford official weighed their options.
On the plus side, the plant had a productive workforce amenable to fle -
ible work rules, and a local government willing to do what it would take
to keep the plant open. On the other hand, the plant was Ford’s oldest
and faced severe logistics challenges. Ultimately, Ford decided to retool
the plant for new models.
Logistics issues would be addressed by opening a supplier park ad-
jacent to the assembly plant. Ford’s Chicago supplier park would be de-
signed to reduce shipping costs and inventory, to allow more flexibilit
to changes in production mix, and to more quickly identify (and solve)
quality problems.
Ford began talking with local government official about the sup-
plier park idea in 1999. A deal was announced a year later. A supplier
park was to be located on a contaminated site, formerly occupied by
Republic Steel, adjacent to the Torrence Avenue assembly plant. Ford’s
real estate arm, Ford Land, chose CenterPoint Properties Trust, the larg-
est owner and developer of industrial property in Chicago, to manage
the supplier park and to entice Ford suppliers to lease space there.
Naturally, local government incentives were forthcoming. Ulti-
mately, the city of Chicago and state of Illinois split about evenly $100
million in roadway improvements, including the relocation of Torrence
Avenue 100 feet to the east to accommodate new loading-dock facili-
ties for the assembly plant. The state provided $4.8 million in Illinois
FIRST funds for urban brownfiel restoration, plus $6 million for job
training. The city also contributed $11 million in tax increment finan -
ing (Kachadourian 2000; Mayne 2002).
Initially attracted to the supplier park were nine suppliers, a mix of
large and small. Five large tenants included Brose Automotive, Plas-
tech Engineered Products, Tower Automotive, Visteon, and ZF Group.
198 Klier and Rubenstein

Ford’s Chicago assembly plant received door modules from Brose, plas-
tic body parts from Plastech, floo pans and chassis components from
Tower, instrument panels and engine-related components from Visteon,
and suspension components from ZF. S-Y Wiring Technologies, a joint
venture between two large suppliers, Siemens VDO Automotive Group
and Yazaki Corp., supplied wiring to both Ford and the other suppliers
in the park.
Two smaller suppliers attracted to the supplier park were Sander-
son, which supplied stampings, and Summit Polymers, which supplied
plastic parts. The ninth original tenant, Conau-Pico, was not actually a
parts supplier; rather it was the largest supplier of automation equip-
ment for assembly plants.
For all of the hype about the supplier park, the most important com-
ponents still arrived at the Chicago assembly plant through conventional
sources. Engines and transmissions came from Ford’s powertrain facili-
ties in Ohio. Stampings came from Ford’s 1940s-era Chicago Heights
facility, 10 miles south of the assembly plant. Lear Corp., as was its
custom, built its own seat plant one-half mile from the Ford assembly
plant and supplied headliners and other interior parts from a facility in
Hammond, Indiana, 5 miles away.
Ford reported that the average distance materials had to be trans-
ported to the Chicago assembly plant declined from 457 miles for Tau-
rus production to 121 miles for the new models (Mayne 2002). The
figur was probably the average distance traveled by the 600 trucks
arriving each day at the assembly plant, and was not weighted by value
or weight of the individual components.
Did Ford’s Chicago supplier park represent the wave of the future?
Two Automotive News headlines two months apart equivocated
• “Automakers See Payoffs in Supplier Parks” (August 5, 2002),
and
• “Automakers Are Divided on Supplier Parks” (October 7, 2002).
The firs article, complete with a sketch of the then-future Chicago
supplier park that inevitably bore little resemblance to the completed
complex, emphasized Ford’s perspective. “Besides improving logistics
itself and the cost to ship, it provides the ability to sequence directly
to the assembly plant door,” according to Roman Krygier, then Ford’s
group vice president of manufacturing and quality. “Quality gets a sig-
 Delivering the Goods 199

nifican improvement because you don’t have a long pipeline, and re-
sponse to change is much better. It’s hard to mention all the benefit
because what you really do is link the supplier” (Wilson 2002b).
Two months later, Automotive News reported, “Supplier parks—the
concept of housing major suppliers next to assembly plants—aren’t
quite working out as planned.” Toyota and Honda in particular did not
seem especially fond of the supplier park concept. “Toyota developed
an electronic version of its kanban, or card, reordering system that ad-
justs to shopping time from more distant suppliers to smooth the flo
of parts.” And Honda has relied on a crossdock system (Cullen 2002).
In other words, if Toyota and Honda already managed their inbound
freight efficientl , what value would a supplier park add for them? The
fact that Ford did not roll out supplier parks across its North American
assembly operations supported the second point of view.
Supplier parks have been implemented, however, by a number of
assembly facilities located at the southern end of Auto Alley, such as
Toyota’s truck plant in San Antonio and Nissan’s assembly plant in
Mississippi. If an assembly facility is at the fringe of or actually outside
Auto Alley, a supplier park is a way to make up for the lack of a well-
developed regional supply base.
A different model of bringing a select group of suppliers close to
the assembly line has been put into place at Chrysler’s Toledo assembly
plant. Here a small number of strategic suppliers have been brought into
the assembly plant (see Chapter 11).

Distribution centers
Distribution centers are being built as staging areas to facilitate the
timely arrival of parts at fina assembly plants. Carmakers now require
delivery of parts not merely on a just-in-time basis, but more important-
ly, in the correct sequence. Rather than just-in-time, this trend has been
called just-in-sequence. In order to meet these requirements, the line
between supplier and logistics provider sometimes gets erased. State-
of-the-art distribution centers perform a number of so-called sequenc-
ing and kitting operations. The value added consists not in producing
parts but in getting them ready to be sent to the assembly line in the
right order of the available variations. A sequencing and kitting opera-
tion can also include unpacking and prepping parts for assembly. An
example is plants that put tires on wheels (not producing either of these
200 Klier and Rubenstein

two parts). A small company named T&W Assembly in 2005 supplied

all the three Mississippi-based assembly plants from three dedicated
distribution centers with tires and wheels.
Carmakers tell suppliers what specifi vehicles will be built on which
days. “The suppliers then determine what assemblies to make—interior
dashboards, for instance—produce them, then sequence delivery in the
exact order of the manufacturing production run” (Harrington 2007).
A distribution center (DC) may serve a single assembly plant or it
may serve multiple assembly plants. “A 3PL may pick up material from
nearby suppliers, crossdock it, split out what’s going to the local OEM
plant, and load the rest on a truck for delivery to another DC or plant,”
according to Vascor vice president Jim Brutsman (Harrington 2007).
Just-in-time meant frequent deliveries from suppliers to fina as-
sembly plants in small batches. Just-in-sequence has meant moving
larger batches less frequently from suppliers to distribution centers and
then moving small batches more frequently from distribution centers
to fina assembly plants. “Instead of a 3PL delivering to an assembler
from a supplier 16 times a day, it may go to the supplier twice a day,
bring the materials to the DC, then move from there 16 times to the
OEM plant.” This arrangement trades transportation costs for distribu-
tion center costs (Harrington 2007).
According to another Vascor vice president, Dan Greenberg,
The plant still receives the same 16 deliveries, but the external flo
makes more economic sense. If, for example, the 3PL moves ma-
terial from a supplier 100 miles away from the OEM, a roundtrip
runs 200 miles. Delivering 16 times a day equals 3,200 miles.
If, on the other hand, the 3PL moves material from the supplier
twice a day in larger quantities, and puts the shipments in a distri-
bution center close to the OEM’s plant, travel distance is reduced
to 400 miles. (Harrington 2007)

OUTLOOK AND UNCERTAINTIES

Efficien logistics is the thread that holds together all of the changes
in producer–supplier relations outlined in this book. It has made feasi-
ble the business model by which carmakers outsource most of the value
 Delivering the Goods 201

of the vehicle to independent suppliers. Large modules can arrive at the

fina assembly line ready for installation moments before needed, elimi-
nating costly inventory. “Clearly, logistics outsourcers are using 3PL
partnerships to strategically shift the way they approach and manage
their supply chains. It’s no longer simply a matter of cutting costs or ac-
cessing capacity. 3PLs and their customers are digging deeper into the
supply chain to look at how they can apply technology to business pro-
cesses—beginning with suppliers and inbound product movement—to
reduce inventory, match available capacity to demand, and streamline
costs in a more organic way” (O’Reilly 2006).
Thanks to efficien logistics, the network of suppliers around an
assembly plant described in Chapter 6 can be rather loose. Suppliers
do not have to be bunched up in the immediate vicinity of an assembly
plant, competing for the same labor supply and infrastructure invest-
ment. The most important unit of delivery time is one day, not one hour,
thanks to efficien logistics.
The challenge for carmakers is that they have outsourced logistics
to companies that, with some exceptions, do not have historic ties to the
auto industry. In other words, 3PLs know computers and spreadsheets,
but how well do they know seats and engines? Even more challeng-
ing for carmakers will be integrating parts sourced from China into the
supply chain. To date, China has been the source of a small but grow-
ing percentage of components used in the United States. As carmakers
stretch their supply chains around the globe, many are seeking help
from large 3PL providers.
[S]ourcing and manufacturing in China ties up an additional six
weeks’ worth of capital while goods are in transit. It is vital that
companies stay on top of where that inventory is at any point in
time and be able to make decisions to keep the supply chain flo -
ing. Lead logistics 3PLs have the state-of-the-art systems, the
web-based track-and-trace interfaces, and the event management
capability needed to manage these long, risky supply chains. The
next tier of 3PLs below the Top 25 does not yet have these systems
or these abilities. A big differentiator between the major-league
3PLs and everyone else is the ability to spend the money and build
this systems capability. (Foster and Armstrong 2004)
The challenge for suppliers is somewhat different. Because they
ship to more than one carmaker, they must work with more than one
202 Klier and Rubenstein

3PL. The benefit they have been receiving in streamlined delivery

schedules have been at least partially offset by the costs they have in-
curred in having to learn the distinctive practices of several 3PLs. “The
one-stop shop philosophy is no longer as practical as it once was. Busi-
nesses have less flexibilit with only one 3PL, particularly when plan-
ning contingencies or shifting in and out of markets. Having multiple
logistics providers also gives companies greater leverage to benchmark
performance, which in turn holds 3PLs accountable for meeting ex-
pected service requirements” (O’Reilly 2006).
Despite initial claims that the arrival of just-in-time production
would considerably tighten the physical linkages between assemblers
and their suppliers, we observe a rather loose geographical connection
of the supply chain. Key to this development is the availability of a
well-developed transportation infrastructure. In combination with the
use of logistics services, it allows production facilities to be closely
linked operationally without having to be physically close.

Notes

1. Bill Naples, transportation manager, Ford Customer Service Division, Livonia,

quoted in Terreri (2004).
2. Tim Connearney, materials director for Saturn, quoted in Terreri (2004).
3. Tom Jones, Ryder Logistics official quoted in Buss (2004).
4. Vic Giardini, supply chain management director, ArvinMeritor, quoted in Automo-
tive Logistics (2004).
5. Jim Allen, CNF spokesman, quoted in Armbruster (2002a).
 Part 3

Shifting Fortunes along Auto Alley

When GM, Ford, and Chrysler controlled more than 90 percent of the U.S.
auto industry as “the Big Three,” southeastern Michigan was the center of auto
manufacturing, research, and administration, and “Detroit” was a one-word
term that encompassed the totality of the U.S. auto industry. At the peak of
their dominance during the 1950s, the Big Three employed more than 400,000
people in Michigan. As described in earlier chapters, parts suppliers even more
than carmakers were clustered in Michigan.
As the Big Three—now more accurately referred to as the Detroit 3—lost
market share to foreign-owned carmakers, “Detroit” became shorthand for the
declining remnants of the industry still in the hands of GM, Ford, and Chrys-
ler. Michigan auto industry employment declined about 6 percent per year
during the early twenty-firs century.
Despite Michigan’s decline, at a national scale the U.S. auto industry
remains very highly clustered in a small portion of the country. More than
three-fourths of auto industry jobs and facilities are packed into an area that
comprises only 2 percent of the land of the United States.
The auto-producing area has a distinctive shape: a narrow corridor rough-
ly 700 miles long and often less than 100 miles wide through the interior of the
United States between the Great Lakes and the Gulf of Mexico. The spine of
the corridor is formed by two north–south interstate highways, I-65 and I-75,
which run within 100 miles of each other for the most part. East–west inter-
states including I-40, I-64, and I-70 form ladders connecting the two north–
south routes. The corridor is commonly referred to as Auto Alley.
Interstate 65 runs 1,000 miles between Gary, Indiana, near Lake Michi-
gan, and Mobile, Alabama, near the Gulf of Mexico. The Auto Alley portion
of I-65 passes through Indianapolis, Indiana; Louisville, Kentucky; Nashville,
Tennessee; and Birmingham, Alabama. Interstate 75 runs 2,000 miles between
Sault Ste. Marie in Michigan’s Upper Peninsula and Fort Lauderdale, Florida.
Within Auto Alley, I-75 passes through Detroit and Flint, Michigan; Toledo,

203
Dayton, and Cincinnati, Ohio; Lexington, Kentucky; Knoxville and Chatta-
nooga, Tennessee; and Atlanta, Georgia.
Seven hundred miles south of Michigan, Alabama was one of the poor-
est states in the country for much of the twentieth century. Per capita income
and car ownership rates were 50 percent lower in Alabama than in Michigan
in 1950. Investment in all-new and expanded factories totaled $35 million in
Alabama in 1952 compared with $218 million in Michigan, and manufac-
turing wages totaled $700 million in Alabama compared with $6 billion in
Michigan.
This section examines reasons for the industry’s clustering in Auto Alley
between Alabama on the south and Michigan on the north. Michigan remains
a major center of automotive production, but most of the industry’s growth
of late has been further south. As a result, Alabama was tied with Illinois and
Indiana for fourth place in number of assembly plants in 2007, behind only
Michigan, Ohio, and Missouri.
The firs chapter of this section describes the emergence and current struc-
ture of Auto Alley. The nature of the parts produced as well as the national-
ity of the supplier company influenc specifi locations within Auto Alley.
Chapters 10 and 11 describe the pull towards the southern end of Auto Alley
for several types of parts, including tires and glass (Chapter 10) and chassis
(Chapter 11).
Chapter 12 explains how labor was the principal factor underlying the
relative attractiveness of the southern end of Auto Alley as the location of
choice for new assembly plants and parts suppliers. Of critical importance has
been the difference between the northern and southern ends of Auto Alley in
labor relations, especially the role of unions.
 9
Emergence of Auto Alley

To be honest, five years ago, I didn’t even know where

Alabama was, much less think that I would be living there.1

Auto Alley became the home of the U.S. auto industry primarily
because of transport costs. The most critical transport factor for car-
makers is the cost of shipping vehicles from fina assembly plants to
customers. Because assembled vehicles are bulky and fragile and tie up
a lot of capital, it is imperative that they be delivered to customers as
quickly as possible.
At firs glance, the optimal location for an assembly plant would
be the point that minimizes the aggregate travel to all of its custom-
ers throughout the United States, as well as Canada and Mexico. Each
model would have its own optimal location, depending on the particu-
lar distribution of its customer base. For a vehicle with a similar mar-
ket share in every region of the country, the optimal location would
probably be near the center of U.S. population, which is currently in
Missouri.
In reality, Missouri is west of the optimal location, because the cost
per mile of shipping vehicles is not uniform. For vehicles that leave the
assembly plant by truck, delivery that takes more than one day adds
considerable cost. If overnight travel is required, the vehicles may as
well be loaded on trains, which have a much higher cost per mile than
trucks for short distances but a lower cost per mile for long trips. So the
optimal location for an assembly plant is actually the point that maxi-
mizes the number of customers who can be reached within a one-day
drive. For most carmakers, that optimal location is somewhere in Auto
Alley (see Figure 9.1).

205
206 Klier and Rubenstein

Figure 9.1 Close-up of Auto Alley

NOTE: Empty boxes denote cities.

SOURCE: Adapted by the authors from ELM International and other sources.
 Emergence of Auto Alley 207

BEFORE Auto Alley

The geographical arrangement of motor vehicle production in the

United States has changed three times. The firs geographical change
took place around 1900 and the second around 1910. The third geo-
graphic shift, which resulted in the creation of the modern Auto Alley,
began about 1980.
When commercial production began in the 1890s, most motor vehi-
cles were produced in the Northeast, between Boston and Philadelphia.
Most customers for early vehicles were also in the Northeast, which
was the wealthiest, most populous, and most densely built-up region in
the United States at the time.
When the industry was still in its infancy, most motor vehicle pro-
duction shifted to southeastern Michigan during the firs decade of the
twentieth century. By 1913, 80 percent of U.S. motor vehicle production
was concentrated in the area. As explained earlier in the book, Michi-
gan had already been established as the center of production for key
components, notably gasoline engines and carriage bodies. Production
also clustered in Michigan because venture capital was more readily
available there than it was from the staid banks of Wall Street.
Between the 1910s and 1980s, most parts were produced in Michi-
gan, but carmakers opened branch assembly plants (that is, assembly
plants producing the same models as a plant in the Midwest) elsewhere
in the United States, near big cities, such as Los Angeles and New York.
Carmakers calculated that it was much cheaper and safer to ship parts
long distances and put together finishe vehicles as close as possible to
customers.
Since the late 1970s, nearly all new fina assembly plants and most
parts suppliers have been located within Auto Alley. Branch assembly
plants elsewhere in the country have been closed. Facilities have been
located in various places within Auto Alley, depending on the particular
needs and priorities of the company.

Branch Assembly Plants

Between the two world wars, the Detroit 3 made most of their parts
in Michigan and shipped them to branch assembly plants around the
208 Klier and Rubenstein

country. Ford pioneered construction of branch assembly plants as part

of its strategy of minimizing Model T production costs in order to re-
duce its selling price and make it affordable for most Americans.
Ford’s brilliant firs sales manager, Norval Hawkins, proposed “es-
tablishment of assembling plants all over the world, and shipping in
knockdown condition from the plant in Detroit the pieces and parts that
went to make up this car.” Hawkins “spent six weeks in loading, un-
loading and reloading freight cars to fin out just how they could pack
the stuff in . . .” (Goodenough 1925, p. 183). He eventually determined
that the equivalent of 26 vehicles could be shipped in knocked-down
form in railroad cars in the same space as seven or eight fully assembled
ones (Dodge et al. v. Commissioner of Internal Revenue 1927).
Ford’s firs branch assembly plant was opened in Kansas City in
1912. By 1917, Ford was assembling identical Model T’s in 30 loca-
tions, including Highland Park, Michigan. Ford embarked on a second
wave of construction of branch assembly plants during the 1920s, in-
cluding several at new locations, as well as larger, more modern re-
placements for most of the ones built only a decade earlier. Ford’s all-
time high of 32 branch assembly plants was reached in 1925 (Ruben-
stein 1992). About half of the plants were permanently closed during
the Depression. Ford resumed production after World War II with 15
branch assembly plants, 11 for Ford and 4 for Lincoln and Mercury
(Rubenstein 1992).
Ford made nearly all of the parts at its Highland Park complex and
shipped them by rail to the branch assembly plants. Parts purchased
from suppliers, notably bodies and tires, were shipped directly to the
branch assembly plants rather than through Highland Park. Railroad
companies charged between second- and sixth-class rates to ship parts,
much lower than the rate charged for assembled vehicles, which was
10 percent above firs class (Dodge et al. v. Commissioner of Internal
Revenue 1927).
GM and Chrysler also adopted the strategy of making most of their
parts in Michigan and shipping them to fina assembly plants around the
country. During the 1950s, GM assembled identical Chevrolet models
at 10 branch assembly plants and a combination of Buick, Oldsmobile,
and Pontiac models at seven branch assembly plants.2 At a U.S. Senate
hearing in 1956, GM official displayed maps showing the boundaries
of the market areas surrounding each branch assembly plant, as well
 Emergence of Auto Alley 209

as financia data explaining the attraction of the branch assembly plant

model.3
Smaller carmakers emulated the branch assembly plant model to a
lesser extent. Before and after World War II, Chrysler maintained three
branch assembly plants in addition to four “home” plants in the Detroit
area. The Los Angeles area, home to an especially large and growing
car market, had nine branch assembly plants in the 1950s, including two
each owned by Ford and GM and one each by Chrysler, Nash, Kaiser-
Frazer, Studebaker, and Willys-Overland. By the 1990s, all nine had
been closed (Rubenstein 1992, pp. 95–96).
The branch assembly plant model worked as long as a carmaker
was producing a variety of trim and body styles on a single platform
for national distribution. When it controlled half of the U.S. market in
the 1950s, GM had only three platforms, each differing only slightly in
size. Each branch assembly plant was thus producing the same vehicles
for regional distribution. Thus, a Chevrolet or Ford sold in southern
California would have been assembled in Los Angeles, and one sold in
the Southeast would have been assembled in Atlanta.

Parts: East–West Auto Alley

For most of the twentieth century, parts plants that were not in
Michigan were arrayed in a 700-mile east–west corridor between up-
state New York and southeastern Wisconsin along the southern rim of
Lakes Ontario, Erie, and Michigan. This southern Great Lakes region,
which also included the northern portions of Illinois, Indiana, and Ohio,
had been home to numerous automotive pioneers during the late nine-
teenth century, before the industry clustered in southeastern Michigan.
Two examples discussed in Chapter 10 are the tire industry in Akron
and the glass industry in Toledo.
As the Big 3 expanded production after World War II, they sited
many of their new parts plants in southern Great Lakes states other than
Michigan. They were attracted by a combination of proximity to raw
materials—steel mills were also clustered in the region (see Chapter
5)—and to customers in the Detroit area. By locating outside Michigan,
the new parts plants were less likely to compete against existing parts
plants for skilled labor in a tight market.
210 Klier and Rubenstein

Prior to World War II, Ford had only two parts plants outside Michi-
gan. Glass was produced in St. Paul, Minnesota, and steering wheels
in Hamilton, Ohio. In comparison, during the 1950s, Ford opened nine
new parts plants in Ohio, including three each for engines and drive-
trains, and one each for stamping, casting, and electrical accessories.
Ford’s vice president of operations D.S. Harder, in charge of selecting
new plant sites, stated that “taxes were a consideration in Ford’s move
to Ohio” (Rubenstein 1992, p. 104).
GM had more parts plants than did Ford in Great Lakes states other
than Michigan during the interwar years. GM parts centers included
several communities in upstate New York, northern New Jersey, north-
ern Indiana, and Ohio. The leading center for GM parts production out-
side of Michigan was Dayton, Ohio.
Dayton Engineering Laboratories Company (later shortened to
Delco) made its firs product for the auto industry in 1909, an electric
starter that eliminated the difficul and dangerous task of hand-crank-
ing the engine. As part of William C. Durant’s wheeling and dealing,
Delco was acquired in 1916 by United Motors, which in turn was ac-
quired by GM two years later. Delco CEO Charles F. Kettering was
appointed head of the newly established GM Research Laboratories in
1920. Among the parts GM produced in Dayton were shock absorbers,
brakes, air conditioners, and steering wheels.
A 1940 economic geography book delineated a “Central Automo-
bile District” that encompassed southeast Michigan, northwest Ohio,
and northeast Indiana (Colby and Foster 1940, cited in Ballert 1947).
Three-fourths of the nation’s motor vehicle employment was clustered
in this district, including one-half in the Detroit area and one-fourth
in the rest of the area. Michigan had 60 percent of all parts employ-
ment (Detroit City Plan Commission 1944, p. 5, cited in Ballert 1947).
Most of the remaining one-fourth was found in the rest of the so-called
American Manufacturing Belt between the Atlantic Coast and Lake
Michigan.
The most detailed study of the mid-twentieth-century southern
Great Lakes supplier network was a 1951 University of Michigan the-
sis by G.R. Henrickson. Henrickson documented the sources of parts
at GM’s Buick City assembly plant in Flint, Michigan, which was then
one of the world’s largest and employed 22,000 workers who produced
2,000 cars a day. With information from Buick’s purchasing depart-
 Emergence of Auto Alley 211

ment, Henrickson identifie the origin of 50 leading parts, including

bodies, carburetors, mufflers spark plugs, wheels, tires, engine mounts,
and fan belts. Suppliers included plants owned by GM and by inde-
pendent companies. He also compared Buick City’s 1951 supplier base
with that of the firs decade of the twentieth century when Buick was
founded.
Buick suppliers during the firs decade of the twentieth century
were spread out through the Northeast from Massachusetts, Rhode Is-
land, Connecticut, and New Jersey on the east and through Pennsylva-
nia, Ohio, Indiana, Michigan, Illinois, and Wisconsin on the west. After
gaining control of Buick in 1904, Billy Durant enticed key suppliers to
move to Flint. As a result, Buick City’s suppliers during the 1950s were
more concentrated in Michigan, Indiana, and Ohio than a half-century
earlier.
Henrickson found that 23 percent of Buick’s suppliers were located
within 60 miles and 81 percent within 450 miles of the Flint assembly
plant (Figure 9.2). At firs glance his results are remarkably similar to
the footprint of twenty-first-centur auto supplier networks, as shown
in Chapter 6. However, the appearance of similarity is somewhat de-
ceiving. Today, a distance of 450 miles represents a one-day driving
radius for a truck, but in 1951, when most deliveries were by rail, it
would have taken more than one day because of time lost loading and
unloading.
Buick’s 1951 suppliers within the 450-mile radius were arrayed in
an east–west configuratio along the southern Great Lakes. The creation
of an east–west supply base along the southern Great Lakes after World
War II resulted in a sharp decline in auto industry jobs in Michigan. In
just four years, between 1954 and 1958, the percentage of U.S. motor
vehicle jobs located in Michigan declined from 53 percent to 43 per-
cent. Michigan’s share of U.S. motor vehicle employment thus declined
most sharply not in the twenty-firs century, but a half-century earlier.
The vehicle systems most likely to relocate outside Michigan were
the engine and drivetrain. Independent suppliers of powertrain parts
followed their Detroit 3 customers out of Michigan and into adjacent
southern Great Lakes states. The legacy of Detroit 3 investment in the
Midwest after World War II continues to shape the geography of pow-
ertrain parts production in the twenty-firs century.
212 Klier and Rubenstein

Figure 9.2 Buick City Suppliers, 1951

SOURCE: Henrickson (1951).

During the early twenty-firs century, Michigan’s auto job losses

were tied to vertical disintegration and declining fortunes of the Detroit
3 carmakers. In contrast, after World War II, Michigan’s losses were
linked to an increase in vertical integration and the strengthening of the
Detroit 3. Also varying between the two time periods has been the des-
tination of jobs leaving Michigan. After World War II, parts production
moved from Michigan to other Midwest states, but in the early twenty-
firs century, it moved from Michigan to the South.
 Emergence of Auto Alley 213

THE NORTH–SOUTH Auto Alley

The term Auto Alley was firs employed to refer to investment deci-
sions made by Japanese carmakers during the 1980s. When they de-
cided to build assembly plants in the United States, at firs known as
transplants, Japanese firm for the most part shunned Michigan and
the adjacent Great Lakes area. Auto Alley was also called the kanban
highway, after the Japanese word for just-in-time.
The southern drift of the U.S. auto industry has occurred in three
distinct periods. First, during the 1980s, new plants were located pri-
marily between southern Ohio and central Tennessee. A second wave
of new plants built during the 1990s was centered on the southernmost
portion of Auto Alley, especially Alabama and Mississippi. A third wave
of investment in the firs decade of the twenty-firs century focused on
fillin in gaps in Auto Alley that had not been selected during the firs
two waves.

Auto Alley First Appears

The Ohio River runs 981 miles from the Monongahela and Al-
legheny rivers at Pittsburgh to the Mississippi River at Cairo, Illinois.
During the nineteenth century, the Ohio divided free states from slave
states. In the twenty-firs century, the Ohio River divides Auto Alley
into two portions. North of the river lies the auto industry’s traditional
Midwest auto-producing region, centered on southeastern Michigan
and portions of Illinois, Indiana, Ohio, and Wisconsin along the south-
ern Great Lakes. As recently as 1979, only 5 of 55 U.S. assembly plants
were located in Auto Alley south of the Ohio River (Figure 9.3). Since
then, a new center of automotive production has emerged south of the
Ohio River, centered on Kentucky and Tennessee and thrusting further
southward.

Japanese assembly plants

Honda was the firs Japanese carmaker to assemble vehicles in the
United States, beginning in 1982. Ardently wooed by Ohio governor
James Rhodes, at a time when most American politicians shunned Jap-
anese manufacturers, Honda built an assembly plant in Marysville, a
214 Klier and Rubenstein

Figure 9.3 Light Vehicle Assembly Plants in the United States and
Canada, 1979

NOTE: Projections made to 2009 are based on manufacturers’ announced plant open-
ings and closings as of March 2008.
SOURCE: Adapted by the authors from the Ward’s Automotive Yearbook database.

few miles west of the Columbus bypass. Although a rural location not
traditionally associated with motor vehicle production, the Marysville
site did not appear to represent a sharp break with the industry’s long-
standing Midwest orientation.
It was the second Japanese carmaker that represented the dramatic
break with past location patterns. Nissan was also recruited heavily by
Governor Rhodes and came close to joining Honda in Ohio. But in
1983, Nissan went to Smyrna, Tennessee, a tiny community with no
ties to the auto industry in a region with limited ties to the auto indus-
try (nearby Nashville had a Ford glass plant). As a result of what was
then an extremely remote location, the Nissan plant was farther than the
typical assembly plant from its supplier base (see Chapter 6).
 Emergence of Auto Alley 215

Nissan’s location remained a southern outlier as the next three Japa-

nese-run assembly plants opened. NUMMI, a GM–Toyota joint ven-
ture, took over a closed GM plant in Fremont, California. AutoAlliance,
a Mazda–Ford joint venture, selected Flat Rock, Michigan, site of the
state’s only Japanese-run assembly plant. Diamond-Star, the original
name of a Mitsubishi–Chrysler joint venture, went to Normal, Illinois.
Toyota was responsible for fillin in the gap between Nissan and
the other transplants and clearly set the pattern of southern drift (Figure
9.4). As the best-selling and most successful of the Japanese carmakers,
Toyota moved more slowly than its competitors. When it finall decided
to build its own fina assembly plant in the United States, Toyota locat-

Figure 9.4 Light Vehicle Assembly Plants in the United States and
Canada, 1990

NOTE: Black stars represent new plants that opened between 1979 and 1990; replace-
ment plants are not shown as new. Projections made to 2009 are based on manufactur-
ers’ announced plant openings and closings as of March 2008.
SOURCE: Adapted by authors from the Ward’s Automotive Yearbook database.
216 Klier and Rubenstein

ed in the small town of Georgetown, near Lexington, Kentucky, in the

middle of the nation’s most famous horse farms in bluegrass territory.
The Detroit 3 also contributed to the creation of Auto Alley during
the 1980s by opening several new plants in the region while closing
many of their coastal plants. GM built new plants in Bowling Green,
Kentucky; Fort Wayne, Indiana; Moraine, Ohio; and Spring Hill, Ten-
nessee. GM also replaced several older plants in Auto Alley during the
1980s.
Meanwhile, the Big 3 had ended the branch plant system in the
1960s when they started to produce models of varying sizes that could
not be assembled on the same line. Assembly plants that once distrib-
uted vehicles to a regional market were converted to production of one
or two specialized models for sale throughout the United States and
Canada. Coastal assembly plants were closed because the cost of ship-
ping from them to customers throughout the continent was much higher
than it was from assembly plants in Auto Alley.

Parts plants
The data that inform our analysis (see Chapter 1) provide us with
information on the start-up year for most of the supplier plants we ob-
served operating in 2006. Therefore we can make inferences regarding
the geographic pattern of plant openings for these plants. A decade be-
fore the arrival of the Japanese carmakers, the South had already started
to lure parts plants. During the 1970s GM opened 10 parts plants in
the South. These plants primarily produced electrical components and
powertrain parts that did not require highly skilled workers. GM hoped
(in vain) to pay lower wages and avoid unions (see Chapter 12). Eigh-
teen percent of parts plants we observed in 2006 opened during the
1970s in the South, compared to only 9 percent of those that opened
prior to that (Table 9.1).
Within the South, the Carolinas and Georgia attracted the largest
number of parts plants through the 1970s. The pattern was set primarily
by European parts makers, especially French and German, who came to
regard the southeast coast as the most accessible for trade.
The southern gain during the 1970s was only partially at the ex-
pense of the Midwest. The Midwest as a whole had 66 percent of parts
plants prior to 1970 and 57 percent of those that opened during the
 Emergence of Auto Alley 217

Table 9.1 Percentage Distribution of Parts Plants by Decade of Opening

Before
Location 1970 1970–79 1980–89 1990–99 2000–06 Total Number
Midwest 65.6 57.4 55.5 51.7 26.5 58.2 1,463
South 9.2 18.0 22.8 29.8 61.4 19.1 481
Other 25.1 24.7 21.7 18.5 12.0 22.6 569
Total number 1,010 373 604 443 83 100 2,513
NOTE: This table presents information on the start-up year of supplier plants that were
observed in 2006. The Midwest is define as Indiana, Illinois, Michigan, Ohio, and
Wisconsin; the South is define as Alabama, Georgia, Kentucky, Mississippi, and Ten-
nessee; and other is everywhere else. Columns may not sum to 100 due to rounding.
SOURCE: Adapted by the authors from ELM International and other sources.

1970s; the rest of the country, excluding the South, stayed at 25 percent
through the 1970s (Table 9.1).
The percentage of parts plants locating in the South increased from
18 percent during the 1970s to 23 percent during the 1980s. More sig-
nifican was the shift in the location of plants within the South, from
the Atlantic coast to Auto Alley. Two-thirds of parts plants located in
the South during the 1980s went to Kentucky or Tennessee, the two
principal states at the southern end of Auto Alley, compared to only 45
percent during earlier decades.
Changes were also occurring within the Midwest prior to the emer-
gence of Auto Alley. Michigan’s share of the nation’s parts plants in-
creased during the 1970s, whereas the other four states of the region
declined. The Detroit 3’s Michigan stronghold was not yet under attack.
However, during the 1980s, the pattern reversed. Michigan’s share of
new parts plants declined from 32 percent to 20 percent, whereas the
other four Midwest states increased from 25 percent to 35 percent.
The increasing share of parts plants in the upper South (Kentucky
and Tennessee) and lower Midwest (Indiana, Illinois, and Ohio) during
the 1980s matched the distribution of new assembly plants. As Japanese
carmakers started production in these regions, suppliers followed.

Auto Alley Pushes into the Deep South

Auto Alley pushed farther southward during the 1990s. After the
initial period of Japanese investment during the 1980s, a several-year
218 Klier and Rubenstein

gap occurred before the arrival of a second wave of foreign-owned as-

sembly plants. During the 1990s, the southern end of Auto Alley was
extended from central Tennessee nearly to the Gulf of Mexico (Figure
9.5).
Spearheading the second period of Auto Alley investment were the
two German-owned luxury car companies, BMW and Daimler-Benz.
Both companies opened assembly plants in the United States during the
1990s to produce sport utility vehicles specificall aimed at the Ameri-
can market. BMW became the firs carmaker to assemble vehicles in
South Carolina, a state that had already attracted a number of major

Figure 9.5 Light Vehicle Assembly Plants in the United States and
Canada, 2009

NOTE: Black stars represent new plants that opened or were scheduled to be opened
between 1990 and 2009; replacement plants are not shown as new. Projections made
to 2009 are based on manufacturers’ announced plant openings and closings as of
March 2008.
SOURCE: Adapted by the authors from the Ward’s Automotive Yearbook database.
 Emergence of Auto Alley 219

European suppliers. In the big picture, though, BMW’s Greer, South

Carolina, plant remained on the edge of Auto Alley investment.
The Mercedes-Benz plant, on the other hand, was the firs of what
would prove to be a stampede into the Heart of Dixie. When it selected
a plant site in rural Vance, near Tuscaloosa, Alabama, in 1993, Mer-
cedes-Benz was regarded as having made a questionable decision. The
company would be entrusting its luxury brand to a state with one of the
poorest and least skilled workforces, in a location well south of what
was then the southern end of Auto Alley in central Tennessee.
Following Mercedes-Benz in short order into Alabama were Honda
and Hyundai. Kia went a few miles east across the state line into Geor-
gia. Nissan and Toyota located just to the west in Mississippi.
For their part, the Detroit 3 no longer built new assembly plants,
except to replace older ones in nearby communities. Closures continued
to be aimed at coastal plants that had escaped the firs round of cutbacks
a decade earlier. As it happens, Ford and GM both pulled out of Georgia
not long before Kia announced plans to enter the state.
The southern end of Auto Alley received 30 percent of new parts
plants during the 1990s, a further increase from the 1980s. The northern
end continued its decline, attracting 52 percent, slightly less than dur-
ing the 1980s (Table 9.1). Within the South, Kentucky and Tennessee
continued to increase their share of all new parts plants, to 17 percent of
the national total. Within the Midwest, Michigan increased its share of
new parts plants from 20 percent during the 1980s to 23 percent during
the 1990s, whereas the other four states declined from 35 percent of the
national share to 28 percent. The gradual change in supplier plant geog-
raphy observed since 1970 changed drastically in the firs few years of
the twenty-firs century. While Table 9.1 only shows 83 plant openings
between 2000 and 2006, 61 percent of them occurred in the South, with
the Midwest garnering only 27 percent. Nearly half of all plants opened
south of Tennessee.4

Infilling within Auto Alley

The extension of Auto Alley into the Deep South in the last years
of the twentieth century left site selection official of international car-
makers and suppliers struggling to identify fresh sites in the twenty-firs
century. Should they pick sites rejected in earlier site selections or ex-
220 Klier and Rubenstein

plore outside Auto Alley? Rejected sites had risky flaws but abandon-
ing Auto Alley could add punishing charges to the logistics bill.
Through most of the firs two periods of investment in Auto Alley,
the rule of thumb had been one international assembly plant per state. In
order of opening, Honda picked Ohio, Nissan Tennessee, NUMMI Cal-
ifornia, Mazda Michigan, Mitsubishi Illinois, Toyota Kentucky, Subaru
Indiana, BMW South Carolina, and Mercedes-Benz Alabama.
The state “captured” by a carmaker influence the location of key
suppliers. For example, Toyota suppliers clustered in Kentucky even
though the carmaker’s Georgetown assembly plant could be easily
reached from southern Ohio. What Kentucky gained on its north side, it
lost on the south side, as Nissan suppliers stayed on the Tennessee side
of the state line rather than stray into southern Kentucky.
The one-international-plant-per-state pattern had a logical basis.
International carmakers were reluctant to compete with each other for
qualifie workers, subsidies, tax breaks, and training programs. It was
also politically astute: each time international carmakers entered a new
state, they expanded the list of public official sympathetic to their dis-
tinctive needs and priorities.
But by the late 1990s, international carmakers had run out of states
in Auto Alley. Yet they still had some fresh states to pick off: Nissan
went to Mississippi, Kia to Georgia, and Toyota to Texas. The two re-
maining unclaimed states—Arkansas and Louisiana—were both brand-
ed as having unattractive political climates, and into the twenty-firs
century Louisiana carried the added burden of the bungled response to
Hurricane Katrina. Consequently, international carmakers were forced
to look for sites in states already occupied by a competitor.
The principal objective when entering a previously selected state
was to avoid competing for labor. The supply of qualifie labor is rela-
tively scarce in Auto Alley, especially the southern end, a function of
both low population density and average educational attainment. Fur-
thermore, carmakers have discovered that their workers are willing to
commute longer than the national average of 24 minutes to obtain good,
high-paying jobs in the fina assembly plants; one-hour commutes are
not uncommon at plants in the rural portions of Auto Alley.
To locate potential plant sites within Auto Alley, carmakers there-
fore start by eliminating sites within two hours of existing assembly
plants. Two hours represents the sum of the one-hour commuting range
 Emergence of Auto Alley 221

of the proposed plant plus the one hour from the existing one. Carmak-
ers then calculate if the proposed site has a sufficientl large pool of
labor surrounding it. A total population of 200,000 within the one-hour
radius has been the minimum for carmakers to consider.
Toyota’s consideration in 2007 of sites for an assembly plant illus-
trated the process of infillin within Auto Alley. According to press re-
ports, Toyota was considering fiv sites: Marion, Arkansas; somewhere
in western North Carolina; Alamo and Chattanooga, Tennessee; and a
fift unnamed site (Shirouzo 2007). A map of Auto Alley shows that all
four named finalist were outside a 50-mile radius—corresponding to
the one-hour commuting range—surrounding all of the existing assem-
bly plants (Figure 9.6).
In the end, Toyota selected Tupelo, Mississippi, perhaps the fift
unnamed site. Tupelo was also beyond a 50-mile radius of existing as-

Figure 9.6 Labor Markets around Assembly Plants

SOURCE: Adapted by the authors from the Ward’s Automotive Yearbook database.
222 Klier and Rubenstein

sembly plants (Figure 9.6), including the one already operated by Nis-
san in Canton, Mississippi.
Toyota and Honda also located new assembly plants in portions of
Indiana beyond the labor market area of the existing international plant
operated by Subaru in Lafayette. Toyota went to the far southwestern
corner of the state and Honda to the far southeastern corner. Honda
and Hyundai also selected sites in Alabama, a state firs staked out by
Daimler.
The other location strategy, to look outside Auto Alley, had been
employed only once as of 2007. That was Toyota’s decision to build an
assembly plant near San Antonio, Texas. A quarter-century earlier, GM
had considered sites in Texas for its Saturn plant but rejected them after
calculating that freight charges would be $400–$500 higher, primarily
because haul-away drivers would have to stop overnight more often
(Rubenstein 1992). Toyota justifie the choice on the basis of Texas be-
ing the world’s largest market for full-sized pickup trucks, which were
to be built at the Texas assembly plant.

Three Decades of Auto Alley

The seven southern states of Alabama, Georgia, Kentucky, Missis-

sippi, North Carolina, South Carolina, and Tennessee together had 7
percent of all transportation sector employment in 1972. Thirty years
later, the region’s share had grown to 16 percent (Cooney and Yacobucci
2005). The South’s growing importance can be seen in both assembly
and supplier plants.

Assembly plants
In 1979, the United States had 55 assembly plants, 34 in Auto Alley
and 21 elsewhere. By 2009, the number in Auto Alley was scheduled to
increase to 43 while the number elsewhere declined to seven.
In 1979, only fiv of the 55 assembly plants were in what would
become the southern portion of Auto Alley. Two were in Louisville,
only a few miles south of the Ohio River boundary between the “Mid-
west” and “South.” The other three, in Atlanta, were relics of the Big 3’s
branch plants that once served customers in the Southeast. The Midwest
portion of Auto Alley (including the St. Louis area) had 29 assembly
plants.
 Emergence of Auto Alley 223

Twenty-one of the 55 assembly plants were outside Auto Alley in

1979. Ten were in the Northeast, fiv in California, and six elsewhere
in the interior of the country, including three in Kansas City. Of the 48
fina assembly plants scheduled to operate in the United States in 2009,
only 8 were outside Auto Alley (Figure 9.5). The Northeast declined
from 10 to 1 assembly plant, and California declined from 5 to 1. In-
terior locations outside Auto Alley had the remaining five two each in
Texas and the Kansas City area and one in Louisiana—all relatively
close locations to Auto Alley.
Within Auto Alley, the number of assembly plants in the South in-
creased from 5 to 13 between 1979 and 2009. The number in the Mid-
west increased by 1 to 30.

Supplier plants
The South’s rise in importance can also be seen in parts plants (Fig-
ure 9.7). At the time of this study, 67 percent of the parts plants in the
South were new (i.e., they opened between 1980 and 2006), compared
with only 40 percent in the Midwest and 39 percent in the rest of the
United States. Conversely, only 19 percent of the parts plants in the
South in operation in 2006 had opened before 1970, compared with 45
percent of those in the Midwest and elsewhere in the United States.
Parts plants have headed south in part to be with their customers, the
fina assembly plants. The distribution of fina assembly plants within
the United States has changed sharply since the 1970s, and so has the
distribution of parts plants.
The southerly drift observed for fina assembly plants does not
necessarily mean that parts plants were expected to locate in similar
fashion. Chapter 6 showed that three-fourths of parts plants are located
within one-day delivery of their customers, but only 5 percent are locat-
ed within one hour. The cost advantage in shipping assembled vehicles
to the national market enjoyed by Auto Alley compared with the rest of
the United States applies to most locations within Auto Alley. From To-
ledo to Huntsville, at opposite ends of Auto Alley, most assembly plants
can be reached within a one-day drive. So why have parts plants headed
south? Some have followed their customers, but many parts plants have
been moving south for their own reasons.
224 Klier and Rubenstein

Figure 9.7 Distribution of Motor Vehicle Parts Plants Opened

(a) Before 1980 and (b) Since 1980

SOURCE: Adapted by the authors from the ELM International database and other
sources.

Nationality of southern suppliers

Leading the move southward within Auto Alley have been foreign-
owned parts suppliers. In the Midwest, 76 percent of the parts plants
were owned by U.S.-based companies and 24 percent by foreign-based
companies. In the South, only 57 percent of the parts plants were U.S.-
owned and 44 percent were foreign owned. Foreign ownership was es-
pecially high in South Carolina and Kentucky.
Otherwise stated, the Midwest had 58 percent of U.S.-owned plants
and only 44 percent of foreign-owned ones. The South had 36 percent
of foreign-owned ones and only 20 percent of U.S.-owned plants.
A map of Auto Alley shows the north–south split between U.S.-
owned and foreign-owned plants opened in the United States between
1980 and 2006. U.S.-owned plants cluster in the Midwest and foreign-
owned ones in the South. The two groups overlap in southern Ohio and
Indiana (see Figure 9.8).
 Emergence of Auto Alley 225

Figure 9.8 Ownership of Parts Plants, 2006

SOURCE: Adapted by the authors from the ELM International database and other
sources.
226 Klier and Rubenstein

Parts makers based in Germany and Japan were responsible for

most of the southern drift. Companies based in Germany and Japan
each owned nearly one-fourth of all of the foreign-owned parts plants
in the United States, but they each accounted for two-fifth of all parts
plants in the South. Japanese- and German-owned parts makers both
split about evenly between the Midwest and the South.
German and Japanese parts makers adopted different distributions
within the South. German-owned parts plants were heavily clustered
in South Carolina, home to the fina assembly plant of German-based
BMW. Japanese-owned plants favored Kentucky and Tennessee, home
to fina assembly plants of Japan-based Toyota and Nissan, respec-
tively. Japanese- and German-owned parts plants also favored differ-
ent locations within the Midwest. German-owned companies were far
more likely to select Michigan, whereas Japanese-owned companies
preferred Indiana.
Canadian- and British-based firm together owned another one-
fourth of the foreign-owned parts plants in the United States. Michi-
gan had two-fifth of the Canadian-owned parts plants, a much greater
concentration in the home state of the “American” auto industry than
even U.S.-owned parts plants. British-owned firm were more likely
than other nationalities to be located outside Auto Alley. One-fourth of
British-owned firm were in Michigan, a level comparable with U.S.-
owned firms but the rest of the Midwest had a lower than average num-
ber of British-owned firms and the percentage in the South was not
much higher than it was for U.S.-owned firms

OUTLOOK AND UNCERTAINTIES

The clustering of the U.S. motor vehicle industry in Auto Alley

during the late twentieth century appeared likely to continue into the
twenty-firs century. In their struggles to survive, the Detroit 3 were
likely to shed more of their excess capacity, placing the last surviving
coastal plants at risk.
As the Detroit 3 pulled back to their Midwest base in Michigan
and adjacent Midwest states at the northern end of Auto Alley, foreign-
owned carmakers were set to continue their expansion, primarily in the
 Emergence of Auto Alley 227

southern end of Auto Alley. The result was likely to be a greater rift
within Auto Alley between a growing foreign-dominated south and a
declining Detroit 3–dominated north.

Notes

1. Andreas Renschler, Mercedes-Benz U.S. International CEO, quoted in Chappell

(1998).
2. In addition to the seven branch assembly plants, GM also maintained “home”
plants for the exclusive assembly of Buick in Flint, Oldsmobile in Lansing, and
Pontiac in Pontiac, a relic of the origin of these divisions as independent carmak-
ers during the firs decade of the twentieth century (Rubenstein 1992).
3. U.S. Senate Automobile Marketing Practices. Washington: Congressional docu-
ments, 1956, p. 895, cited in Rubenstein (1992, pp. 87–88).
4. Klier and McMillen (2008) show that the supplier plants that opened in the south-
ern end of Auto Alley tend to follow a location pattern similar to the plants that
have preceded them in the region. They fin location choices of auto supplier
plants to be well explained by a small set of variables: good highway access and
proximity to Detroit and to assembly plants.
 10
Abandoning Ohio:
A Tale of Two Cities

It appears likely that the center of the country’s automotive

production will remain near Toledo, and that a considerable
portion of the community’s industrial function will continue
to follow the trends of this industry.(Ballert 1947)

Ohio has long been the second-leading motor vehicle production

state behind Michigan. The state has accounted for about 15 percent of
total U.S. motor vehicle employment, parts plants, and fina assembly
plants. Unlike its Great Lakes neighbor to the north, Ohio increased (at
least slightly) its share of the national totals during the late twentieth
and early twenty-firs centuries.
Ohio’s second-place position has partly been a legacy of Detroit
3 investment. As discussed in Part 1 of the book, the Detroit 3 built
numerous powertrain and stamping facilities in Ohio, especially after
World War II. Despite cutbacks and closures, the Detroit 3 combined
still directly employed 42,298 in 22 Ohio facilities in 2006 (Ohio De-
partment of Development Offic of Strategic Research 2006).
The Detroit 3 decline has been largely offset in Ohio by growth
in Japanese-owned production facilities. Honda of America employed
12,200 at its two assembly plants and three powertrain plants in Ohio
in 2006 and another 3,174 at seven joint ventures with Japanese parts
makers. The Ohio Department of Development identifie another 55
Japanese-owned motor vehicle firm that together employed 22,785 in
the state in 2006 (Ohio Department of Development Offic of Strategic
Research 2006).
Ohio’s initial ascendancy in motor vehicle production came prior to
the emergence of the Detroit 3, let alone Japanese carmakers. During
the 1890s, the state had its share of pioneer carmakers, such as Alexan-
der Winton, Henry Joy, and William Packard. Had venture capital been
as readily available in Ohio in 1900 as it was in Detroit, Cleveland or

229
230 Klier and Rubenstein

Cincinnati could have emerged as the center of automotive production

(Rubenstein 1992, p. 41; Smith 1970, p. 31; Wager 1975, p. xiii).
Instead, Ohio became the center for production of two key parts:
tires and glass. U.S. tire production concentrated in the northeastern
Ohio city of Akron and glass in the northwestern city of Toledo. Just as
Detroit became known as Motor City, Akron became Rubber City and
Toledo became Glass City.
Tires and glass have shared similar positions in the auto industry:
• They are the two largest and most visible parts not made of
metal.
• Applications and key technology breakthroughs predated the
auto industry.
• Tires and glass are relatively self-contained and freestanding
portions of the vehicle and are less integrated with other parts.
• They have been regarded by carmakers as not essential to their
core competency.
• They have consistently been outsourced to independent suppli-
ers, even at the height of vertical integration (with the exception
of Ford, which once made glass).
The U.S. motor vehicle industry continues to depend on U.S.-made
tires and glass in the twenty-firs century. Neither of these large, bulky,
low value-added parts is amenable to overseas outsourcing. But few tire
and glass facilities remain in Ohio. As with Detroit, heavy dependence
on one industry left both Akron and Toledo vulnerable to global shifts,
especially globalization of ownership.

RISE AND FALL OF RUBBER CITY

Tire manufacturers may be the best-known suppliers among the

broader public. Alone among suppliers, the tire maker emblazons its
name in four places on the exterior of the vehicle, often in much bolder
lettering than the name of the vehicle itself. Because of heavy advertis-
ing, the Michelin Man and the Goodyear Blimp are familiar icons even
to people with no interest in motor vehicles.
 Abandoning Ohio: A Tale of Two Cities 231

Consumers typically purchase new sets of tires several times during

the lives of their motor vehicles and replace fla ones periodically (al-
though much less frequently than in the past). Above all, the purpose of
the round rubber tire is understandable to even the most mechanically
challenged individuals who have no comprehension of how the rest of
a motor vehicle operates.
Hundreds of companies made tires in the United States during the
1910s and 1920s. As the tire became a low-cost, high-quality, long-last-
ing commodity, with little differentiation among competitors, suppliers
succumbed to global consolidation during the late twentieth century. In
the early twenty-firs century, two-thirds of the world’s original equip-
ment tires were supplied by just four firms Bridgestone/Firestone Inc.;
Continental AG; Goodyear Tire & Rubber Co.; and Michelin Tire &
Rubber Co. (Deutsch 1999; Miller 1996).
The variety of tires produced by the four large companies has pro-
liferated as each company has tried to match the precise performance
needs of the carmakers’ wider variety of vehicle offerings. The big four
tire companies have retained brand names of acquired companies that
were already familiar to consumers. Brand names have also been used
to distinguish between “premium” and “standard” tires, as well as be-
tween original equipment and aftermarket tires. Premium tires typically
are firs to get such innovations as run-fla capability.
Reflectin the globalization of the tire industry, Bridgestone/Fire-
stone had its headquarters in Japan, Continental in Germany, Good-
year in the United States, and Michelin in France. Goodyear held about
one-third of the North American original equipment tire market, and
Michelin had one-fourth. Within the United States, all four produce at
facilities that are clustered in the South.

Tires: Where the Rubber Meets the Road

The word “rubber” firs became a popular term in England in the

late eighteenth century to refer to a substance used to erase or rub out
something written with a lead pencil, what Americans later called an
eraser. Europeans called the substance caoutchouc, adapted from words
heard by explorers in the Western Hemisphere, possibly from the Maï-
nas in Peru or the Tupi in Brazil.
232 Klier and Rubenstein

Charles Goodyear, a bankrupt Philadelphia hardware merchant,

is said to have become obsessed with rubber experiments during the
1830s. Rubber—the distinctive gummy elastic material isolated from
the milky flui or latex of various plants—was known in the West In-
dies and Central America at least since 1600 bce, and rubber balls
were seen by the earliest European explorers of the region.
Goodyear mixed raw rubber with sulfur to create an elastic sub-
stance resistant to heat and cold. The process was later called vulcani-
zation, named for the Roman god of fir and metalworking. Until then,
rubber’s usefulness had been severely limited by its tendency to melt
in summer heat and become brittle in winter cold. Goodyear had tried
mixing latex with various drying agents such as magnesia, quicklime,
and nitric acid, before stumbling by accident in 1839 on the successful
combination.
British histories of rubber allocate partial credit for successful vul-
canization experiments to Thomas Hancock. Given samples of Good-
year’s vulcanized rubber in 1842, Hancock was able to replicate the
process in a masticator machine he had invented to mix rubber with
other materials. More importantly, Hancock made a commercial suc-
cess of rubber, whereas Goodyear’s rubber obsession left him broke and
frequently in jail for inability to repay debts. He died in 1860, $200,000
in debt, having failed to either defend his vulcanization patent from
pirates or invest in successful manufacturing applications.
With the rapid growth of the motor vehicle industry into the twen-
tieth century, the tire became the principal use for natural rubber. Sixty
percent of rubber was used to make tires in 2000, the remainder for
components in motor vehicles, as well as in aircraft, appliances, medi-
cal equipment, and electrical and electronic devices. Synthetic rubber,
developed in the 1930s, accounted for 50 percent of the rubber content
in tires in 1950 and 60 percent in 2000.

Tire Production Clusters in Akron

Five companies were the leaders in U.S. tire production for much of
the twentieth century: U.S. Rubber, Goodrich, Goodyear, Firestone, and
General. All but the firs of these were based in Akron.
 Abandoning Ohio: A Tale of Two Cities 233

U.S. Rubber
U.S. Rubber Company was founded in Naugatuck, Connecticut, in
1892 by Charles R. Flint and held three-fourths of the U.S. market for
rubber boots and shoes during the 1890s. As motor vehicle production
expanded, the company was the early market leader because it owned a
patent on a “clincher,” in which rubber beads held in place by air pres-
sure “clinched” the rim (Epstein 1928). The Clincher Tire Association,
controlled by U.S. Rubber, required tire makers to pay for a license to
use the “clincher,” which was the most common method of attaching
the tire to the rim.
This monopoly had the beneficia effect of forcing standardization
of tire sizes in the United States. But it kept tire prices high in the early
years of motoring. Consumers in 1910 paid $30 to replace each tire
on a small car like the Ford Model T, $50 per tire for a medium-sized
car, and $80 per tire for a large car. Because tires lasted less than 3,000
miles, owners were paying more for replacement tires than for the car
itself.
U.S. Rubber lost its dominant position when the Akron-based com-
panies developed better methods of securing the tire to the rim. The use
of cord increased the life of a tire to 13,000 miles in 1920 and reduced
the price of a tire to $15. U.S. Rubber remained the largest tire maker
outside Akron and GM’s principal tire supplier during the 1920s and
1930s. Not by coincidence, controlling interest in both U.S. Rubber and
GM was owned at the time by du Pont (Bernstein 1970).

Goodrich
B.F. Goodrich was the firs rubber maker to locate in Akron, in fact
the firs to locate west of the Appalachians. Philadelphia physician Ben-
jamin Franklin Goodrich and John P. Morris were friends and business
associates involved in real estate. Goodrich became president of one of
their joint acquisitions, the Hudson Rubber Co. After the business failed
twice, Morris refused to invest further in it unless Goodrich moved the
operation west, away from competitors.
Goodrich’s search for a suitable location brought him to Akron,
where he found enthusiastic investors, so he opened a rubber factory
in Akron in 1871. Goodrich began supplying pneumatic tires in 1896
to Cleveland-based Alexander Winton, maker of one of the best-selling
234 Klier and Rubenstein

cars before 1900. On the advice of his doctor because of tuberculosis,

Dr. Goodrich himself moved from Akron to Arizona in 1888.

Goodyear
The Goodyear Tire & Rubber Co. was founded in 1898 by Frank
A. Seiberling, the son of an Akron businessman. Seiberling selected the
name to honor the inventor of vulcanization, but Charles Goodyear had
no connection with the company named for him nearly 40 years after
his death. Goodyear Tire initially produced bicycle and carriage tires,
made its firs motor vehicle tire in 1899, and passed U.S. Rubber as the
world’s largest tire maker during the 1910s.
Early tires were made of stiff woven fabric glued to the wooden
wheel rim. The ride was much too jarring for passengers, and the wheel
broke frequently. Goodyear employee P.W. Litchfiel applied for a pat-
ent in 1903 covering the two principal elements of the contemporary
tire: an outer portion made of rubber called the tread and an inner casing
made of belts (bands of cords or plies) wrapped around a bead (steel wire
shaped in a hoop). Litchfield a chemical engineer, worked at Goodyear
for more than a half-century, including as president (1926–1930) and
chairman (1930–1956).
The smooth rubber tread on early car tires provided little traction.
Goodyear Tire was credited with firs cutting grooves in the hard tread
surface to improve traction in 1908. The concept of wrapping cords
around a bead evolved from a process to stretch fabric invented for
the clothing industry by New York businessman Alexander Strauss in
1894. In 1911 Philip Strauss, treasurer of the Hardman Tire & Rubber
Co., applied his father’s process to making a tire by reinforcing a hard-
ened rubber tube with fabric. Cords were originally made of cotton, and
synthetic fiber such as nylon and rayon were introduced during World
War II.
Overextended in the recession that followed World War I, Frank
Seiberling lost control of Goodyear in 1921 to New York bankers Dil-
lon, Read and Co., which also took over Dodge at about the same time.
Forced out of Goodyear, Seiberling started the Seiberling Rubber Com-
pany in 1922 in Barberton, Ohio, near Akron, and it became the coun-
try’s seventh-largest tire maker. He remained its chairman until retiring
in 1950 at the age of 90.
 Abandoning Ohio: A Tale of Two Cities 235

Goodyear’s well-known symbol, the blimp, derived from a com-

pany interest in aviation dating back to the 1920s. It gained patents
from the German company Zeppelin in 1924 to build airships in the
United States and built its firs (the Pilgrim) in 1925. Goodyear painted
its name on the side of the blimp and fle it around the country to
promote aviation as well as the tire brand. Goodyear built 300 airships,
mostly during the 1940s and 1950s for military surveillance and aerial
photography, and sold the Aerospace division in 1986.

Firestone
Harvey S. Firestone sold buggies in Columbus, Ohio, from 1890
to 1895, manufactured rubber tires in Chicago from 1896 to 1900,
and moved production to Akron in 1900. Firestone Tire’s success was
linked unusually closely to that of the Ford Motor Co. Harvey Firestone
and Henry Ford met during the 1890s when Firestone persuaded Ford
to buy four carriage tires. The two men became close friends. For most
of the twentieth century, Ford bought most of its tires from Firestone,
making it Firestone’s largest customer.
Ford and Firestone were both fightin their respective industry as-
sociations during the firs decade of the twentieth century. The Associa-
tion of Licensed Automobile Manufacturers rejected Ford’s application
for a license to build cars, and the Clincher Tire Association rejected
Firestone’s application to make tires. Instead of clinchers, Firestone
secured the tire tightly to the wheel by riveting plates and bolts. Ford
tested Firestone tires, decided they were superior to the clincher, and
placed what in 1906 was the auto industry’s largest single tire order to
date, 2,000 sets at $55 each. Members of the Clincher Tire Association
monopoly had all quoted Ford the same price of $70 per set.

General
General Tire was founded in Akron in 1915 by William F. O’Neil
and Winfred E. Fouse, originally to produce premium replacement tires.
O’Neil sold Firestone tires in Denver and Kansas City before setting
up General with financia support from his father, owner of Northeast
Ohio’s leading department store chain.
General was more diversifie than Akron’s other leading tire mak-
ers, with interests in radios, aviation, plastics, and chemicals. The com-
236 Klier and Rubenstein

pany began producing original equipment tires in 1955, primarily for

GM.

Impact on Akron
Propelled by booming tire production, Akron was the fastest-grow-
ing city in the United States during the 1910s. It grew from an isolated
Midwestern town of 69,067 (eighty-firs largest in the United States)
in 1910, best known as a manufacturing center for Quaker Oats, to the
Rubber Capital of the World, with a population of 208,435 (thirty-sec-
ond largest) in 1920.
At its peak in 1920, Akron had 60,000 workers employed in the
tire plants, and it was home to the four of the fiv largest tire suppliers:
Goodyear, Goodrich, Firestone, and General. Akron was more domi-
nated by a single industry than any other large city in the country, even
Detroit, which “merely” doubled in population from 1910 to 1920.
The founders of the major tire companies—Firestone, Goodrich,
O’Neil, and Seiberling—were known as Akron’s “rubber barons.” They
built or bequeathed the city’s parks, museums, and hospitals, as well as
neighborhoods for their workers with such names as Goodyear Heights
and Firestone Park. Seiberling was probably the “rubber baron” with
the most impact on Akron, in part because he outlived the others. After
his death, Seiberling’s home (Stan Hywet Hall) became Akron’s lead-
ing tourist attraction.

Tire Makers Abandon Akron

Akron’s decline as the center of U.S. tire production came in two

waves. First, Akron’s Big 4 tire makers opened factories elsewhere in
the United States, especially during the 1960s. The location decisions
were motivated by labor cost considerations; the tire makers were in the
vanguard of looking south for cheaper labor. Three of Akron’s four lead-
ing tire makers were then sold to foreign companies during the 1980s.
When General closed its last tire plant in Akron in 1982, the city
that had been synonymous with rubber and tire production through the
twentieth century was left without any active tire plants.
 Abandoning Ohio: A Tale of Two Cities 237

France’s tire competitor: Michelin

U.S. Rubber and B.F. Goodrich merged in 1986 to form Uniroyal
Goodrich; the merged company was sold four years later to Michelin.
The acquisition made French-based Michelin the second-largest U.S.
tire supplier behind Goodyear.
Brothers Edouard and André Michelin founded the company bear-
ing their name in Clermont-Ferrand, France, in 1889. The company
entered the tire business two years later when a cyclist asked for help
in repairing an English-made tire that was glued to the wheel rim. Mi-
chelin started making tires for bicycles in 1891, for horse-drawn car-
riages in 1894, and for motor vehicles in 1895.
Michelin made two particularly important contributions to tire
technology. First was the demountable tire, which Michelin patented in
1891. The practicality of an easy-to-change tire was quickly established
when the winner of the 1891 Paris–Brest–Paris bicycle race, Charles
Thery, was the only competitor to use it. Michelin’s other important in-
novation during the 1890s was the pneumatic tire. However, it did not
perform well in early races, so it was not adopted by carmakers until
the 1910s.
The pneumatic tire—an air-fille rubber “balloon” or tube placed
between the fabric and the rim—had been originally patented by a Scot-
tish engineer, Robert W. Thomson, in 1845, only a few years after vul-
canization. But no practical ideas existed at the time for actually using
it, and the patent expired. Another Scot, John B. Dunlop, living in Bel-
fast, Ireland, equipped his son’s tricycle with tires made by pumping air
into thin rubber sheets covered with fabric. Dunlop secured a patent for
this version of the pneumatic tire in 1888, and it was quickly adopted
for most bicycles. Dunlop himself had no connection to the tire maker
bearing his name because he sold the idea of making pneumatic tires to
Harvey du Cross Jr., who founded Dunlop Tyres in 1888.
Michelin’s domination of the French tire market was solidifie by
distinctive marketing. To promote motoring, in 1900 the company com-
piled and gave away a Red Guide that rated hotels in France and pro-
vided street plans for many towns that were so detailed and accurate
that they helped the Allied army during World War II. During the 1920s,
the Red Guide dropped advertising, added restaurant reviews, and was
sold in bookstores rather than given away. The company produced road
238 Klier and Rubenstein

maps beginning in 1910 and sightseeing information guides beginning

in 1926, which became known as Green Guides beginning in 1938.
Bibendum, better known in the United States as the Michelin Man, firs
appeared in 1898.
Michelin patented the radial tire in 1946. Most tires at the time were
bias-ply, with body or carcass cords arranged diagonally to the center
line of the tread. Better quality bias tires also wrapped around the di-
agonal body cords an outer layer of belt or crown cords arranged in a
herringbone pattern. Radial tires also had belt cords arranged in a her-
ringbone pattern, but the inner body cords were arranged at right angles
to the center line of the treads rather than diagonally.
The radial tire provided better handling than the bias-ply tire, es-
pecially at high speeds and around corners. By placing the body cords
at right angles, the sidewalls on radial tires could flex whereas they
remained stiff on bias-ply tires. As a result, the radial tire tread main-
tained a larger surface contact with the road during turns.
Radials were popular in Europe by the 1960s, but they faced resis-
tance in the United States because they produced a stiffer and noisier
ride. However, the energy crisis of the 1970s stimulated the use of radi-
als in the United States because they yielded higher gas mileage than
bias-ply tires. When U.S. firm were slow to introduce competitive ra-
dial tires during the 1970s, Michelin grabbed a much larger share of the
U.S. market.
Michelin opened four tire plants in South Carolina and one in Ala-
bama during the late 1970s and early 1980s. The company also retained
fiv plants inherited from Uniroyal, including two in Alabama and one
each in Indiana, Oklahoma, and Virginia.

Japan’s tire competitor: Bridgestone

In 1988 Firestone was sold to Japanese-based Bridgestone, which
outbid Italian tire maker Pirelli for it. The Firestone acquisition made
Bridgestone the world’s largest tire maker.
Bridgestone Tire Co. was Japan’s firs tire company, founded in
1931 by Shojiro Ishibashi, who had been producing traditional rub-
ber-soled footwear known as tabi since 1923. Ishibashi called the tire
company Bridgestone, because his own surname literally meant stone-
bridge in Japanese. He transposed the syllables to produce a corporate
 Abandoning Ohio: A Tale of Two Cities 239

name similar to Firestone, which he admired. Bridgestone became Ja-

pan’s largest tire maker in 1953.
Although Ford Motor Co. bought some of its tires from other sup-
pliers, and Firestone sold some of its tires to other carmakers, the two
companies conducted a disproportionately high percentage of business
with each other throughout the twentieth century. After all of the merg-
ers and acquisitions of the 1980s and 1990s, Bridgestone/Firestone still
provided Ford with 40 percent of its tires in 2000. Bridgestone/Firestone
supplied one-third of Honda’s tires and one-fift of those purchased by
GM, Nissan, and Toyota.
Firestone’s downfall in the United States followed its inability to
compete in the radial tire market. The National Highway & Traffi
Safety Administration implicated Firestone “500” radial tires in 41 fa-
talities. Although Firestone never agreed that the tires were defective, it
agreed to recall 14.5 million of them in 1978 due to tread separation.
The century-long close relationship between Ford and Firestone
came to an end in 2001, when Ford Explorers equipped with Firestone
Wilderness AT tires rolled over following tread separation, resulting in
271 deaths. Bridgestone argued that the Explorer’s design made it prone
to rollovers because Explorers had a tire failure rate 10 times higher
than other Ford vehicles equipped with Firestones. Ford countered that
it had 1,183 tread separation claims involving Firestone tires and only
two involving Goodyear tires.
The dispute damaged both parties. Sales of Firestone replacement
tires declined 40 percent in the year after the dispute (Akron Beacon
Journal 2000). For its part, Ford offered to replace the 6.5 million tires
on all of its vehicles. Still, Explorer sales dropped rapidly from their
peak in 2000—as did Ford stock. With the overall quality of tires gener-
ally very high, the Ford Explorer’s problem with Firestone Wilderness
tires was especially devastating.
Through the merger, Bridgestone inherited Firestone plants in De-
catur, Illinois; Wilson, North Carolina; Oklahoma City, Oklahoma; and
LaVergne, Tennessee. Under Bridgestone leadership, the only northern
plant, Decatur, was closed, whereas new southern facilities were added
in Graniteville, South Carolina, and Morrison, Tennessee. Only a token
facility was retained in Akron to produce a handful of tires for race
cars.
240 Klier and Rubenstein

Germany’s tire competitor: Continental AG

General Tire was sold to German-based Continental in 1987. Con-
tinental’s early history in Germany was similar to that of Michelin in
nearby France. Continental-Caoutchouc und Gutta-Percha Compagnie
was founded in 1871 in Hanover, Germany, to produce solid tires for
carriages and bicycles, as well as other rubber products. Continental
was the firs German company to manufacture pneumatic tires for bi-
cycles in 1892, then for motor vehicles in 1898. The company even
emulated Michelin by publishing a popular road atlas in German, be-
ginning in 1907.
Continental’s tire products evolved through the familiar pattern: the
world’s firs tire with patterned tread in 1904, the world’s firs detach-
able rim in 1908, the firs German cord tire in 1921, the German patent
for tubeless tires in 1943, and the firs German radial tire in 1960. Con-
tinental took over small German rubber companies during the 1920s,
Uniroyal’s European operations in 1979, and then tire makers elsewhere
in Europe, including Austria, Czech Republic, Slovakia, and Sweden,
during the 1980s and 1990s.
Continental held a small share of the U.S. market until 1987, when
it acquired General Tire, the third-largest U.S. tire maker. The com-
bined company held 14 percent of the U.S. tire market in 2000. Con-
tinental General’s most important customer in the United States was
Nissan, which bought about half of its tires from the German company.
Continental General also supplied Ford and GM with about one-fift of
their tires.

The U.S. survivor: Goodyear

Goodyear was the world’s largest tire and rubber company from
the 1920s until overtaken by competitors’ mergers during the 1980s.
Goodyear purchased Kelly-Springfiel Tire Co. in 1935 in order to of-
fer a lower-priced replacement tire brand. But when other leading U.S.-
owned tire makers were sold during the 1980s, Goodyear was strug-
gling financiall and unable to buy any of them. British-French fina -
cier James Goldsmith had acquired 11.5 percent of Goodyear in 1986
in an unsuccessful takeover attempt; to fend off the effort, the company
made a tender offer for the shares the following year that strapped it
financiall and compelled it to sell noncore divisions and close plants.
 Abandoning Ohio: A Tale of Two Cities 241

Goodyear reclaimed the title of world’s largest tire producer in 1999

by acquiring a controlling interest in Sumitomo Rubber Industries, Ja-
pan’s second-largest and the world’s fifth-la gest tire maker. The alli-
ance gave Goodyear the right to use the Dunlop name, which Sumitomo
had acquired in 1986.
The company’s major tire-making facilities were in Gadsden, Ala-
bama; Topeka, Kansas; Lawton, Oklahoma; Statesville, North Caroli-
na; Union City, Tennessee; and Danville, Virginia. The Gadsden plant
was one of the firs parts-making facilities in Alabama when it opened
in 1929. Corporate headquarters and research facilities were retained in
Akron but not production facilities.
Faced with the loss of the rubber plants, Akron attracted 400 compa-
nies involved in polymer research and production during the late 1990s.
With 35,000 employees, the polymer plants did not completely replace
all of the jobs lost in the rubber plants, but the new jobs were better paid
and demanded more skills than the old jobs. A key to attracting firm
involved in polymer technology was creation of the Edison Polymer
Innovation Corporation in 1984 and a School of Polymer Science and
Engineering at the University of Akron.

RISE AND FALL OF GLASS CITY

Glassmaking is an ancient art—Egypt became a center of glass pro-

duction in the second millennium bce, and knowledge of glassmaking
diffused through Europe during the Roman Empire. Glass was blown,
pressed, and drawn into many shapes, primarily household objects such
as plates, bowls, goblets, and bottles. Venice, the center of glassmaking
in medieval Europe, specialized in decorative glass as well as house-
hold objects.
Rolling molten glass into thin fla sheets was a difficul craft, limit-
ing the use of windows prior to the nineteenth century. Because win-
dows were expensive, the number found in a house was a good indica-
tor of the owner’s wealth. The square footage of windows in a house
was a common measure for calculating property taxes, so to lower
their taxes, homeowners reduced the size of their windows. Large ex-
panses of windows were limited to important public structures, notably
242 Klier and Rubenstein

churches, where (tax exempt) brightly colored stained glass windows

were installed.
Early motor vehicles were open carriages without windshields.
Wearing goggles was the driver’s principal protection against dirt and
mud. A glass windshield was introduced as an extra-cost option on
luxury vehicles in 1904. The firs windshields consisted of two hori-
zontal panes of glass connected by hinges. The top half could be tipped
open for an unobstructed view when the bottom half was completely
splattered.
The surface area of glass increased rapidly during the 1920s, when
the enclosed compartment replaced the open carriage as the predomi-
nant body style. Glass was now needed for the rear and side windows of
the passenger compartment, not just for the front windshield. Consumer
acceptance of closed body vehicles had been slowed by fear of being
injured in an accident from shattered glass. The introduction of lami-
nated safety glass for motor vehicles helped consumers to overcome
that fear.
French scientist Edouard Benedictus discovered in 1903 that a glass
flas coated with an adhesive fil made of nitrocellulose (a liquid plas-
tic) did not shatter when he accidentally dropped it. British inventor
John C. Wood introduced Triplex in 1905, a “sandwich” that prevented
shattering by cementing a layer of celluloid between two pieces of glass.
Two decades later, the process was applied to motor vehicle glass.

Toledo’s Glassmakers

Glass manufacturers clustered in Toledo during the late nineteenth

century, a decade before the start of commercial motor vehicle produc-
tion. Glassmakers were firs attracted to Toledo by proximity to critical
inputs. They solidifie their leadership through proximity to the increas-
ingly important customer base in Detroit, only 50 miles to the north.
Three materials account for 99 percent of inputs into glassmaking:
silica sand, soda ash, and limestone (dolomite). Glass manufacturers
did not wish to incur the expense of long-distance shipping of a ubiqui-
tous resource like sand, and in the nineteenth century, the sandy soil of
northwest Ohio seemed to offer an abundant source of silica, which is
the most important of the three inputs. But “impurities made this source
unsatisfactory shortly after the turn of the century,” so Toledo glass-
 Abandoning Ohio: A Tale of Two Cities 243

makers instead brought in silica from Ottawa, Illinois, by rail. Soda ash
was obtained from northeastern Michigan. Only limestone was mined
locally in northwestern Ohio (Ballert 1947, p. 190).
As glassmaking was transformed from a handicraft to an industrial
process in the late nineteenth century, access to low-cost energy be-
came especially important. Toledo sat atop what at the time appeared
to be an unlimited fiel of natural gas—the largest in the northeastern
United States. “A survey of fift [Toledo] glass plants [published in
1937] showed twenty-three indicating fuel as the most important fac-
tor for locating their industries” (Lezius 1937, cited in Ballert 1947,
p. 188). Compared with coal, the principal energy source at the time,
natural gas proved to be a more efficient lower-cost means of providing
the heat needed to keep glass molten. “By the end of the [nineteenth]
century, this supply largely was exhausted and many glass factories in
the smaller communities south of Toledo moved to new sources of fuel.
Toledo, however, retained her glass industry, though natural gas had to
be piped from increasingly distant fields (Ballert 1947, p. 188).
Toledo’s three leading glass-making firm in 1900 were Libbey
Glass Company (originally New England Glass Company), Toledo
Glass Company, and Edward Ford Plate Glass Company.
New England Glass was founded in East Cambridge, Massachu-
setts, in 1818, to produce blown, pressed glass for household products,
as well as engraved glass. Edward Drummond Libbey (1854–1925),
who had succeeded his father William L. Libbey as manager in 1883,
relocated the business to Toledo in 1888, along with 100 workers, to
escape labor unrest. The company name was changed to Libbey Glass
in 1892. Into the twentieth century, Libbey was the leading producer of
glass tableware.
Toledo Glass was incorporated in 1895 by Michael J. Owens
(1859–1923), who had been one of the firs hired at the new Libbey
plant in 1888 and was promoted after three months to supervisor. In
1899 Owens created a glass-blowing machine that made mass produc-
tion of glass bottles possible. Through growth and acquisitions, Owens
was the world’s largest glass company in 1929.
Recognizing the growing market for windows, Owens and Libbey
together organized a fir in 1916 to make fla glass. Libbey-Owens
Sheet Glass Company (“Sheet” was later dropped from the name) be-
244 Klier and Rubenstein

gan production in 1917 in a plant in Charleston, West Virginia, near

Owens’s birthplace in Mason County.
Toledo’s other major late-nineteenth-century glassmaker, Edward
Ford Plate Glass Company, also had out-of-town origins. The Star
Glass Works was founded in 1867 in New Albany, Indiana, on the Ohio
River, near Louisville, Kentucky, by John Baptiste Ford (1811–1903),
his sons Edward (1843–1920) and Emory, and his cousin Washington
C. DePauw. When the New Albany venture failed, the Fords started
New York Plate Glass Company in Creighton, Pennsylvania, 18 miles
up the Allegheny River from downtown Pittsburgh, in 1880. The Fords
left the Creighton fir in 1897 because of a dispute over distributor-
ships. Edward headed west for Toledo, where he started construction on
a plant in 1898 and began production in 1899.
Ford built the fla glass plant in Rossford, on the opposite bank of
the Maumee River from Toledo. Rossford became a company town for
the glass company, with housing and services for the workers, as well
as the factory.
Toledo’s glassmakers came together during the Great Depression.
The two leading fla glass producers, Libbey-Owens and Edward Ford,
merged in 1930 to form Libbey-Owens-Ford (L-O-F). Flat glass pro-
duction was consolidated at Edward Ford’s Rossford complex. On the
houseware side, Owens acquired Libbey in 1935.
Toledo’s important function in the glass industry has brought it
the title of “Glass Capital of America” and “Glass Center of the
World.” Such illustrious phrases rightfully are deserved, although
in terms of actual production the word “capital” perhaps is better
chosen than is “center,” for although four of the country’s lead-
ers in the glass industry have their executive office and research
laboratories in Toledo [in 1947], two of the group have all of their
production elsewhere. (Ballert 1947, p. 187)

The Big 3 in World Glass

Toledo still calls itself the Glass City, and the city’s football sta-
dium is named the Glass Bowl. But most of the automotive glass pro-
duction has moved elsewhere. As in Akron, globalization hit Toledo in
the 1980s; L-O-F was acquired by the British glassmaker Pilkington in
1985, leaving none of the surviving U.S.-owned glassmakers based in
Toledo.
 Abandoning Ohio: A Tale of Two Cities 245

Two trends have favored globalization of the glass industry. First,

demand for auto glass has grown relatively rapidly, not only because of
increased worldwide vehicle production but also because the amount of
glass per vehicle has increased. Glass usage has increased as a means
of reducing vehicle weight and as a styling trend. In a typical vehicle,
roughly 3 percent of weight is now devoted to glass, compared to 2
percent in the 1970s. The best-selling midsized sedans had 20 percent
more glass in 2006 than they did 20 years earlier (NSG/Pilkington
2006, p. 28).
Second, carmakers have increasingly demanded complete “glazing
systems” rather than pieces of glass. Glazing systems “use innovative
finishin technologies, such as encapsulation or extrusion, which en-
hance the vehicle’s styling and in certain cases, aerodynamics, as well
as adding functionality . . .” (NSG/Pilkington 2006, p. 28). Much of the
value added in glazing systems is to integrate tinting that reduces solar
glare (NSG/Pilkington 2006, p. 29). Glass suppliers also have responsi-
bility for design and assembly of modules such as tailgates that include
wipers, latches, and hinges, as well as glass (NSG/Pilkington 2006,
p. 28).
Motor vehicles consume about 10 percent of the world’s fla glass.
Windows for buildings account for 70 percent of demand, and interior
applications such as mirrors account for the remaining 20 percent.
World production of automotive glass into the twenty-firs century
was dominated by three companies based in Europe and Japan: Asahi
Glass Company, Saint-Gobain Group, and NSG/Pilkington. The three
held 65 percent of the world automotive glass market in 2006, up from
49 percent in 1992 and 63 percent in 1998 (NSG/Pilkington 2006,
p. 25).

Asahi
Asahi, Japan’s largest glassmaker, was founded in 1907 by Toshiya
Iwasaki, the second son of the second president of the original Mitsubi-
shi Corporation. The company started supplying the auto industry in
1956, and it ranked as the world’s largest auto glass supplier into the
twenty-firs century.
Asahi started U.S. production in 1985 through AGC Automotive
(originally AP Technoglass), a joint venture with PPG Industries. The
246 Klier and Rubenstein

two companies had already come together in 1966 in a joint venture

(Asahi Penn Chemical Company) to make chlorine products.

Saint-Gobain
Saint-Gobain, Europe’s largest glass supplier, was founded in 1692
on the site of Saint-Gobain château near Soissons, France. The com-
pany combined in 1695 with the Mirror Glass Factory, established even
earlier, in 1665, by Jean-Baptiste Colbert (1619–1683), Louis XIV’s
powerful contrôleur général. The combined company, known simply
as the Glass Factory, produced mirrors for the Royal Court at Versailles
and pioneered innovative industrial processes that enabled it to domi-
nate European glass production for several hundred years.
Saint-Gobain began to make automotive glass for French cars dur-
ing the 1930s, and it entered the U.S. market as a GM supplier during the
1990s. The company was better known in the United States for supply-
ing glass to the rail industry, including the Acela high-speed northeast
corridor trains, the New York City subway, and the Las Vegas monorail.
Saint-Gobain also supplied the glass for the pyramid designed by I.M.
Pei as the entry into the Louvre museum in Paris. Half of the company’s
revenues come from materials other than glass, including insulation,
building materials, pipes, containers, ceramics, and abrasives.

NSG/Pilkington
Pilkington’s origins date from efforts orchestrated by the British
government to reduce Saint-Gobain’s domination of the European mar-
ket. The British Cast Plate Glass Company was established in 1773
with financia backing from the British government. The company
constructed a large factory at Ravenhead, where it started producing
Britain’s firs plate glass in 1786.
A competitor, St. Helens Crown Glass Company, was founded near
Ravenhead in 1826, finance by three local families—William and
Richard Pilkington, Peter Greenall, and James Bromilow. The company
was renamed Greenall & Pilkington in 1829, then Pilkington Brothers
when the one family became the sole investor in 1849.
Pilkington entered the twentieth century as Britain’s sole producer
of fla glass after acquiring its competitors, including the Ravenhead
facility in 1901. Pilkington remained a privately held fir until 1970,
and a family member ran the company until 1992.
 Abandoning Ohio: A Tale of Two Cities 247

Pilkington’s operations were merged in 2007 with those of Nippon

Sheet Glass Co., the second-largest Japanese glassmaker behind Asahi.
Nippon acquired 10 percent of Pilkington in 2000 and increased its
stake to a controlling interest in 2006. Completing the circle to Toledo,
when Nippon was established in 1918, it produced glass with technol-
ogy from Libbey-Owens-Ford.

Leading U.S. Glass Suppliers

Four companies together held more than three-quarters of the U.S.

auto glass market in 2007. Two of the four market leaders were NSG/
Pilkington and Asahi. The other two leading U.S. glass suppliers, Ford
Motor Company and PPG, were both sold in 2007 to private investors
Glass Products and Platinum, respectively, and both faced uncertain fu-
tures (NSG/Pilkington 2006).

Glass Products (Ford Motor Company)

Glass Products was formed in 2007 through acquisition of Ford
Motor Company’s glass plants. That ended Ford’s involvement in mak-
ing glass, an activity that had began with the company’s founder. Henry
Ford’s obsession with controlling raw materials played a major role in
the decision, especially when glass proved expensive and hard to obtain
during and after World War I (Nevins and Hill 1957, p. 230). Even at the
height of vertical integration, Ford was the only automaker producing
its own glass.
Ford spent more than a decade trying to sell its glass facilities.
After several failed attempts, Ford finall found a buyer in 2007, a new
company called Glass Products formed by private investor Robert Price
(Automotive News 2007b). Price was described in Ford’s press release
as “a Tulsa-based private investor and experienced business leader with
a strong record of success in the natural gas industry, logistics, and
medical facility management” (Ford Motor Company 2007).

Platinum (PPG)
Before he left New York Plate Glass Company, John Ford had
changed its name to the Pittsburgh Plate Glass Company (PPG) in 1883.
PPG was the firs commercially successful producer of plate glass in
248 Klier and Rubenstein

the United States and became the leading independent supplier outside
Toledo during the early twentieth century. PPG was the second-lead-
ing supplier of glass to the U.S. auto industry in 2007, although glass
accounted for only one-fourth of revenues; more than half came from
paint and coatings (see Chapter 4).
In 2007, PPG sold its glass business to Platinum Equity, a private
equity group. PPG chose to focus on its coatings sector, which it consid-
ered to have better earnings prospects than glass (Nussel 2007).
As for Toledo, NSG/Pilkington continued to operate the Toledo-
area glass plant at Rossford, but other than that, the four leading U.S.
glass suppliers were firml entrenched elsewhere in Auto Alley:
• Asahi’s firs U.S. plant was opened in 1986 at Bellefontaine,
Ohio, to supply windshields to Honda’s Marysville assembly
plant 20 miles away, and a second plant was opened in 1989 at
Elizabethtown, Kentucky, 75 miles from Toyota’s Georgetown
assembly plant. Until 1989, the plants were operated as a joint
venture with PPG.
• Glass Products had plants in Tulsa, Oklahoma, and Nashville,
Tennessee, built by Ford after World War II.
• Platinum produced OEM glass at fiv U.S. facilities in Evans-
ville, Indiana; Evart, Michigan; Crestline, Ohio; and Creighton
and Tipton, Pennsylvania.
• NSG/Pilkington had facilities in Lathrop, California; Ottawa,
Illinois; and Laurinburg, North Carolina; as well as Rossford,
Ohio.

OUTLOOK AND UNCERTAINTIES

Ballert’s 1947 dissertation concluded that Toledo would remain at

the center of the country’s motor vehicle production. Among the rea-
sons for this conclusion were the following four (Ballert 1947, p. 184):
1) The automobile companies and the producers of parts and
equipment are mutually dependent upon one another, and this
provides a deterrent to the dispersion of the industry.
 Abandoning Ohio: A Tale of Two Cities 249

2) The ubiquitous unionism in the automotive industry nullifie

any reason for moving to obtain cheaper labor.
3) There is continued availability of skilled and semiskilled
labor.
4) Toledo has a central position with respect to assembling raw
materials and distributing the goods produced.
The future of Toledo’s motor vehicle glass production seemed es-
pecially assured in 1947. “Continued prominence in the glass industry
appears to be assured for Toledo, both from the standpoint of produc-
tion and administration . . . Transportation costs are important for these
bulky items, and Toledo is located excellently with respect to the market
for such products, especially safety glass for automobiles.” When this
was written in 1947, Libbey-Owens-Ford was the sole supplier of glass
to GM and, along with PPG, supplied 85 percent of the safety glass in
the United States (Kennedy 1941, cited in Ballert 1947).
Toledo has in fact remained an important center for motor vehicle
production. Sixty parts suppliers are located in northwest Ohio, includ-
ing 16 in Lucas County where Toledo is located. Motor vehicles have
been assembled in Toledo since the nineteenth century, most recently
at an assembly plant opened for Jeep production in 2001. Toledo is
even attempting to reinvent itself by leveraging its deep roots in the
glass industry in light of rising demand for alternative energies (Carlton
2007).
On the other hand, Summit County, where Akron is located, had
only two remaining suppliers in 2007, one making wheels and the oth-
er plastic parts. Akron has moved on to become a center for polymer
production.
The experiences of Toledo and Akron show that communities at the
northern end of Auto Alley face an increasing challenge in retaining
suppliers. Locations further south offer greater proximity to the plants
of growing carmakers as well as lower costs of doing business, without
sacrificin equally good access to national markets and raw materials.
 11
Chassis Suppliers Move
South in Auto Alley

When kids draw airplanes, they draw wings; cars, they draw
wheels.1

The chassis makes a vehicle safe to drive and provides passengers

with a comfortable ride. Because the undercarriage of the vehicle is
largely invisible, motorists generally don’t know who has made the
components, and they generally don’t care. Unlike the powertrain,
chassis performance rarely influence buying decisions. And unlike the
interior and exterior, chassis styling rarely influence buying decisions.
Encouraged by the “invisibility” of the chassis, carmakers have long
outsourced key chassis components to strong independent suppliers.
Major chassis modules include brakes, driveline, fuel handling,
steering, suspension, and wheels. The wheels are connected to the pow-
ertrain by the driveline and to the operator of the vehicle by the steer-
ing. In the absence of a suspension system, every rough spot in the
road would transmit an intense shock through the car, making the ride
unpleasant at low speed and intolerable at high speed.
Although the various chassis modules must fi together and func-
tion harmoniously, they do not have to be produced in the same place.
The chassis has been the main “battleground” system in the twenty-firs
century over the future geography of the U.S. auto industry. Overall, 56
percent of chassis plants were in the Midwest in 2006, a smaller per-
centage than any other system except electronics. But not every chas-
sis supplier has been equally likely to leave the Midwest. The regional
distribution has varied both among types of chassis modules and among
leading suppliers within each chassis module.
One-fourth of all chassis parts were made within 158 miles of De-
troit, one-half within 366 miles, and three-fourths within 642 miles
(Figure 11.1). These distances are larger than those of all other sys-
tems except electronics (see Chapter 14). The makers of parts such as

251
252 Klier and Rubenstein

Figure 11.1 Location of Chassis Components Plants

SOURCE: Adapted by the authors from the ELM International database and other
sources.

wheels, brakes, and suspensions have been sensitive to price pressures

and have relocated production to places with lower labor costs. Imports
of chassis parts have risen especially rapidly (see Chapter 13).
The six major chassis modules could be placed into three groups
based on geographic distribution (Table 11.1). More than 60 percent of
the plants making driveline and steering parts were still in the Midwest
in 2006. On the other hand, suppliers of wheel and fuel handling parts
were most likely to move southward in Auto Alley. Between these two
were brake and suspension suppliers.
The probability of production remaining in the Midwest or moving
to the southern end of Auto Alley has been influence in part by the na-
ture of the part. Relatively bulky and fragile parts have been more likely
to remain in the Midwest, whereas low-cost commodities have moved
south in Auto Alley. The probability of the Midwest retaining or losing
 Chassis Suppliers Move South in Auto Alley 253

production has also been influence by competitive pressures among

leading suppliers of particular modules.

HANGING ON IN THE MIDWEST

Nearly two-thirds of plants making driveline and steering parts

were located in the Midwest in 2006. The driveline and steering mod-
ules are closely linked to the powertrain modules, which are produced
primarily in the Midwest, as described in Chapter 3. The Midwest has
also remained the center for producing these parts because the leading
suppliers have been U.S.-owned firm with roots in the region.

Driveline Parts Suppliers

Key driveline components are the axles and drive shaft (or propel-
ler shaft). The axles hold the wheels in place and drive them forward
or backward. The drive shaft, which connects the transmission output
shaft with the axles, permits the axles and wheels to move up and down
on an uneven surface while the transmission remains fixe to the ve-
hicle frame.
The drive shaft is a hollow steel tube that absorbs the vertical move-
ment of the axle at one end without affecting the rigid transmission out-
put shaft at the other end. Early motor vehicles transferred power from
the engine to the axles by a chain-and-sprocket arrangement adapted
from bicycles. The chains were noisy and hard to lubricate, and broke
frequently. Several nineteenth-century experimental French vehicles
replaced the chains and sprockets with a drive shaft; the 1901 Autocar
may have been the firs American car with a drive shaft.
Axles transmit engine power to the wheels. Most U.S. vehicles were
rear-wheel drive until the 1970s. The rear wheels had responsibility for
power while the front wheels had responsibility for steering and brak-
ing. Sending most of the weight to the rear made early cars more stable
and easier to control.
In the wake of the 1970s energy crisis, front-wheel-drive vehicles
became popular and accounted for about 70 percent of U.S. vehicles
into the twenty-firs century. A major advantage of front-wheel drive
254 Klier and Rubenstein

Table 11.1 Chassis Parts Plants in the Midwest

Chassis parts Number of plants % in Midwest
Driveline 192 63.0
Axles 57 66.7
CV and universal joints, yokes 40 57.5
Drive shafts and torque converters 46 63.0
Other driveline parts 49 60.8
Steering 257 61.5
Columns 26 65.4
Steering gears and knuckle 40 62.5
Steering hoses 11 45.5
Linkages and tie rods 17 58.8
Power steering systems 27 92.6
Steering wheels and shafts 34 41.2
Other steering parts 102 60.8
Wheels and related parts 158 46.1
Wheel bearings and bushings 15 46.7
Hubs and related parts 67 67.2
Wheels 47 31.9
Other wheel-related parts 29 55.2
Fuel handling 355 51.0
Carburetors 17 58.8
Air cleaners and filter 31 64.5
Fuel filter 29 48.3
Hoses, tubes, and fuel lines 52 61.5
Fuel injection systems 60 41.7
Fuel pumps 35 48.6
Fuel system sensors 42 26.2
Fuel tanks 25 68.0
Other fuel-related parts 64 54.7
Brakes 358 58.1
ABS 26 53.8
Calipers, master cylinders, rotors 49 63.3
Hoses, tubes, brake lines 54 57.4
Drum brakes 20 75.0
Parking brakes 19 42.1
Hydraulic pumps 14 92.9
 Chassis Suppliers Move South in Auto Alley 255

Table 11.1 (continued)

Chassis parts Number of plants % in Midwest
Brakes (continued)
Disc brakes 34 44.1
Other brake parts 142 57.0
Suspension 229 56.3
Springs 37 56.8
Struts and stabilizers 40 57.5
Shock absorbers 31 58.1
Control arms 29 69.0
Other suspension parts 92 51.1
Total chassis 1,549 56.8
SOURCE: Adapted by the authors from the ELM International database.

was elimination of the long drive shaft between the transmission and
rear axle. The shorter distance from the transmission to the front wheels
meant fewer parts and less weight, and therefore higher gas mileage and
a lower price. Front-wheel drive also had the advantage of increasing
interior passenger space by eliminating the large hump on the floo to
accommodate the drive shaft connection to the rear axle. Putting the
weight of the engine directly over the drive axle also improved traction
in slippery conditions.
On front-wheel-drive vehicles, the transmission and axle form
a module called a transaxle. The axle is in two halves, each attached
to a wheel at the outer end. The two wheels on the driving axle must
be interconnected in order to receive power from the same source, the
driveshaft.
Given the close link between axles and transmissions in contempo-
rary vehicles, it is no surprise that axle production is as highly clustered
in the Midwest as is transmission production. The two leading axle
producers—American Axle & Manufacturing (AAM) and ArvinMeri-
tor—had 15 U.S. axle plants in 2007; 6 were in Michigan and 3 each
were in Ohio, New York, and the South.

American Axle and Manufacturing

During the height of vertical integration, the Detroit 3 produced
most axles for cars in-house, but GM sold its axle-making facilities to
256 Klier and Rubenstein

AAM, which was easily the most successful of the suppliers spun off
from GM during the 1990s. The company took over old plants that many
regarded as unsalvageable yet prospered thanks to the SUV boom.
Much of the credit for AAM’s early success was given to Richard E.
Dauch, its founder, firs CEO, and firs chairman of the board. AAM has
borne the imprint of this single individual as much as any of the very
large suppliers. Even the AAM corporate offic in Detroit was located
at 1 Dauch Drive.
However, AAM’s prospects were ominously tied to those of GM.
More than four-fifth of sales went to GM, primarily light truck axles.
GM selected AAM as its Tier 1 integrator for the driveline system for
full-sized pickups and large sport utilities. AAM would be responsible
for both axles as well as the driveshaft, brake components, suspen-
sion parts, and design and sourcing of the driveline system (Sherefkin
2002a).

ArvinMeritor
The leading supplier of heavy truck axles has been ArvinMeritor,
created through the merger of exhaust specialist Arvin Industries with
Meritor Automotive. Meritor had been spun off as an independent com-
pany only two years before the 1999 merger. Prior to then, Meritor had
been a division of Rockwell International.
Rockwell International’s predecessor Timken-Detroit Axle Co. was
established in 1909 to make truck axles. Its founder Henry Timken
(1831–1909) was better known for making roller bearings. The com-
pany, renamed Rockwell Spring & Axle Co. in 1953 in honor of its firs
president Willard Rockwell, entered the aviation and defense business
when it merged with North American Aviation in 1967.
As a division of Rockwell International, Rockwell Automotive was
ripe to be spun off. Although the automotive division ranked among
the largest suppliers in the 1990s, its parts sales of $2 billion per year
accounted for less than one-fourth of total sales at Rockwell. Of more
importance, the automotive division was contributing only 10 percent
to Rockwell’s corporate earnings.
 Chassis Suppliers Move South in Auto Alley 257

Dana Corp.
Early drive shafts shattered easily because they were held in a fixe
rather than a flexibl position. Inventing an effective way to make a
drive shaft flexibl was the basis for the success of Dana Corp. While
an engineering student at Cornell University’s Sibley College in 1903,
Clarence W. Spicer patented the solution—a universal or U-joint at-
tached to either end of the drive shaft. U-joints allow the drive shaft to
change angle without breaking as the axle moves up and down.
Spicer Universal Joint was rescued from financia difficultie in
1914 when New York lawyer, politician, and entrepreneur Charles Dana
(1881–1975) purchased controlling interest. Dana was company presi-
dent from 1914 to 1958 and chairman from 1948 to 1966, the longest
period under a single leader of any of the major motor vehicle suppliers
and possibly of any multibillion-dollar fir in the United States.
Dana reorganized Spicer Universal Joint and moved its headquar-
ters and production facilities to Toledo in 1929, where it joined Willys-
Overland and Libbey-Owens-Ford as part of Toledo’s growing automo-
tive production complex. In recognition of Charles Dana’s firs 32 years
of service, the company was renamed for him in 1946. However, the
Spicer name was retained for the company’s drivetrain products.
Dana file for bankruptcy protection in 2006. Declining sales to De-
troit 3 carmakers and increased cost of raw materials, especially steel,
were blamed for the financia difficulties The company sold many of
its plants to other suppliers, restructured its labor contracts, and estab-
lished trusts for retiree health care obligations. Dana received a substan-
tial infusion of capital from Centerbridge Capital Partners in 2007. In
2008 it emerged from Chapter 11 as Dana Holding Corporation.

GKN Automotive
Spicer’s U-joint had one notable flaw it caused the drive shaft to
rotate at a variable speed. As long as rear-wheel-drive vehicles predom-
inated, the variability was not a problem. But on a front-wheel-drive ve-
hicle, the drive shaft’s variable rotation caused hard steering, slippage,
and uneven tire wear when turning corners.
In the 1920s, Spicer engineer Alfred H. Rzeppa invented a major
improvement to the U-joint, the constant velocity joint (CVJ), which
eliminated the variable drive shaft speed. But Dana ceded leadership in
258 Klier and Rubenstein

supplying drive shafts and CVJs to the British fir GKN Automotive
Inc. during the late twentieth century.
Guest, Keen and Nettlefolds Ltd. (shortened to the acronym GKN
in 1986) was formed in the early twentieth century through merger of
several venerable British firms Dowlais Iron Company, established in
1759 in the South Wales village of Dowlais, was the world’s largest
ironworks in the late eighteenth century and the world’s largest steel
mill for much of the nineteenth century. John Guest and his descendants
controlled Dowlais for more than a century until selling it in 1900 to Ar-
thur Keen, who merged it with Patent Nut and Bolt Company, which he
had established in 1856. In 1902, Keen acquired Nettlefolds Ltd., one of
the world’s largest manufacturers of nuts, bolts, screws, and nails.
GKN was nationalized in 1951 by Britain’s Labour government,
privatized later that year by the newly elected Conservative govern-
ment, nationalized a second time by Labour in 1967, and again priva-
tized by the Conservatives in 1973. With its core products of steel and
nails under pressure from lower cost overseas competitors, GKN was
an unlikely survivor of the 1970s-era bankruptcies, closures, and merg-
ers. The company halted steel production altogether in the early 1980s
and lost most of its nail market.
The constant velocity joint proved to be the savior of GKN. In 1966
GKN had acquired a share in Hardy Spicer Ltd., which held patents
on a CVJ for front-wheel-drive cars. After interest in front-wheel-drive
transmissions increased in reaction to the 1970s energy crisis, GKN
emerged as the leading CVJ producer, holding one-third of the world
market by the 1990s. Acquisition of the CVJ facilities of Fiat, GM, and
Nissan boosted GKN’s share to 43 percent of world production in 2002
(GKN 2007).

Steering

The principal interface between the driver and chassis is through

the steering system. For a car to turn smoothly, each wheel must follow
a different circle. Since the inside wheel is following a circle with a
smaller radius, it makes a tighter turn than the outside wheel. The steer-
ing linkage makes the inside wheel turn more than the outside wheel.
Nineteenth-century vehicles were steered by a tiller that pivoted the
entire front axle. This was possible because most of the weight of early
 Chassis Suppliers Move South in Auto Alley 259

vehicles was distributed to the rear. The tiller was generally positioned
in the middle so that the driver could sit on either side. When the engine
was moved to the front, a more elaborate steering system was needed
to get the wheels to turn. A mix of tillers and steering wheels were of-
fered through the firs decade of the twentieth century, until the steering
wheel became standard.
Two types of steering gears have been widely used: recirculating
ball and rack-and-pinion. The recirculating ball system predominated
for most of the twentieth century and is still used on many trucks and
SUVs, whereas rack-and-pinion steering has become most common on
cars.
The recirculating ball system has a steering shaft connected at one
end to the steering wheel and at the other end to a block with a hole in
the middle and gears on the outside. The end of the steering shaft has a
worm gear, similar to a bolt, which fit in the hole in the metal block,
similar to a nut. With rack-and-pinion steering, the end of the steering
shaft is fashioned into a pinion gear rather than a worm gear. Rack-and-
pinion steering was confine to racing cars and sports cars until it was
adopted on smaller European cars during the 1960s. The rapid expan-
sion of foreign car sales during the 1970s introduced many Americans
to rack-and-pinion steering.
Nearly all power steering parts were made in the Midwest in 2006,
along with two-thirds of steering columns and gears. Hoses, shafts, and
steering wheels were less likely to be made in the Midwest.

TRW
The leading supplier of steering gears in the United States was TRW
Automotive Inc. TRW was formed through the merger of Thompson
Products and Ramo-Wooldridge Corp. in 1958. The acronym TRW was
adopted in 1965.
TRW’s motor vehicle parts heritage came through Thompson, which
was originally known as the Cleveland Cap Screw Co. and established
in 1901 to make fasteners, including the eponymous cap screw, a large
heavy-duty bolt with cap and stem welded together. An adaptation of
the cap screw became Cleveland Cap Screw’s firs motor vehicle part,
an engine valve stem. Impressed with the part, Cleveland-based pioneer
motor vehicle producer Alexander Winton purchased the company in
1904 and installed the welder who created the valve, Charles E. Thomp-
260 Klier and Rubenstein

son, as general manager. The company’s name was changed in 1926 to

honor Thompson.
The company’s firs steering product, introduced in 1914, was a
steering reach rod, also known as a drag link, a long, hollow tube with a
ball-and-socket attachment at each end that connected the steering col-
umn with the front wheels (Dyer 1998, p. 42). The company introduced
the firs rack-and-pinion steering gear in the United States in 1972.
Thompson’s valves were also used in aircraft engines. The com-
pany’s involvement in the aviation industry induced it to invest in a
new company founded in 1953 by two former California Institute of
Technology classmates and Hughes Aircraft Co. engineers, Simon
Ramo and Dean Wooldridge. Ramo-Wooldridge grew rapidly after be-
ing named systems engineer and technical adviser to the Air Force for
the Intercontinental Ballistic Missile program in 1955. The combined
Thompson-Ramo-Wooldridge company became a major military and
aviation supplier.
TRW Automotive was spun off from the aviation portion of the fir
in 2003 and acquired by the Blackstone Group L.P. Shares were sold to
the public in 2004, although Blackstone retained control. Steering gears
and other chassis products accounted for two-thirds of TRW’s revenues
in 2004, occupant safety components one-fourth, and valves and other
powertrain components the remainder (Dyer 1998).
TRW’s steering gear plants were split between northern and south-
ern locations. Three newer plants were in Tennessee and three older
ones were in Indiana, Michigan, and Ohio.

CHASSIS PARTS PRODUCTION MOVES SOUTH

The two chassis modules that have most aggressively moved out of
the Midwest have been wheels and fuel handling. Only 46 percent of
wheel parts and 51 percent of fuel-handling parts were still made in the
Midwest in 2006.
The wheel has been buffeted by contradictory trends. On one hand,
it has been transformed from a purely functional component into an im-
portant design element. At the same time, it has been subject to intense
pricing pressures through increased competition. As a result, the wheel
 Chassis Suppliers Move South in Auto Alley 261

has become a low-cost commodity in the vanguard of outsourcing to

cheap-labor locations, including China.
Fuel handling includes three sets of components: the line to move
the fuel from the tank to the engine, the control system to push the fuel
into the engine, and the tank to store the fuel. Fuel line production has
been especially likely to remain in the Midwest, whereas the other two
have been less tied to the Midwest.

Wheels: Ugly Duckling No More

The wheel is mounted to the axle with the brake drum or disc on
one side and the tire on the other. The central part of the wheel through
which the axle passes is the hub.
Nineteenth-century vehicles rode on enormous four-foot-diameter
wheels inherited from buggies and bicycles. Long spindly wooden
spokes—typically 12 or 14—radiated from a central hub to a wooden
rim. As motor vehicle production increased after 1900, and vehicles
acquired their contemporary appearance, wheels shrunk to about 2 feet
in diameter.
The wooden wheel was replaced during the 1920s by a fla pressed-
steel disk wheel painted the same color as the body. The steel wheel
was later reshaped to include a drop center, in which the diameter on the
outside of the wheel was smaller, to facilitate installation and removal
of the tire. The tire was mounted on the wheel by threading four to six
lug nuts through holes in the tire hub onto bolts in the center of the
wheel. The drop-center steel wheel with a roughly one-foot diameter on
the outside became the industry standard during the 1930s and changed
little over the next 60 years.
Beginning in the 1930s, the unattractive drop-center wheel was
hidden by a cover, commonly known as a hubcap. The wheel cover
was pressed from steel into elaborate flute patterns and plated with a
shiny finish The covers were thought to enhance a new vehicle’s ap-
pearance, although they soon became tarnished, dented, misshapen,
stolen, or dislodged by a bump in the road. Most hubs are made in the
Midwest, but fewer than one-third of the wheels themselves are made
in the Midwest.
262 Klier and Rubenstein

The veteran: Hayes

The leading supplier of wheels for most of the twentieth century
was Hayes Wheels and its successors. Hayes’s wheel production has
been heavily centered in the Midwest.
The company founded by Clarence B. Hayes in 1908 captured
two-thirds of the wooden wheel market during the 1910s. Most of the
remainder was held by K.H. Wheel Co., which was founded in 1909
by John Kelsey and John Herbert and reorganized a year later as the
Kelsey Wheel Co. As steel wheels replaced wooden ones, the two lead-
ing wheel-making firm merged in 1927 to form Kelsey-Hayes Wheel
Corp. When it invented the drop-center wheel in 1934, Kelsey-Hayes
solidifie its position as the country’s dominant producer of steel
wheels.
Kelsey-Hayes experienced multiple takeovers during the late twen-
tieth century. Fruehauf Corp., a semitrailer manufacturer, acquired it in
1973 and sold it in 1989 to Varity Corp., formerly known as Massey-
Ferguson. Varity spun off Hayes Wheels International as a separate
company in 1992, while retaining Kelsey-Hayes’s other capabilities,
notably brake components, which is discussed later. Varity announced
its intention to buy back Hayes in 1995 but withdrew the offer a year
later. Hayes then merged with Motor Wheel Corp., the second-largest
steel-wheel producer. In 1997, Hayes acquired 77 percent of the Ger-
man company Lemmerz Holding GmbH to form Hayes Lemmerz In-
ternational, Inc.
Competition from both domestic and international wheel mak-
ers drove Hayes Lemmerz into Chapter 11 bankruptcy in 2001 from
which it emerged two years later. The company has since sold most of
the plants that made parts other than wheels. It also expanded wheel
production in Mexico and India while closing some of its midwestern
plants.

The upstart: Superior

Superior Industries International Inc., founded in California in 1957
as an aftermarket supplier, successfully challenged Hayes’s stranglehold
on the original equipment market beginning in the early 1970s. Key
to Superior’s success was aluminum wheels. In contrast to Michigan-
 Chassis Suppliers Move South in Auto Alley 263

based Hayes, four of Superior’s seven U.S. plants were located in

Arkansas.
Like much of the automotive industry, long-standing wheel prefer-
ences were firs shaken by the energy crisis of the 1970s. Looking to
shed weight from vehicles in the wake of the energy crisis, wheel sup-
pliers looked for alternatives to steel. A wheel made of aluminum was
only half the weight of a steel one; the savings of 60 pounds per vehicle
more than offset a four-times-higher price for aluminum than for steel.
The share of the market held by aluminum wheels increased from 7
percent in 1983 to 40 percent in 1993 and 56 percent in 2000.
Hayes had been a pioneer in the use of aluminum, but it stumbled
when demand for aluminum wheels soared during the 1980s. Its sales
declined from more than 22 million wheels in 1999 to fewer than 10
million in 2004 (Chappell 2004e). Superior’s big break came in the late
1980s, when Hayes lost several large GM contracts because of quality
problems. Its share of GM’s aluminum wheel purchases fell from 45
percent in 1989 to 12 percent in 1994, while Superior’s rose from virtu-
ally nothing to 53 percent. However, Superior also struggled because it
was deriving three-fourths of its sales from Ford and GM.

The boutique wheel

The ugly duckling twentieth-century drop-center wheel was trans-
formed into an attractive component in the twenty-firs century. “Wheels
are what set autos apart from every other product out there.”2 The wheel
became an important element in designing a distinctive appearance for
a brand of vehicle. “In the evolution of the design of a vehicle, we look
at wheel design on Day One.”3 Wheel diameters grew by 50 percent
during the 1990s. “A big wheel and big tires make vehicles look more
confident. 4
The wheel was especially vulnerable to imports from low-cost coun-
tries, such as China. Wheels made in China gained a strong position in
the aftermarket: “The aftermarket often leads the way on product in-
novations, since small suppliers need to respond fast to mercurial con-
sumer tastes. Wheels are an example. Aftermarket companies capital-
ized on the demand for oversized wheels and high-end rims long before
the automakers did” (Chappell 2005e). Original equipment suppliers
were challenged as well, especially by GM, which started purchasing
264 Klier and Rubenstein

aluminum wheels in China, thanks to a favorable contract arranged by

the Chinese government (Andersson 2006).
Hayes tried to reclaim its lost dominance in wheel production by of-
fering “corner” modules, consisting of wheels, brakes, and suspension
parts. In 1999, it acquired CMI International Inc., a producer of alumi-
num suspension components, including control arms, knuckles, spindle
arms, hub carriers, cross members, and engine cradles. Hayes claimed
it was capable of supplying $1,100 worth of parts out of the $1,300 that
carmakers typically spent to purchase components for “corners.” The
portion of the corner that Hayes was not able to offer was the brake,
ironically a capability that the company possessed until the convoluted
restructuring of the 1990s.
Going into the twenty-firs century, it was still unsettled as to what
the optimal strategy for a wheel maker was: Hayes’s effort to build
modular capability or Superior’s concentration on one component. Car-
makers were not rushing to purchase entire modules from Hayes, pre-
ferring to continue to deal separately with the well-established suppliers
of the other components. When Hayes was forced to reorganize under
Chapter 11 bankruptcy protection, Superior’s strategy appeared supe-
rior, at least in the short run.

Fuel Handling

The geographic distribution of fuel-handling parts has been mixed.

Air filters hoses, and tanks have been more likely to be produced in
the Midwest, whereas fuel filters injection systems, and pumps have
been more likely to be located in the South. Overall, only one-half of
the plants making fuel-handling parts were located in the Midwest in
2006.
The southward drift of fuel-handling production may have been a
function of the dominance of foreign-owned suppliers. European sup-
pliers have been especially important in this sector.

Fuel lines: TI Automotive

The leading supplier of fuel lines, as well as other fluid-deliver
lines, has been British-based TI Automotive Ltd. (Automotive News
Europe 1999). TI’s predecessor, Tube Investments Ltd., founded in
1919 in Birmingham, England, became a major U.S. supplier in 1987
 Chassis Suppliers Move South in Auto Alley 265

through the acquisition of Bundy Group, then the world leader in fuel
and brake-flui delivery. “Bundy supplies either the complete brake
line or complete fuel line, or the two in combination. Carmakers in-
creasingly favor combined systems. These are efficien because a rigid
steel fuel system supports the sometimes flexibl brake flui system.
The combined unit is more easily added to the car’s underbody on the
assembly line” (Chew 1997).
In 1999, TI acquired Walbro Corp., which had been founded in
1950 by Walter E. Walpole in Fenton, Michigan, to manufacture carbu-
retors. TI combined Bundy’s fuel lines with Walbro’s fuel storage and
delivery technology to create fully integrated fuel storage and delivery
systems. Eight of the company’s nine U.S. plants that made fuel-han-
dling components in 2007 were located in the Midwest, including six
in Michigan.

Fuel injection: Robert Bosch

The fuel control system includes fuel injectors to inject fuel into the
intake air flo , throttle bodies to control air flo , an intake manifold
to distribute air flo from the throttle bodies to engine cylinders, and
a pump to push the fuel out of the tank. Increasingly popular is a com-
mon-rail injection system that stores fuel in a central rail and delivers it
to the individual electronically controlled injector valves.
Several of the world’s largest automotive parts suppliers have been
leaders in producing fuel control systems. Robert Bosch Corp., the
world’s largest supplier in 2007, was also the largest supplier of fuel
control systems for gasoline engines. Delphi, Denso, and Continental
were the other leading suppliers of fuel injection systems and common-
rail systems (Lewin 2005).
Bosch introduced electronic fuel injection in 1967 and was supply-
ing nearly all European vehicles in the 1980s. Electronic fuel injection
was less wasteful than a mechanical system using a carburetor because
motorists no longer had to pump the accelerator or pull the choke knob
to get a steady stream of fuel to the engine. Sensors measured airflo
and air temperature to adjust the amount of fuel being delivered (Arm-
strong 2004c). Bosch has supplied the U.S. market with fuel injectors
primarily from overseas facilities.
266 Klier and Rubenstein

Fuel injection: Keihin

The leading Japanese supplier of fuel injection modules has been
Keihin Corp., a Honda keiretsu. Keihin was formed in 1997 through
the merger of Keihin Seiki Manufacturing Co. with two Honda cap-
tives, Hadsys and Denshigiken. Honda controlled nearly one-half of
company shares. Fuel control systems accounted for one-third of the
company’s worldwide revenues in 2004, air conditioning one-fourth,
and electronic control units and motorcycle fuel systems one-fift each.
The half-dozen fuel injection plants in the United States in 2007 were
divided between three in Indiana and three in the Carolinas.

Fuel tanks: Inergy

The leading supplier of fuel tanks, with about one-third of the U.S.
market, has been French-based Inergy Automotive Systems. Inergy was
a 50–50 joint venture between two of Europe’s leading plastics produc-
ers, Plastic Omnium and Solvay S.A., and was formed in 2000. Plastic
Omnium, a French company established after World War II by chemical
engineer Pierre Burelle, was an early European-based innovator in plas-
tic parts and has become a leading supplier of bumpers (see Chapter 4).
Solvay, a Belgian company founded in 1863 by Ernest Solvay, was the
leading producer of sodium carbonate, made through combining am-
monia with salt, carbon dioxide, and lime. The company ventured into
plastics production during the 1950s, beginning with polyvinyl chloride
(PVC).
Inergy became the world leader in fuel tanks by making them out
of plastic (e.g., high-density polyethylene or HDPE). These tanks are
lighter and less prone to corrosion than those made of metal (Chew
2002, 2004a) and are relatively easy to transport. Inergy’s U.S. plant
locations in 2007 included one each in the Midwest and South.

NORTH–SOUTH BATTLEGROUND

The brake may be the best example of part production being pulled
toward the two ends of Auto Alley in the early twenty-firs century.
 Chassis Suppliers Move South in Auto Alley 267

Cutthroat competition, induced by rapid technological change and price

drops, favored southern, low-cost locations.
Suspension production has been divided between the Midwest and
the South for different reasons. Assembled suspension modules, espe-
cially control arms, are especially difficul and fragile to transport, thus
favoring locations further north. At the same time, individual suspen-
sion parts, such as springs and shocks, can be transported easily, so the
production of those parts is more likely to head south.

Brakes: Supplier Turmoil

Nineteenth-century vehicles were slowed by putting a long stick

with a weight on the end in a front wheel, similar to the practice with a
horse-drawn carriage. The firs automotive brakes were placed only on
rear wheels. Four-wheel brakes did not become standard on production
vehicles until the 1920s.
Early automotive engineers believed that brakes on all four wheels
would be dangerous because in a sudden stop the wheels could lock,
causing the car to roll over and passengers to be thrown forward against
the instrument panel (seat belts and other passenger restraint devices
had not yet been invented). Four-wheel brakes were limited during the
early twentieth century to racing cars, which were traveling too fast
for two-wheel brakes to be effective. The percentage of vehicles with
brakes on all four wheels increased quickly during the 1920s, from 2
percent in 1923 to 36 percent in 1925 and 91 percent in 1927 (Epstein
1928). Early brakes were mostly drum brakes. A strip or lining of fric-
tion material was fastened to a steel shoe or block shaped to fi snugly
inside a drum attached to the wheel. When the brake pedal was de-
pressed, the curved brake shoe was pushed outward to make contact
with the rotating drum.
Introduced in the 1950s were disc brakes, which consisted of heavy
discs or rotors bolted to the wheel hubs. When the brake pedal was de-
pressed, both sides of the disc were pressed by brake shoes or friction
pads; two shoes were used to keep the wheel more stable. Because they
initially required more pedal pressure than drum brakes, disc brakes
were shunned by consumers until power assistance was added during
the 1960s.
268 Klier and Rubenstein

With power brakes, most of the work involved in pushing the pedal
was done by vacuum pressure. Depressing the brake pedal exerted a
force on a piston inside a master cylinder, made stronger through open-
ing and closing of vacuum control valves. The force was transferred
from the master cylinder piston to cylinders located at each wheel. Pis-
tons in each of these wheel cylinders were then moved, causing the
brake shoes to come into contact with the revolving disc.
Antilock brake systems (ABS) appeared during the 1980s. With
ABS, a computer controlled the movement of the brake shoes when
the brake pedal was pressed, enabling the shoes to press against and
then release the discs or drums many times per second. ABS prevent-
ed wheels from locking up, thereby increasing the ability of drivers to
maintain control of their vehicles. The percentage of U.S. vehicles with
ABS increased from 0.7 percent in 1986 and 4 percent in 1989 to 44
percent 1993 and 56 percent in 1994.
Drum brakes were more likely to be made in the Midwest, whereas
disc and ABS brakes were more likely to be made in the South. Other
brake-related parts were also likely to be made in the Midwest.
Rapid diffusion of low-cost ABS brought chaos to brake suppliers.
The price of a state-of-the-art brake declined during the 1990s from
$1,000 to $100 per vehicle. What was a high-tech component back in
1990 had become a generic commodity by 2000. Of the four companies
responsible for nearly all U.S. brakes in 1994—AlliedSignal Automo-
tive, GM, ITT Automotive, and Kelsey-Hayes Co.—not one was still
supplying brakes fiv years later:
• AlliedSignal sold its Bendix brake division to Robert Bosch in
1996.
• GM’s brake operations were spun off in 1999 as part of Delphi,
which in turn put it up for sale in 2007.
• ITT sold its automotive brakes and chassis unit in 1998 to Conti-
nental AG, which placed it in its Alfred Teves group.
• Kelsey-Hayes was sold in 1989 to Varity Corp., which merged
in 1996 with a British firm Lucas Industries. LucasVarity in turn
was sold to TRW in 1999.
As was the case with wheels, the market share losers among brake
competitors into the twenty-firs century were firm based in the North,
 Chassis Suppliers Move South in Auto Alley 269

whereas the suppliers based in the South were gaining. Nationality

also played a role. The two brake suppliers with most of their plants in
the North, Delphi and TRW, were U.S.-owned, whereas the two with
most of their plants in the South, Robert Bosch and Continental, were
German-owned.

Robert Bosch
Robert Bosch gained its strong position in the brake market as the
ABS pioneer. The company built the firs ABS in 1978 and provided the
luxury German cars with it beginning in the 1980s. For the U.S. market,
Bosch opened ABS plants in the South during the 1980s, including two
in Tennessee and one in South Carolina. Bosch became a leader in the
U.S. brake market by acquiring Bendix in 1996.
When four-wheel drum brakes became standard equipment during
the 1920s, Bendix was the leading supplier. Because the company was
already supplying 90 percent of electric starters, company founder Vin-
cent Bendix was called “The King of Stop and Go” (Crain Communica-
tions 1996).
Bendix had close relations with both Ford and GM that extended
deeper than supplying parts. GM bought 24 percent of Bendix in 1929.
GM’s interest was not brakes, but rather Bendix’s growing involvement
in aviation. GM official believed that personal flyin machines might
someday replace terrestrial motor vehicles. “During the 1920s, it be-
came steadily clearer that aviation was to be one of the great American
growth industries” (Sloan 1964, p. 362). GM also bought 40 percent of
the Fokker Aircraft Corporation of America and 100 percent of the Alli-
son Engineering Company in 1929. With the prospect of personal flyin
vehicles clearly unrealistic, GM sold its Bendix shares in 1948.
Meanwhile, Bendix official were instrumental in leading Ford’s
modernization and turnaround after World War II. Bendix president Er-
nest R. Breech became executive vice president of Ford in 1946 and
chairman from 1955 to 1960. He was credited with hiring a team of
energetic young executives known as the Whiz Kids. Lewis D. Crusoe,
also a former Bendix official set up Ford’s firs cost-accounting system
during the 1950s.
Bendix was acquired in 1983 by Allied Corp., which had been
founded in 1920 through the merger of fiv chemical companies. Allied
merged in 1985 with Signal Companies, which had started producing
270 Klier and Rubenstein

gasoline from natural gas in 1922. A decade later AlliedSignal sold its
brake division to Bosch.

Continental
The principal competition for Bosch’s leadership in ABS came
from another German firm Continental, which is discussed in Chapter
10 as a leading tire supplier and in Chapter 14 as an interior electronics
supplier. Continental, like its fellow German brake supplier, set up U.S.
brake plants in the South, including three in North Carolina and one
across the state line in Virginia.
Continental gained its leadership position in brake production by
acquiring U.S.-owned ITT Automotive in 1998. Completing the inter-
national circle, ITT in turn had become a major brake supplier by ac-
quiring German-owned Alfred Teves in 1967. Teves had been founded
in 1906 to produce brakes for German cars. ITT’s Teves subsidiary sup-
plied its firs U.S. ABS in 1984, for Ford’s Lincoln Continental.
ITT originated in 1925 as International Telephone & Telegraph
when American Telephone & Telegraph spun off its overseas interests
as separate company. ITT became one of the best examples of a large
conglomerate with interests in numerous unrelated industries. During
the 1990s ITT was one of the 10 largest parts suppliers in the United
States, but the company chose to concentrate on sectors with higher
rates of return, primarily defense electronics and water treatment.

TRW
TRW was the largest supplier focusing primarily on chassis compo-
nents; its steering operations have already been discussed. Its brake pro-
duction was acquired from Kelsey-Hayes. During the 1920s, Kelsey-
Hayes, already described as the leading supplier of wheels, was also
Bendix’s chief competitor in producing drum brakes. One year after the
company was formed through the merger of Kelsey Wheel and Hayes
Wheel, Kelsey-Hayes produced its firs brakes for Ford in 1928.
Kelsey-Hayes’s brake operations fell behind the other brake suppli-
ers during the 1990s; the company suffered from multiple takeovers and
failed to stay competitive in the rapidly growing and ever-cheaper ABS
market. TRW inherited plants clustered in the Midwest, including one
in Michigan and two each in Minnesota, Ohio, and Wisconsin.
 Chassis Suppliers Move South in Auto Alley 271

Delphi
The ABS price breakthrough came in the early 1990s from the un-
likely source of General Motors. GM’s Delco Products division had
been building brakes in Dayton since 1934. The Delco Brake Divi-
sion was organized in 1936, moved to the Moraine Products division
in 1942, and renamed Delco Moraine in 1960 so that GM could use the
Delco trade name on its brakes.
Delco Moraine’s ABS system, while less sophisticated than Bosch’s,
cost only $300 per vehicle instead of $1,000 in the early 1990s, when
GM made ABS standard even on its low-priced vehicles. Stung by
Delco Moraine’s low price, other brake manufacturers quickly intro-
duced more advanced ABS at even lower prices. ABS designs soon be-
came fairly standard, and since quality was comparable, pricing became
the key to market share.
With the rapid conversion of ABS from an expensive option re-
served for luxury cars to low-cost accessory for all vehicles, production
of brakes lost its attraction for the long-time market leaders. Delphi
gave up on brakes, along with compressors, fuel handling, ignition, in-
teriors, and suspension. Plants making these parts were placed in the
Automotive Holdings Group, pending sale or closure.
In 2007 Delphi sold its brake hose business to Marco Manufactur-
ing LLC, its brake component machining assets to TRW, and its two
Mexican brake plants to Bosch.

Suspension

When a vehicle is driven on uneven road surfaces, the suspension

system stabilizes the vehicle and keeps its tires on the road. The suspen-
sion system also cushions passengers from uncomfortable bumps and
vibrations. Suspension components were invented early in the history
of the car to dampen the rough ride over poor roads.
The principal components in the suspension system include springs,
bars, and shock absorbers. The Midwest share of suspension production
was below average for all parts.
Shock absorbers dampen much of the up-and-down movement
because, if the car were suspended only on springs, it would bounce
and sway uncomfortably after each bump. They are mounted inside the
272 Klier and Rubenstein

front springs and in front of the rear springs, allowing the springs to
compress fully and rebound slowly.
A shock absorber consists of one cylinder nestled inside another.
When the wheel travels over a bump, the lower cylinder moves with
the wheel and is telescoped into the upper cylinder, which is bolted to
the frame. A piston attached to the upper cylinder eases this telescoping
action. As the shock absorber rebounds after impact, the lower cylinder
is pulled downward.
Monroe has been the leading supplier of shock absorbers in the
United States and had a well-known brand name primarily because
a large percentage of its sales has been in the aftermarket. Monroe’s
predecessor, Brisk Blast Manufacturing Co., produced the firs mod-
ern shock absorber in 1926. Monroe was acquired in 1977 by Tenneco,
which has split shock absorber production between northern and south-
ern locations, with plants in Arkansas, Georgia, Indiana, Nebraska, and
Ohio.
Suspension has attracted the interest of other chassis suppliers, in-
cluding the major steering suppliers and all of the major wheel suppli-
ers, because of the possibility of integration with other handling func-
tions through electronics. Continuous damping control is an electronic
system that can adjust the tension in a shock absorber to improve vehi-
cle handling. Sensors in the suspension modules can detect the position
of the body, movement of the wheels, pace of acceleration, and steering
angle. However, it was unclear if that was going to happen. The leading
wheel suppliers Hayes Lemmerz and Superior both exited the suspen-
sion business where the necessary capital investment was regarded as
too large to make a profi (Sherefkin 2006c).

OUTLOOK AND UNCERTAINTIES

Where a parts plant locates within Auto Alley depends to a great

extent on the type of part being made. Parts that are relatively expensive
and fragile to ship are more likely to continue to be produced in the
Midwest. The question of where to produce a part is also influence by
labor considerations. As discussed in the next chapter, some suppliers
have been lured to the South by a nonunion, lower-wage labor environ-
 Chassis Suppliers Move South in Auto Alley 273

ment. Except for electronics, chassis parts production is currently the

most dispersed among the six major subsystems. Production of some
chassis parts has been moved south within the auto corridor or out of
the country, whereas other parts have stayed in the Midwest.
One possible impetus for moving the production of some chassis
parts back to the Midwest would be the widespread diffusion of the
so-called rolling chassis. The term refers to an integrated chassis that
is rolled on its own tires to the position on the assembly line moments
before needed. The roll-in chassis is particularly suitable for assembly
of trucks that have bodies that are bolted to frames near the end of the
assembly line.
In the mid-1990s, Chrysler contracted with Dana, which secured a
trademark on the name “Rolling Chassis,” to supply the rolling chas-
sis as a single module at its Camp Largo, Brazil, truck assembly plant.
Dana itself manufactured some of the components, including the drive-
shaft, axles, fuel lines, and brake hoses. The remainder, including tires,
fuel tanks, and steering linkages, were purchased from 66 suppliers.
Altogether, the chassis module contained 220 components, accounting
for more than one-fourth of the truck’s content (Automotive News 1999;
Kisiel 1998).
Dana lost out unexpectedly in its firs attempt to supply a rolling chas-
sis in the United States. Korean supplier Mobis was awarded a contract
in 2004 to supply rolling chassis to Chrysler’s Jeep plant in Toledo—an
especially stinging defeat because Toledo is Dana’s hometown.
Mobis was already building rolling chassis for Kia at its plant in
Hwasung, Korea. Mobis was part of the Hyundai chaebol through
interlocking ownership. Hyundai owned 60 percent of Kia, which in
turn owned 16.2 percent of Mobis, which in turn owned 13.2 percent
of Hyundai. Mobis had no North American manufacturing operations
when it won the Jeep contract. But Mobis expected to rank among
the world’s top 10 suppliers by 2010. In the cutthroat world of global
parts supply, Dana was caught asleep at the switch in its own backyard
(Chang and Chappell 2004).
However, even if the rolling chassis were to become an industry
standard, it is unclear how it would affect the geography of chassis pro-
duction because it involves a number of components that are currently
characterized by a very different geography of production within Auto
Alley. As this chapter has shown, the key subsystems of a rolling chas-
274 Klier and Rubenstein

sis are currently being produced at different locations within Auto Alley
for reasons distinctive to the various subsystems.

Notes

1. Ed Golden, executive director of design at Ford, quoted in Garsten (2001).

2. Ed Golden, executive director of design at Ford, quoted in Garsten (2001).
3. Richard Aneiros, vice president of Jeep and truck design at DCX, quoted in
Garsten (2001).
4. Ed Golden, executive director of design at Ford, quoted in Garsten (2001).
 12
Working for Suppliers

Everything that has been negotiated by the UAW, that’s what

comes out to $65 [in total hourly compensation] . . . Roughly
$20 is what we say is competitive.1

The auto industry has been moving south in Auto Alley primar-
ily because of labor considerations. Wage rates have been lower in the
South than in the Midwest, and union membership has been lower. As
the auto industry has moved southward, it has been transformed in a
generation from a high-wage to an average-wage industry, and rates of
unionization have gone from high to low.
At firs glance, labor conditions in the motor vehicle industry in the
early twenty-firs century would appear to be favorable to the work-
force. The motor vehicle industry has been one of the highest-paid man-
ufacturing sectors in the United States. Production workers earned $921
per week in motor vehicle plants in 2007, one-third more than the $705
in the average U.S. factory.
Not by coincidence, the motor vehicle industry has also been one of
the most unionized sectors in the United States. Nearly one-half of mo-
tor vehicle production workers belonged to a union in 2007, compared
to less than one-tenth of the total U.S. workforce.
This early twenty-first-centur snapshot of a relatively well paid and
highly unionized workforce masked sharp downward trends in these
figures As recently as the 1980s, 90 percent of production workers in
the U.S. motor vehicle industry belonged to a union, and in nominal
terms, their wages were on average 35 percent higher than manufactur-
ing wages.
The decline was especially steep in the firs decade of the twenty-
firs century. Wages were declining by 1 percent per year in the U.S.
motor vehicle industry while, at the same time, rising 2 percent per year
in manufacturing as a whole. Meanwhile, the percentage of unionized
motor vehicle workers was declining by 2 percent per year.

275
276 Klier and Rubenstein

Wage rates in the seven leading southern states of Auto Alley—Ala-

bama, Georgia, Kentucky, Mississippi, North Carolina, South Carolina,
and Tennessee—have been one-sixth lower than those in the fiv Mid-
west states of Indiana, Illinois, Michigan, Ohio, and Wisconsin. The
median hourly wage for all manufacturing workers in 2006 was $12.31
in the South compared to $14.24 in the Midwest.
Similarly, the South has had a lower unionization rate. The fiv Mid-
west states had 3.4 million workers represented by a union in 2006, or
16.7 percent of all salaried and hourly workers in the region (excluding
self-employed workers). In Michigan, 20.4 percent of the workforce
was unionized. The states in the portion of Auto Alley lying south of
the Ohio River had 1.1 million unionized workers in 2006, representing
only 6.6 percent of the total workforce.
The opportunity to move south within Auto Alley has been provided
by the structural changes that the motor vehicle industry has undergone.
As responsibility has shifted from carmakers to suppliers, and as market
share has shifted from the Detroit 3 to foreign-owned carmakers, pro-
duction has shifted from higher wage unionized plants in the Midwest
to lower wage nonunion plants in the South.
Outsourcing by carmakers has been most responsible for lower
rates of pay and union membership. The fina assembly plants and pow-
ertrain and stamping plants operated by the carmakers have had wage
rates nearly twice as high as the parts plants owned by independent
suppliers. Two-thirds of the workers at carmakers were union members
in 2007, compared to less than one-fift at suppliers.
Market shifts also have had an impact on wage rates because labor
costs have been lower at foreign-owned carmakers than at the Detroit
3. In 2007, hourly labor costs, including wages, benefits and pension
obligations, were about $72 at the Detroit 3, compared to about $45 to
$50 at Japanese-owned carmakers (Barkholtz 2007b). The impact of
foreign-owned carmakers has been even greater on union membership
because all foreign-owned assembly plants (with the exception of joint
ventures with the Detroit 3) have been nonunion, and union member-
ship rates have been much lower at foreign-owned suppliers than at
U.S.-owned ones.
As a result of the shifts, parts once made by union members earn-
ing $70 an hour in wages and benefit at Detroit 3 facilities—most of
which are in the Midwest—have been turned over to nonunion suppli-
 Working for Suppliers 277

ers—increasingly located in the South—paying $20 an hour in wages

and benefits

RISE AND FALL OF AUTO UNIONS

According to the U.S. Bureau of Labor Statistics, the U.S. motor

vehicle industry employed approximately 751,000 production workers
in 2006. Approximately 162,000 of these production workers were em-
ployed at assembly plants (NAICS Code 33611) and 589,000 at parts
plants (NAICS codes 336211 and 3363).
Our database of several thousand plants showed that, in 2006, 34.5
percent of employees at supplier plants had union representation and
65.5 percent did not. Applying these percentages to the total number
of production workers, an estimated 203,000 workers at supplier plants
belonged to a union and 386,000 did not.
A somewhat more precise count can be made of union workers at
assembly plants. In 2006, approximately 122,000 production workers
at assembly plants belonged to a union and 40,000 did not. Combining
the figure for assembly plants and suppliers, we estimate that a total of
325,000 production workers (43.3 percent) belonged to a union in 2006
and 426,000 (56.7 percent) did not.

Profile of Union Decline

The principal auto-related union in the United States since 1937

has been the United Auto Workers (UAW), officiall the United Au-
tomobile, Aerospace and Agricultural Implement Workers of America.
At parts suppliers (excluding Detroit 3 facilities), though, other unions
combined have represented more workers than the UAW.

UAW
The UAW had 538,446 members in 2006, according to the union’s
2007 annual report. The “real” number at the time may have been as
low as 500,000 and as high as 576,131 according to UAW officials 2
There was no uncertainty concerning the precipitous decline in
UAW membership. From its peak of 1.5 million in 1979, the union
 278 Klier and Rubenstein

Figure 12.1 UAW Membership, 1979–2006

1.8

1.6

1.4

1.2

1
Millions

0.8

0.6

0.4

0.2

0
1979 1984 1989 1994 1999 2004
Year

SOURCE: McAlinden (2007).

lost two-thirds of its members in three decades. And there is no end in

sight in the early twenty-firs century. The decline has been steady and
continuous: 1,150,000 members in 1985, 850,000 in 1990, 750,000 in
1995, 650,000 in 2000, and 550,000 in 2005 (Figure 12.1).
We estimate that about 251,000 UAW members held production jobs
in the motor vehicle industry in 2006. The other UAW members worked
in aerospace and agricultural equipment factories, as recognized in the
union’s full name, as well as in casinos, hospitals, legal services, local
government, and universities. UAW members also worked in nonpro-
duction jobs in the motor vehicle industry, as well as for manufacturers
of medium- and heavy-duty trucks that have not been included in this
book. The 251,000 UAW members in the motor vehicle production jobs
in 2006 included approximately 120,000 in fina assembly plants and
131,000 in parts plants. The UAW represented production workers at
every assembly plant operated by the Detroit 3, with one exception—
GM’s Moraine, Ohio, assembly plant—which recognized the Interna-
tional Union of Electronic, Electrical, Salaried, Machine and Furniture
 Working for Suppliers 279

Workers-Communications Workers of America (IUE-CWA). The IUE

presence at Moraine was a legacy of the plant’s original purpose of
making refrigerators for Frigidaire, which GM owned until 1979.
The UAW also represented workers at three foreign-run assembly
plants: AutoAlliance in Flat Rock, Michigan; Mitsubishi in Normal, Il-
linois; and NUMMI in Fremont, California. All three plants were origi-
nally established as joint ventures between Japanese and U.S. compa-
nies, Ford and Mazda at Flat Rock, Chrysler and Mitsubishi in Illinois,
and GM and Toyota in California. Inclusion of the union was part of the
joint-venture agreements.
The 131,000 parts workers represented by the UAW could be divid-
ed into two groups: about 67,000 in parts plants owned by the Detroit 3
and 64,000 in plants owned by suppliers.
UAW membership was heavily clustered in the Midwest portion of
Auto Alley. The Midwest had one-half of all automotive parts workers
in the United States, compared with two-thirds of all unionized parts
workers and four-fifth of all UAW parts workers. Michigan, with one-
fift of all parts workers, had one-half of all UAW members. The south-
ern portion of Auto Alley, on the other hand, with one-fourth of all parts
workers, had only one-eighth of all unionized parts workers and one-
fourteenth of all UAW parts workers.

Other auto industry unions

An estimated 72,000 parts workers belonged to a union other than
the UAW in 2006. Roughly half of them were in the USW, a union that
is derived from the United Steelworkers of America. The USW evolved
from its steel-industry origins through numerous mergers. Most USW
members in the motor vehicle industry arrived through a 1995 merger
with the United Rubber Workers (URW), which had organized the tire
factories. The second-largest group of USW members came through a
2004 merger with the Paper, Allied-Industrial, Chemical and Energy
Workers International Union (PACE).
The third-largest auto-related union has been the IUE-CWA, which
represented about 15,000 auto industry workers in 2006. Half were
in former GM factories, especially in the Dayton area, that had been
turned over to Delphi in 1999. As noted above, these factories origi-
nally produced electrical products, such as refrigerators and air con-
ditioners. Two other unions with roughly 10,000 auto workers each in
280 Klier and Rubenstein

2006 were the International Brotherhood of Teamsters and the Union

of Needletrades, Industrial and Textile Employees (UNITE). With the
exception of the cluster of IUE-CWA plants in the Dayton area, the
pattern of representation of the various unions has been a result of the
happenstance of local events.

Foreign-owned suppliers: Unions not welcome

The fli side of declining market share for the Detroit 3 and their
suppliers has been an increasing market share for foreign-owned com-
panies and their suppliers. As a result, unions lose in two ways: the
Detroit 3 and their suppliers have cut union jobs, while foreign-owned
companies and their suppliers have added nonunion jobs.
Union representation has been extremely low among foreign-owned
suppliers in the United States. Roughly 15,000 of the 125,000 employ-
ees of Japanese-owned supplier plants belonged to a union in 2006, in-
cluding only about 5,000 in the UAW. The two largest Japanese-owned
suppliers in North America—Denso and Yazaki—had no union. At the
largest German-owned supplier—Robert Bosch—only 7 percent of
production workers were unionized.
Unions and companies agree that foreign-owned plants do not
provide an environment conducive for collective bargaining, but they
would describe the environment differently. The companies see an envi-
ronment in which collective bargaining is unnecessary, whereas unions
see an environment in which collective bargaining is suppressed.
Foreign-owned companies argue that a union is not needed in plants
run according to Japanese-style flexibl work rules and that most of
their employees recognize and accept that fact. They view key elements
of flexibl production, especially reliance on teamwork and local-scale
problem-solving, as inimical with union-imposed work rules.
At unionized motor vehicle plants, jobs were traditionally allocated
to hundreds of classifications and workers could not be moved from
one classificatio to another without permission of the union. Jobs were
assigned to individual members according to seniority. Unions defend-
ed the seniority system for allocating jobs. A 50-year-old should not be
placed in a team with a 30-year-old and told to do the same job. The
older worker should be assigned a less physically demanding job, and
the seniority system was the way to accomplish that.
 Working for Suppliers 281

Unions have alleged that nonunion plants, especially Japanese-

owned plants, have had substantially higher injury rates. U.S. Occu-
pational Safety and Health Administration (OSHA) statistics used to
support the charge have been vehemently disputed by the companies.
The UAW has claimed that Honda’s East Liberty, Ohio, assembly plant
had annual injury rates exceeding 50 percent, a figur that Honda has
denied, compared to less than 10 percent at Detroit 3 plants (Hakim
2002).
Unions and companies agree that automotive workers in union and
nonunion plants alike have been prone to repetitive stress injuries, even
if they disagree on the rates. The overall injury rate in the auto indus-
try ranks third highest among all sectors, behind only shipbuilding and
meatpacking. Unions argue that company treatment of injured workers
varies between union and nonunion plants, and those differences ulti-
mately contribute to the higher nonunion injury rates.
In a UAW plant, an injured worker with 10 years of service is as-
signed a less physically demanding job until the worker retires with
maximum benefits normally 30 years. In a flexibl production plant, an
injured worker can be returned to the same job that led to the repetitive
stress injury in the firs place. Rather than transfer to a less demanding
job, a repeatedly injured worker in a nonunion plant may be offered
a cash severance buy-out. An unproductive worker can thereby be re-
moved years before the individual has qualifie for the maximum pen-
sion, thus providing the company with a double financia savings.
To obtain employees capable of working under flexibl work rules,
factories hire people who pass through an elaborate process run by hu-
man resource specialists. Applicants are firs tested for basic skills in
reading, writing, arithmetic, and mechanical dexterity. Those with ac-
ceptable basic skills are placed in groups for a few hours of behavioral
assessment. The groups are asked to work together to assemble a prod-
uct or solve a problem. Applicants considered successful team players
are interviewed to determine if they are trainable, reliable, and willing
to try unfamiliar work.
Unions charge that the more elaborate hiring process under flexibl
production takes place at taxpayer expense. States routinely agree to do
the initial screening and interviewing at their office and to provide sub-
sidies for training at community colleges. Unionized plants obtain new
workers primarily through relatives or friends of people already work-
282 Klier and Rubenstein

ing there. With sharp reductions in hiring at the Detroit 3 and union-
ized suppliers, opportunities had been meager for children and other
relatives of long-time autoworkers to gain entry to the same generous
wages and benefit enjoyed by the older generation.
In a union plant, an individual who has a job-related problem firs
meets with the union representative. If the union officia considers the
complaint justified a formal grievance is file with the company. Thou-
sands of grievances can pile up in a plant and take months to resolve.
In contrast, under flexibl rules, a worker is expected to look for so-
lutions through direct consultations with team and group leaders. Sug-
gestions for changing the immediate workplace environment are en-
couraged, reviewed, and often adopted. When the arrangement of ma-
chines on the factory floo needs to be changed, management firs asks
line workers how they think things should flo . When tooling changes
take too long, management asks hourly workers rather than expensive
outside consultants how to fi the problem.
The UAW has viewed its failure to organize foreign-owned plants
to be caused not by better plant conditions but by more effective in-
timidation tactics by employers. Foreign-owned carmakers vigilantly
guard against unionization at their suppliers as an outer line of defense
against unionization attempts inside their facilities. Unions charge that
international carmakers make explicit threats to drop a supplier that lets
in the union.
Unions also suggest that they are benefitin workers in nonunion
plants to the extent that they get a “free ride.” Workers in nonunion
plants freely admit that collective bargaining agreements elsewhere in
the industry positively influenc their wages and benefits Given this
reality, why go to the trouble of voting in the union and paying dues?
The union may be providing informal services to the roughly one-third
or so in a nonunion plant who signed union cards or voted for the union
in a losing election.

Organizing Parts Plants during the 1930s

The key event in the successful organizing of the motor vehicle

industry is usually identifie as the 1937 sit-down strike at several GM
plants in Flint, Michigan, which ended with the company recognizing
the UAW. The 1937 GM strikes actually represented the culmination of
 Working for Suppliers 283

a campaign that began three years earlier and 100 miles south of Flint
in supplier plants.
“In 1934 labor erupted,” wrote labor historian Irving Bernstein. “A
number of these strikes were of unusual importance . . . Four were so-
cial upheavals [including] those of auto parts workers at the Electric
Auto-Lite Company in Toledo . . .” (Bernstein 1970, p. 217). Bern-
stein’s three other three definin events were strikes by truck drivers in
Minneapolis, longshoremen in San Francisco, and cotton-textile work-
ers in New England and the South.

Auto-Lite, the linchpin

Auto-Lite, now part of Honeywell, was one of the largest inde-
pendent parts suppliers at the time of the 1934 strike. The company
was founded in Toledo in 1911 to produce generators that were called
“Auto-liters” and were sold as a power source for electric headlamps,
which were then replacing gas-fire ones.
Founder Clement O. Miniger, a native of Fostoria, Ohio, near To-
ledo, had been a pharmaceutical salesman and so-called drug huckster
among other professions and later would be a leading Toledo banker
(Bernstein 1970, p. 219). Miniger sold Auto-Lite in 1914 to a friend,
John Willys, owner of Willys-Overland Co., which was producing the
country’s second-best-selling car brand behind Ford. Miniger returned
to Auto-Lite as president in 1918 and was chairman during the 1934
strike.
Like most parts suppliers—and half of all U.S. manufacturers at the
time—Auto-Lite paid workers a specifie sum for each piece produced
rather than according to a preset hourly rate. Workers did not object to
piece rate during prosperous times because the faster they worked, and
the more they produced, the more pay they took home. But if the line
stopped, workers were paid nothing.
Suppliers like Auto-Lite stayed in business during the Depression
by slashing the piece rate. Piece rate workers had to stay in the plant
as long as 14 hours a day to take home what they could have made in a
few hours before the Depression. In reaction, workers formed a union
in 1933 at Auto-Lite, as well as at other large Toledo plants, including
Willys and Spicer Axle (which became part of Dana).
When demands to grant union recognition, seniority privileges, and
a 10 percent wage increase were rejected, a strike was called on Febru-
284 Klier and Rubenstein

ary 23, 1934. It ended fiv days later, when federal mediators convinced
the employers to offer a 5 percent wage increase and to agree to “set
up machinery for future negotiations . . . on all other issues.” The union
understood “future negotiations” to mean that a settlement would be
reached by April 1 (Bernstein 1970, p. 220). When Auto-Lite again re-
fused to negotiate, the union called a second strike for April 12. This
time, only one-fourth of the workers went out on strike. The company
hired strikebreakers and kept the plant open.
At this point, the Lucas County Unemployed League, an affiliat of
the Marxist American Workers Party, began mass picketing of the Auto-
Lite plant with unemployed workers. Court orders limiting the number
of picketers to 25 were defied Although Party official were repeatedly
arrested, the number of picketers grew to 10,000. Fearing he did not
have enough personnel to control the crowd, the sheriff deputized spe-
cial police, who were paid by Auto-Lite. One of these deputies seized
an elderly man in view of many in the crowd and started hitting him.
“This triggered ‘the Battle of Toledo’” (Bernstein 1970, p. 222).
Fighting between the picketers and police lasted for seven hours
on May 23, 1934. The Ohio National Guard arrived the next morning
to evacuate 1,500 strikebreakers trapped in the factory all night. Twice
the picketers charged the Guard and were repelled with bayonets and
tear gas. On the third charge, the Guard opened fire killing two and
wounding 15. A fina charge was repelled by more rifl fire with two
more wounded.
Prominent Ohioan Charles P. Taft, son of President William How-
ard Taft and brother of long-time Senator Robert A. Taft, was brought in
to mediate. He ordered closure of the Auto-Lite plant pending a settle-
ment of the dispute. Because it had recently negotiated a large contract
to supply Chrysler, Auto-Lite was anxious to settle, so it agreed to ne-
gotiate directly with the union. A settlement was quickly reached, and
the plant reopened June 5. The company recognized the union, rehired
strikers, raised wages 5¢ per hour, and set a minimum wage of 35¢ per
hour.

Organizing successes at other parts plants

The union’s Auto-Lite victory in June 1934 came at a critical time
for the U.S. labor movement, which was split between the American
Federation of Labor’s (AFL) entrenched craft-based unions and advo-
 Working for Suppliers 285

cates of industry-wide unions for autoworkers and other mass produc-

tion industries. The AFL chartered the United Automobile Workers of
America in 1935 but permitted it to try to organize only workers on the
fina assembly lines, excluding parts makers and other workers at fina
assembly plants such as cleaners. The union was suspended a year later
when members refused to accept the AFL’s choice of leadership.
The unwillingness of the AFL’s craft-based unions to vigorously or-
ganize unskilled mass production workers led disaffected UAW mem-
bers and other unions to create the Committee of Industrial Organiza-
tions (CIO) in 1935. The initial purpose of the CIO was to work for
AFL acceptance of industrial unionism, but when the AFL suspended
the UAW and nine other unions in 1936, CIO leaders transformed the
organization into an independent federation, which was renamed Con-
gress of Industrial Organizations in 1938. The CIO and AFL remained
rival organizations until merging in 1955.
Unable to make inroads at the Detroit 3, the UAW turned next to
organizing suppliers. Its firs use of the sit-down strike came at a Ben-
dix brake plant in South Bend, Indiana, beginning November 17, 1936.
The plant was occupied by 1,500 of the 2,600 workers to forestall an
attempted lockout—the company had ordered all workers to assemble
outside the plant. After a nine-day strike, the company agreed to honor
a contract negotiated with the union fiv months earlier.
The day after settling at Bendix, the UAW brought the sit-down tac-
tic to Detroit supplier plants. First, Midland Steel’s 1,200 Detroit-area
production workers went on strike on November 27, 1936, to demand
union recognition, a wage increase, and an end to piecework. The strike
ended December 4, when Midland agreed to all demands. Six days later,
500 of Kelsey-Hayes’s 5,000 workers occupied the company’s Detroit
factory to protest a line speedup. The company settled on December 24,
offering higher wages and overtime pay, seniority protection, and a 20
percent reduction in the line’s speed.
The Midland and Kelsey strikes were both settled on terms favor-
able to the union in large measure because of pressure on the companies
from the Detroit 3. Midland was a major supplier of frames to Chrysler
and Ford, and Kelsey was a major supplier of wheels and brake drums
to Ford. Once their fina assembly lines were forced to halt because of
parts shortages, Chrysler and Ford threatened to move their business to
other suppliers.
286 Klier and Rubenstein

The UAW’s penultimate strike against GM was also aimed at parts

production rather than fina assembly. A sit-down strike began at GM’s
Fisher Body plant in Cleveland with 7,000 workers on December 28,
1936. Strikes spread to the Fisher One and Two plants in Flint on De-
cember 30; to the Chevrolet transmission and Guide Lamp plants in
Norwood, Ohio, and Anderson, Indiana, respectively, on December 31;
to the Chevrolet transmission plant in Toledo on January 4; and to the
Fisher Body plant in Janesville, Wisconsin, on January 5. Only then
did the strike finall reach assembly plants, beginning with Chevrolet’s
Janesville plant on January 5 and Cadillac’s Detroit plant on January 7.
Strikes at parts plants produced enough shortages to force GM to shut
production everywhere until the strike was settled on February 11.
GM’s recognition of the UAW in 1937 was followed quickly by
agreements at Chrysler, as well as at smaller independents such as Hud-
son, Packard, and Studebaker. Several large parts makers also reached
an agreement with the UAW, including Bohn Aluminum, Briggs Body,
Motor Products, Murray Body, Timken-Detroit Axle, and L.A. Young
Spring & Wire. Ford held out until 1941. By the time the United States
entered World War II, the UAW had successfully organized nearly the
entire motor vehicle industry, both fina assembly and parts.
The URW used a somewhat different form of the sit-down strike in
the Akron tire plants. Hundreds of “quickie” sit-down strikes occurred
in the tire plants beginning in 1934, ranging from a few minutes to a
few days to protest job insecurity, lower wages, and line speedup. The
URW won its firs contract with one of the four major tire makers, Fire-
stone, in 1937, after an eight-week strike. B.F. Goodrich and U.S. Rub-
ber signed contracts in 1938 without strikes; the last of the Goodyear
plants held out until 1941.

Pattern bargaining
With most automotive production workers in a union, and with most
production in the hands of only three companies, the motor vehicle in-
dustry in the years after World War II adopted a distinctive form of ne-
gotiations called pattern bargaining. Pattern bargaining was instrumen-
tal in securing high wages for Detroit 3 automotive workers compared
to production workers in other manufacturing sectors.
UAW contracts with the Detroit 3 expired on the same date. Shortly
before the expiration, the union would select one of the companies for
 Working for Suppliers 287

intense negotiations. After the union and the targeted company reached
an agreement, the pattern set in that contract became the basis for nego-
tiating with the other two carmakers. The contract covered workers in
the Detroit 3 parts plants as well as fina assembly plants.
The UAW selected as its target the company considered most likely
to accede to the union’s principal demand. In general, the UAW targeted
Ford when it sought acceptance of innovative concepts, such as an-
nual improvement factor (AIF), cost of living adjustment (COLA), and
supplemental unemployment benefit (SUB). When its principal goal
was a higher wage rate, the UAW targeted GM—known as “Generous
Motors” in those days. Chrysler was targeted if preliminary negotia-
tions indicated that it would balk at proposals accepted by its two larger
competitors.
The UAW also targeted the company considered most vulnerable
to a strike for competitive reasons. If an agreement were not reached,
the union struck only that company, leaving the other two companies
to continue operating at full capacity. The targeted company was pres-
sured to settle the strike quickly because customers were buying cars
from the other two companies. Instead of annual contracts, the UAW
agreed to sign multiyear contracts so that the companies could plan
investment and product development over several years free from the
uncertainty of possible work stoppages. The typical length was three
years during the second half of the twentieth century and four years into
the twenty-firs century.
Pattern bargaining spilled over to the other auto-related unions after
World War II. The URW negotiated the same wage increase with all
four major tire companies beginning in 1946, rather than continue to
bargain on an individual plant and company basis. U.S. Rubber signed
a master agreement that applied uniformly to all 19 of its plants in 1947,
and the other three large tire makers followed suit within a year.
In 1960, when pattern bargaining was new, Detroit 3 wages were
16 percent higher than the average of all U.S. manufacturing workers,
$2.63 per hour compared to $2.26. After several decades of pattern bar-
gaining, the $25.95 average hourly rate for Detroit 3 workers in 2002
was 69 percent higher than the $15.36 average for all U.S. manufactur-
ing workers (McAlinden 2007).
288 Klier and Rubenstein

STATE OF THE UNION IN THE TWENTY-FIRST CENTURY

With the precipitous decline in employment at the Detroit 3, the

UAW has recognized that its future viability depends on organizing in-
dependent parts suppliers. A sign of its importance was the appointment
for the firs time of a vice president with responsibility for organizing
and representing supplier plants. In the past, the UAW had allocated the
assignment to lower level officials
Subsequently the 2003 national agreement stated that the Detroit
3 would inform their suppliers of their “positive and constructive re-
lationship” with the UAW and of their belief that all employers should
respect the right of employees to seek union representation (Hudson
2003). All things being equal, the Detroit 3 would award contracts to
union suppliers, but that left the UAW with the challenge of actually
demonstrating that productivity in the union plant was comparable to
that of a nonunion competitor. Achieving competitive productivity in a
union plant inevitably meant reducing wages, reducing workforce, or
reducing both.

Some Recent Organizing Successes

The UAW lacked the resources to attempt to organize several thou-

sand parts suppliers. So it identifie the group of suppliers with the
brightest organizing prospects. This turned out to be Tier 1 interior parts
producers.

Organizing interior suppliers

Several factors have pointed to UAW organizers toward interior sup-
pliers. First, interior suppliers—especially fina seat assemblers—have
been relatively constrained by geography, specificall the need to locate
immediately adjacent to fina assembly plants for just-in-time delivery.
Because seat suppliers must locate next door to a fina assembly plant,
they cannot run away from a union organizing campaign.
Second, wages in the interior sector have been near the average
for all suppliers. Average hourly wages for production workers ranged
from a high of $18.14 at engine parts suppliers to a low of $12.93 at
stamping suppliers in 2003, a gap of 40 percent, according to the Center
 Working for Suppliers 289

for Automotive Research. Between the two, workers earned an average

of $14.07 at electrical parts suppliers, $14.15 at chassis parts suppliers,
and $16.51 at interior parts suppliers (McAlinden 2004, p. 41). The best
prospects for expanding union membership seemed to be among work-
ers in the middle categories.
The most important reason for targeting interior suppliers was the
extreme consolidation of production at three very large suppliers—JCI,
Lear, and Magna—incidentally, each with very different labor relations
histories. As the UAW began to target the interior sector, nearly all of
Lear’s production workers were union members in 2000, compared to
only 2 percent at Magna and about half at JCI. The UAW was able to
leverage its strong position at Lear to increase representation at JCI and
Magna.
Lear’s high unionization rate stemmed in part from its acquisition
during the 1990s of Ford and GM seating plants that already had UAW
representation. Subsequently Lear proactively decided to turn this leg-
acy of labor relations into a strategic asset. The UAW was invited to
organize Lear’s nonunion plants, most notably the 5,000 production
workers making headliners and instrument panels at plants acquired
from UT Automotive in 1999. In part because of its employee relations,
Lear was judged the most admired company in the United States in
the motor vehicle parts industry in Fortune magazine’s 2004 survey of
corporate reputation.
At JCI, the UAW represented workers at 20 of its 32 plants in 2004,
compared with only 10 of 28 plants a decade earlier. Gains were made
in part at plants that JCI had acquired from Chrysler and in part through
successful organizing campaigns. The focus of conflic between the
UAW and JCI during the late 1990s was a plant in Oberlin, Ohio, that
supplied Econoline seats for Ford’s Lorain assembly plant, as well as
one in Plymouth, Michigan, that supplied Expedition seats for Ford’s
Wayne assembly plant.
In 1995, the UAW threatened to strike Ford after it sourced seats to
nonunion JCI plants in Oberlin and Plymouth. The strike against Ford
was averted when JCI agreed to recognize the union in 1996 at the two
plants, as well as at a third one in Strongville, Ohio, without an elec-
tion, after the UAW had collected enough cards to force an election at
Oberlin. Two years later the JCI plants in Oberlin and Plymouth were
struck. The workers demanded wages comparable to those paid by Lear
290 Klier and Rubenstein

to its UAW-represented workers. The strike could have quickly brought

Ford’s production of the Econoline and Expedition to a standstill. In
turn, JCI offered to supply Ford with seats from its nonunion plants,
but Ford refused. Instead, Ford moved to obtain seats from Lear and
Visteon. Ford’s move forced JCI to the bargaining table, and the strike
was settled on terms comparable to those at Lear.
JCI management has since reached the conclusion that antiunion
activities and practices viewed as unfair by the union were not in the
company’s strategic interest in attracting and retaining Detroit 3 busi-
ness. Consequently, in 2002 JCI gave the UAW an opportunity to orga-
nize 8,000 workers at the company’s 26 plants that supplied the Detroit
3. Not all JCI plants immediately adopted more conciliatory attitudes.
At three plants where the union had been recognized—Earth City, Mis-
souri; Shreveport, Louisiana; and Oklahoma City, Oklahoma—con-
tracts were signed in 2002 only after a two-day strike.
The UAW has secured JCI’s tacit agreement not to oppose organiz-
ing efforts at plants supplying the Detroit 3, and the union in turn has
tacitly agreed not to attempt to organize JCI plants supplying interna-
tional carmakers. Although it has consistently trailed competitor Lear
in total world and North American sales, JCI has become the dominant
supplier of seats to Japanese transplants in the United States, one of the
few U.S.-owned suppliers to achieve such a market position.
Japanese-owned assembly plants have been eager to have nonunion
seat suppliers because of close links between the two: seats are put to-
gether very close to the fina assembly plant and are delivered frequent-
ly. A unionized seat plant could encourage organizing activities at other
nearby suppliers, not to mention the fina assembly plant itself. The
ability to keep the union away from foreign-owned assembly plants is a
significan component of JCI’s strong market position with them.
Unions have also made progress organizing the other leading seat
supplier, Magna, which had staked out an especially aggressive anti-
union stance. Magna’s Windsor, Ontario, seat plant, a Chrysler sup-
plier, became the company’s firs plant to recognize the Canadian Auto
Workers (CAW) union in 2001. In 2007, Magna and the CAW agreed
on a landmark deal that ended years of adversarial relations. The union
could organize Magna’s Canadian plants in exchange for a no-strike
pledge and more flexibl work rules (Sherefkin and Barkholz 2007a).
 Working for Suppliers 291

In the United States, Magna and the UAW negotiated an arrange-

ment similar to the one in Canada (Sherefkin and Barkholz 2007b). As
Magna became Chrysler’s leading seat maker and largest overall sup-
plier, union recognition was inevitable given the attitudes of competi-
tors Lear and JCI.
As a result of the UAW’s organizing success at JCI and Magna,
wages for seat production workers coalesced in the firs decade of the
twenty-firs century at about $17 per hour, about $30 including ben-
efits Given the extreme demand for just-in-time delivery and sector
consolidation, an orderly labor market proved especially critical in the
rationalization of the interior sector of the supplier industry.

Other UAW organizing successes

Beyond seats, UAW organizing was also directed at selected chassis
and powertrain suppliers. The principal successes in the firs few years
of the twenty-firs century came at Dana and Eagle-Picher.
Toledo-based Dana, initially known as Spicer Axle, was one of the
firs parts suppliers to be organized during the early 1930s, along with
Auto-Lite. The company was also one of the firs to negotiate a master
agreement with the UAW, in 1955. The UAW negotiated a neutrality
letter with Dana in the late 1970s stating that the supplier would not
communicate to its workers in an anti-UAW manner during organizing
drives.
Nonetheless, Dana adopted aggressive antiunion policies. UAW-
represented plants were closed and new nonunion ones were built, pri-
marily in the South. Workers were threatened with job loss, questioned
about voting intentions, forced to walk past antiunion management to
get to work, and prohibited from wearing prounion shirts while the
company supplied opponents with antiunion ones. Dana plant manag-
ers understood that they would lose their jobs if the union got in. The
UAW took Dana to arbitration fiv times for violating the neutrality
agreement and won each time. Into the twenty-firs century, only 30 of
Dana’s 200 U.S. facilities were unionized, only 9 by the UAW.
The turning point in relations between Dana and the UAW came at
a frame plant in Elizabethtown, Kentucky, the company’s largest and
possibly most profitabl plant. After workers rejected the union by a
vote of 670 to 320 in 2002, and two earlier campaigns failed to reach
the voting stage, the UAW accused Dana management of intimidation
292 Klier and Rubenstein

and file grievances with the National Labor Relations Board. Cards
were signed by 61 percent of Elizabethtown’s production workers ask-
ing for another vote.
Stepping into the picture at this critical juncture was Elizabeth-
town’s customer, Ford. Elizabethtown was supplying frames for the
Explorer sport utility, assembled at nearby Louisville, and Ford wanted
no disruption in production of what was then a very popular—and prof-
itable—model. Around the same time Dana lost its Jeep axle contract,
the historic core of its business. The loss of that business was poignant
because both Dana’s headquarters and the Jeep assembly plant were
based in Toledo.
Dana was then also facing a hostile takeover by ArvinMeritor. In
its axle business Dana’s major competitor was Eaton Corp., a company
with an impeccable prounion stance. All Eaton plants had been union-
ized between 1937 and 1941. Founder J.O. Eaton, a New Deal sup-
porter, raised wages of all employees by between 20 and 35 percent in
1933 in the depth of the Depression. Eaton declared that the subsistence
income for a family of four was $25 a week, and anyone earning less
would receive the difference as a loan. Eaton reasoned that the com-
pany could borrow money but people could not. He loaned his workers
$300,000, and all but $300 was ultimately repaid (Eaton Corporation
1985, p. 14).
Faced with a threat to its Detroit 3 business, Dana suddenly changed
its long-standing antiunion stance in 2003. The company and union
quickly struck a “partnership agreement” in which Dana agreed to stop
opposing organizing efforts at its Detroit 3 supplier plants. “Good labor
relations is a competitive advantage,” said Dana spokesman Gary Cor-
rigan (Butters 2004).
Only a few hours after announcing the agreement, it was explained
to workers at Elizabethtown by Dana managers and Bob King, then
UAW vice president in charge of organizing suppliers. This was the firs
time a union officia had been allowed inside the plant. Dana recognized
the union at Elizabethtown on the basis of a majority of workers having
already signed cards requesting an election—normally only 30 percent
of workers need to sign cards to hold an election. Dana also agreed to
recognize the union at other Detroit 3 supplier plants on the same basis,
beginning with two plants in Virginia, Buena Vista and Bristol. The
 Working for Suppliers 293

company had been charged with 36 violations of federal law after the
union lost an election by eight votes at Bristol in 2002.
The UAW also made organizing gains at Eagle Picher, a Cincinnati-
based supplier of gaskets and dampers. The union had only 17 members
at Eagle Picher in 1999, at a gasket plant in Inkster, Michigan, but it was
able to organize another 1,200 workers at three plants in 2000 and 2001.
The UAW won an election at Eagle Picher’s Hillsdale, Michigan, plant
in 2000, after two previous failures in 1992 and 1998. The National
Labor Relations Board had overturned the 1999 election and ordered
another vote because of management threats and harassment.
Further union election victories in 2001 came at Eagle Picher plants
in Blacksburg, Virginia, and Traverse City, Michigan. Workers voted
for the union in an attempt to halt erosion of wages, medical benefits
and working conditions. The Traverse City vote was especially signifi-
cant because it represented the third major organizing victory in that
northwestern Michigan community far from the union’s core support in
southeastern Michigan. The other two were a Tower Automotive plant
and a Lear plant acquired from United Technologies Automotive. In
addition to Traverse City, the UAW also organized a Tower plant in
Clinton Township, Michigan.

A Time to Fold

Poker players know that there is a time to hold and a time to fold.
For the UAW, the time to fold came early in the twenty-firs century,
as the carmaker-owned parts plants could not keep up with competi-
tion from independent parts producers. At the heart of the issue was
the fact that the carmakers paid workers in their parts plants accord-
ing to the assembly wage schedule. As the competitive position of the
Detroit 3 continued to erode rather quickly in the late 1990s, issues
like the uncompetitive nature of in-house parts operations came to the
forefront. Continuing to pay $70 an hour in wages and benefit for work
that could be done by competing unionized suppliers for $20 an hour
was not sustainable.
That issue firs came to a head at a former Chrysler drivetrain parts
plant in New Castle, Indiana. The New Castle plant was one of the
oldest in the country, having opened in 1907 as a Maxwell-Briscoe as-
sembly plant. When Walter Chrysler acquired Maxwell-Briscoe in 1925
294 Klier and Rubenstein

and renamed the company after himself, New Castle was one of six
original facilities. Rather than fina assembly, Chrysler used the New
Castle plant to make drivetrain parts.

Metaldyne
When Chrysler put several of its parts plants up for sale, the future
of the New Castle one was grim. Metaldyne agreed to purchase a 60
percent stake in the plant and to run it for one year, 2003, to see if it
could be made profitable Metaldyne was willing to keep the union in
the plant but said it couldn’t run it profitabl unless a new labor contract
was negotiated. The union was faced with a stark choice: keep the plant
open, with fewer jobs at lower wages, or let the plant close.
Under Metaldyne’s management, a new contract was successfully
negotiated with the UAW. According to the agreement, average hourly
wages were reduced from $26 to $16, and new hires started at a lower
wage tier of $12 an hour. The contract also introduced flexibl work
rules (Sherefkin 2002b). The 1,200 Chrysler employees at New Castle
were given three choices: early retirement, transfer to Chrysler plants in
other cities, or work for Metaldyne at lower wages. Those remaining at
Metaldyne with at least 10 years’ service would receive a $10,000 bo-
nus for each year of service. Only 200 stayed. Subsequently Metaldyne
hired 550 new workers for the plant.
Metaldyne has considered the New Castle plant to be a success. In
the firs year, sales increased from $400 million to $500 million and
productivity increased 30 percent. The UAW has also considered the
Metaldyne story a success, as it has signaled that it would be willing to
entertain similar restructuring at other endangered parts plants.

Former Detroit 3 suppliers

Suppliers spun off by GM during the 1990s, such as American Axle,
DelcoRemy, and Guide, also inherited high-wage assembly labor con-
tracts. In 2004 the UAW and Guide agreed to a five-yea contract with
a two-tier wage structure of $22.95 per hour for existing workers and
$12.50 for new ones (Armstrong 2004d). However, this was of little
relevance in the short run because few new hires were anticipated for
many years. The new contract represented the erosion of a wage struc-
ture that had become unsustainable.
 Working for Suppliers 295

A one-day strike at American Axle in February 2004 produced an

agreement that permitted two-tier wages of $17 per hour for new hires
and $25 for existing workers. In exchange for the two-tier wages, the
company agreed not to close any plants during the four-year term of
the contract. It had wanted to close a forge plant in Detroit and an axle
plant in Buffalo. To gain ratificatio of the contract, American Axle
threw in a signing bonus of $5,000 plus 2 percent of wages for each
worker, as well as $1,000 annual Christmas bonuses. In 2008, the UAW
struck American Axle again. This strike was over the company’s intent
to substantially cut wages and benefits It severely disrupted its princi-
pal customer, GM.
By far, however, the greatest challenge that the UAW faced in sal-
vaging former Detroit 3 parts plants came with Visteon and Delphi.
When it was spun off in 1999, Delphi became the largest supplier in
the United States and in the world, the largest supplier for GM, and
the largest unionized supplier. Similarly, Visteon was turned into an
independent company by Ford in 2000. It instantly became the second-
largest supplier in the United States and in the world, as well as Ford’s
largest supplier. Likewise, it also instantly became the second-larg-
est unionized supplier. The UAW represented 50 percent of Visteon’s
24,000 workers and 90 percent of Delphi’s 44,000 workers, and other
unions represented the rest.
However, Delphi and Visteon found themselves paying Detroit 3
wages while trying to compete for business with suppliers—unionized
and nonunion—paying much lower wages. This was clearly an unsus-
tainable position for Delphi and Visteon, and the UAW understood that.
But instantly slashing wages in half to become competitive was just as
untenable—even if the UAW permitted it, the company would face a
crippling morale problem.
The UAW agreed to a two-tiered wage structure at Visteon, with
starting wage for new hires set at $14, compared with $24 for former
Ford workers.3 Yet even a mere two-tier wage structure didn’t satisfy
former Ford workers, who were to be treated as indistinguishable from
other Ford workers even though they were now at a parts supplier. They
received Ford checks and Ford pensions, and they could exercise senior-
ity rights to transfer to facilities still owned by Ford. The expectation
was that as job openings occurred at Ford, they would be fille by Ford
296 Klier and Rubenstein

employees “assigned” to Visteon. Still, Visteon’s high costs continued

to cause “considerable tensions with Ford” (Sedgwick 2003).
The arrangement at Ford lasted less than fiv years. Having lost
money each year of its existence, Visteon faced bankruptcy unless dras-
tic action was taken. As a result, half of Visteon’s plants were “given”
back to Ford because Visteon couldn’t operate them profitabl even
with $15-an-hour labor. Like the children’s card game old maid, Vis-
teon hoped to survive by having Ford extract the “losers” from its hand.
Visteon would drop from the second- to the ninth-largest supplier in
the United States by shedding half of its business and workforce (see
Chapter 2).
The principal way to address Delphi’s uncompetitive wage bill in a
manner agreeable to the UAW in the short term was a sharp reduction
in the size of the workforce, accelerated through buyout programs. The
number of UAW employees at Delphi declined from 22,000 in 2006 to
4,000 in 2008 (International Herald Tribune 2007; USA Today 2006).
Wages were cut from about $27 per hour to between $14 and $18.50
an hour. To make the cuts more palatable, 4,000 long-term employees
received a bonus of $105,000 to be paid over three years (Barkholtz
2007c; Stoll and McCracken 2007).

OUTLOOK AND UNCERTAINTIES

The restructuring of the auto industry in the twenty-firs century has

made and lost the fortunes of investors and the careers of executives,
but it has been the rank and fil workers who have been most buffeted
by the changes. Wages have been lowered, benefit slashed, job classi-
fication eliminated, work rules modified and jobs cut altogether.
Between 2000 and 2006, the number of production jobs in the U.S.
motor vehicle industry declined from 948,000 to 751,000. Production
jobs declined from 207,000 to 162,000 at assembly plants and from
741,000 to 589,000 at parts plants. The vast majority of the 197,000
production jobs lost between 2000 and 2006 were held by unionized
workers. On the assembly side, the loss of 45,000 production work-
ers masked an even larger decline in union members; employment at
Detroit 3 assembly plants was reduced by more than 45,000 between
 Working for Suppliers 297

2000 and 2006, whereas employment at nonunionized foreign-owned

assembly plants actually increased.
On the parts side, about 64,000 of the 153,000 decline in employ-
ment between 2000 and 2006 came at Delphi and Visteon, where most
production workers were represented by a union. The share of union-
ized workers among the other 89,000 production jobs lost at parts plants
between 2000 and 2006 cannot be determined from our data, but we
believe it to have been a substantial percentage.
Two issues have shaped the changing labor agreements in the auto
supplier sector in the early twenty-firs century. By paying the relatively
high levels of wages and benefit typical of assembly plants, the Detroit
3’s parts operations had become woefully uncompetitive compared to
their domestic competition. Furthermore, continuing erosion of the De-
troit 3’s market share in combination with the southern movement of
assembly and parts plants has contributed to a transformation of labor
relations in the U.S. auto sector.
The higher wage rates at Detroit 3 parts plants have dominated the
drive for increased outsourcing to independent suppliers. Contracts ne-
gotiated in unionized supplier plants were substantially lower than those
in the Detroit 3 plants. In 2002 the average hourly wage in the UAW
contract with 25 suppliers covering 19,379 workers was $15.76, only 3
percent higher than the average for all U.S. manufacturing (McAlinden
2004). Wages paid in nonunion plants have been even lower.
A key to restructuring labor relations has been the southern move-
ment of assembly and parts plants. Auto alley has become the heart
of U.S. motor vehicle production, its southern end having experi-
enced rapid growth as most new assembly plants and parts plants have
been opened there. The attraction of the South has been its nonunion
environment.
As the downward spiral of market share loss and job loss ran its
course, inevitably the Detroit 3 and unions have blamed each other.
Companies have blamed excessive wage and benefi obligations, and
unions have blamed poor management and products. Corporate exec-
utives have reassured jittery shareholders that investments would be
protected, while democratically elected union leaders have reassured
jittery members that jobs would be protected. Neither could deliver on
their promises.
298 Klier and Rubenstein

The precipitous decline in auto union representation showed no

signs of slowing in the early twenty-firs century. The percentage of
union workers in the U.S. auto industry in the twenty-firs century was
the lowest since the 1930s. At the current rate of decline, in a quarter
century, the union would no longer have any auto workers to represent.
Reversing that trend is the main challenge of automotive unions going
forward.
The UAW leadership has held many discreet meetings with the
Detroit 3, parts makers, government officials and even Toyota. Ask-
ing current members to choose between unemployment and wage cuts
has been politically impossible for UAW leadership, a surefir recipe
for being voted out of office Instead, the UAW has negotiated lower
wages and employment levels for the future while protecting the status
of current members. When current employees retire, they are either not
replaced or are replaced by new employees at lower wage rates.
In moments of detached analysis, the UAW and the Detroit 3 rec-
ognize that the survival of one depends on the survival of the other.
Yet after nearly a century of bitter conflic between them, the biggest
challenge facing both parties is bringing themselves to acknowledge
explicitly that they must transform the existing antagonist labor–man-
agement paradigm.4 The 2007 labor agreement between the UAW and
the Detroit 3 offered promise of such a transformation. It improved the
competitiveness of the Detroit 3 by establishing a lower wage struc-
ture and independent trusts to manage retiree health care liabilities. The
agreement seemed based on a recognition by both the UAW and the
Detroit 3 that their fates are inseparably linked (Howes 2007b; Simon
2007a).
Notes

1. Delphi chairman and CEO Robert S. Miller, quoted in The Washington Post
(2005).
2. The lower number is from Congressional testimony presented in March 2007 by
UAW president Ron Gettelfinge . The higher number is from an unnamed UAW
source in Shepardson (2007).
3. The rationale was that a growing Visteon would get labor cost relief by being able
to hire new workers at substantially lower wages.
4. See, for example, Detroit News columnist Daniel Howes, “Change or Die: It’s Our
Choice” (Howes 2007a).
 Part 4

The Endangered U.S. Supplier

On paper, the U.S. auto industry looks set to prosper in the twenty-firs
century. New vehicle sales in the United States remained at historically high
levels through the 1990s and the firs decade of the twenty-firs century. Despite
globalization of the industry, most vehicles sold in the United States in the early
twenty-firs century were still being assembled in the United States from parts
made mostly in the United States.
The supplier sector of the industry is expected to prosper as well. As this
book has shown, suppliers are responsible for adding more than two-thirds of
the value added to cars. And the supplier’s share is expected to increase. Hav-
ing been given more responsibility by carmakers, suppliers have evolved into
providers of complex manufacturing tasks based on their own research and
development.
Despite all of these favorable trends, U.S.-owned parts suppliers face an
uncertain future. The number of U.S.-based Tier 1 suppliers is declining rapidly.
As discussed in this section of the book, two factors account for this decline.
First, the U.S. auto parts industry has seen an increase in international com-
petition, which manifests itself through an increase in both the percentage of
imported parts as well as the number of U.S.-based suppliers owned by foreign
companies. As a result, less than one-half of the parts in vehicles assembled
in the United States were made in the United States by U.S. companies in the
firs decade of the twenty-firs century. The endangered status of U.S. parts
makers can also be attributed to decisions by vehicle assemblers to streamline
their supply chains by sharply reducing their numbers of Tier 1 suppliers. GM
reduced its Tier 1 suppliers from 3,700 in 2001 to 3,200 in 2005, and Ford from
2,500 to 800. The international carmakers have set up assembly operations in
the United States with only a few hundred Tier 1 suppliers.
Even more vulnerable have been smaller Tier 2 suppliers, as surviving Tier
1 suppliers have reduced the number of their own suppliers in turn. Valeo went
from 4,500 Tier 2 suppliers in 2002 to 3,000 in 2004, ArvinMeritor from 1,850
in 2000 to 1,000 in 2005, and Faurecia from 2,800 in 2003 to 1,500 in 2006.

299
 13
The Rising Tide of Imports

Just about all electronic subcomponents now originate in

China or Korea or Singapore . . . You are more aware and
you buy better when you are where the action is.1

The national origin of the parts installed on vehicles assembled in

the United States can be divided into three portions: parts made in the
United States at factories owned by U.S.-based companies, parts made
in the United States in foreign-owned factories, and parts imported
from other countries. This chapter examines the magnitude of imports
and exports, the specifi types of parts that are being imported into and
out of the United States, and the countries of origin and destination.
Imported parts captured one-fourth of the U.S. new vehicle mar-
ket in the early twenty-firs century, and foreign-owned factories in the
United States another one-fourth. That left U.S.-owned factories in the
United States with the remaining one-half. But with the domestic share
declining by several percent per year, the three sources were positioned
to hold approximately equal shares of the market by 2010.
At the same time, some of the parts produced in U.S. plants have
been exported to other countries. Exports and imports expanded at about
the same level during the 1990s, but after 2000, imports of parts into the
United States continued to increase rapidly whereas exports stagnated.
As a result, the United States opened up a substantial trade defici in car
parts in the twenty-firs century.
The changing fortunes of carmakers in the United States have been
responsible for the widening trade gap. The principal exporters have
been the Detroit 3 carmakers, which ship parts to their fina assembly
plants in Canada and Mexico. As the Detroit 3 have lost market share,
their assembly plants in these countries have needed fewer U.S.-made
parts.
Meanwhile, foreign-owned carmakers have been meeting increased
demand for their vehicles primarily through assembling more vehicles
in the United States. Although a growing share of their parts has come

301
 302 Klier and Rubenstein

from U.S. suppliers, foreign-owned carmakers continue to import a

higher percentage of parts than the Detroit 3 (Figure 13.1). For their
part, the Detroit 3 have relied more on foreign-made parts to reduce
their costs as they try to compete with the foreign-based carmakers
(Klier and Rubenstein 2007).

NATIONALITY OF LARGEST SUPPLIERS

Consumers have long since recognized the blurred national origin

of vehicles sold in the United States. Foreign-owned companies have
been selling some vehicles classifie by the U.S. government as foreign
and some classifie as made in the United States. At the same time,
some of the vehicles that Chrysler, Ford, and GM sell in the United
States are classifie as domestic, but they have actually been assembled
in Canada and Mexico.

Figure 13.1 Production-Weighted Domestic Content of Light Vehicles

Detroit 3 Foreign producers

90

80

70

60
Domestic content (%)

50

40

30

20

10

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Adapted by authors from the National Highway and Traffi Safety Adminis-
tration and Ward’s AutoInfobank.
 The Rising Tide of Imports 303

Distinguishing between U.S. and foreign origins has in some re-

spects been easier for parts than for finishe vehicles. Ultimately, each
individual part has been manufactured either in the United States or in
another country, whereas every assembled vehicle is a blend of thou-
sands of parts made in many countries.
In reality, classifying national origin of parts is a complex task be-
cause of the sheer magnitude of individual parts and companies that
must be tracked and because of limitations on the sources of data. Each
of the thousands of individual parts in a motor vehicle could be made
by a U.S.-owned company in a factory it operates in the United States
or in a factory it operates abroad, or it may be made by a foreign-owned
company either in the United States or abroad.
Canadian analyst Dennis DesRosiers has estimated that 41 percent
of parts used in the United States in 2005 for both original equipment
and aftermarket were made in the United States by U.S.-owned sup-
pliers, 30 percent were made in the United States by foreign-owned
companies, and 29 percent were imported into the United States. The
share held by U.S.-owned firm has declined rapidly, according to Des-
Rosiers. In 1997, 68 percent of parts came from U.S.-owned firms 12
percent from foreign-owned plants in the United States, and 20 percent
from abroad. Thus, the share of parts made in the United States by U.S.-
owned firm was declining by about 3.5 percent per year in the early
twenty-firs century (DesRosiers 2006).
The changing nationality of the largest suppliers operating in the
United States can be tracked. In 1994, the firs year that Automotive
News listed the 150 largest suppliers of original equipment in North
America, 108 of them, or 72 percent, were U.S.-owned companies.
These 108 companies accounted for 83 percent of the combined sales
of the 150 largest suppliers. Little more than a decade later, in 2006,
only 59 U.S.-owned suppliers remained among the 150 largest. For-
eign-owned companies included in the top-150 list more than doubled
from 42 to 91, and their share of sales increased from 18 percent to 48
percent (Table 13.1). Seventy-three of the 108 U.S.-owned firm among
the top 150 in 1994 disappeared during the next decade. Thirty-three
stayed in business but were no longer in the top 150, and four were
removed following changes in the definitio for inclusion on the list.
Thirty-six of the 73 were sold to competitors, including 21 U.S.-owned
suppliers and 15 foreign ones. British companies bought fiv of them,
304 Klier and Rubenstein

Table 13.1 Top 150 Parts Suppliers by Nationality and Sales

North American OEM
Number of firm sales ($, billions)
Nationality 1994 2006 1994 2006
Australia 1 0.4
Austria 1 0.4
Belgium 1 0.2
Brazil 1 0.1
Canada 4 8 2.6 16.5
China 1 0.2
France 3 6 1.6 5.8
Germany 10 18 5.4 22.6
Germany/Japan JV 1 2 0.5 0.9
Italy 2 0.8
Japan 13 38 7.2 36.5
Japan/U.S. JV 1 0.2
Korea 1 0.2
Mexico 3 1 0.3 1.1
Netherlands 2 0.5
Spain 1 0.4
Sweden 4 2.8
Switzerland 1 0.5
United Kingdom 4 5 1.3 3.5
United States 108 59 96.4 101.2
Total 150 150 116.2 193.9
NOTE: JV denotes joint venture.
SOURCE: Automotive News (1995, 2007a).

Canadian and German three each, Swedish two, and French and Japa-
nese one each.
The dramatic increase in Japanese representation among the largest
suppliers from 13 to 38 thus did not result from acquiring American
competitors. Instead, new Japanese companies entered the U.S. market
during the decade, especially to serve the rapidly growing electronics
sector.
 The Rising Tide of Imports 305

WHICH TYPES OF PARTS ARE IMPORTED?

The widespread belief in Detroit is that most imports are price-

sensitive generic parts that can only be produced competitively in low-
wage countries. “The giant sucking noise in Detroit is the sound of
parts production being pulled into Mexico, or China”—or words to that
effect reflec American perceptions. In reality, a large and increasing
share of imports arriving at U.S. fina assembly plants actually consists
of engines and transmissions made by highly skilled workers in wealthy
countries like Canada and Japan.

Sources of Trade Data

Every good that moves in and out of the United States, as well as
other leading trading countries, is assigned a four-digit Harmonized
Commodity Description and Coding System (HS) number by the World
Customs Organization in Brussels. “Parts and accessories of motor ve-
hicles” has been assigned HS code 8708, but car parts are scattered
among two dozen other four-digit codes as well, such as 9401 for vehi-
cle seats. Customs official in participating countries use the HS code to
determine the duties, taxes, and regulations that apply to each imported
and exported good.
The Bureau of Customs and Border Protection in the Department
of Homeland Security is responsible for setting and reporting the value
of each good imported into the United States. The Customs Bureau
generally sets the value of an imported good as the price paid for the
merchandise minus import duties, freight, insurance, and other charges
associated with the transfer.
The World Customs Organization subdivides four-digit HS codes
into six-digit codes that are also standardized around the world. Code
8708, for example, is divided into 15 six-digit codes, such as 870829
for body parts. Individual countries are permitted to create their own
eight- and 10-digit codes, as long as the more detailed levels are consis-
tent with the internationally mandated six-digit HS code. In the United
States, the 1988 Trade Act created the Harmonized Tariff System (HTS),
which authorized eight-digit and 10-digit codes for imports.
306 Klier and Rubenstein

The International Trade Commission, an independent quasi-judicial

federal agency, maintains and publishes the HTS for U.S. imports. The
Trade Commission also investigates allegations of unfair trade practic-
es, provides legal and technical assistance concerning remedies avail-
able under U.S. trade laws, forecasts impacts of proposed tariff and
duty changes on specifi products, and maintains an extensive library
of trade-related information.
Ninety-one eight-digit HTS codes have covered motor-vehicle
parts. The top four codes together accounted for almost one-third of the
value of all parts imported into the United States in 2006, and the top 10
codes together more than one-half. Each of the top four was responsible
for at least 5 percent of all parts imports, and each of the top 10 for at
least 3 percent.
These four codes each exceeded $4 billion in imports in 2006:
1) 87082950 Parts and accessories of bodies for motor vehicles.
2) 87089980 Parts and accessories not elsewhere classified
3) 85443000 Insulated ignition wiring sets and other wiring sets
of a kind used in vehicles, aircraft, or ships.
4) 84073448 Spark-ignition reciprocating piston engines for ve-
hicles, cylinder capacity over 2000 cc.
Another six codes exceeded $2 billion in imports 2006:
1) 87084020 Parts and accessories of motor vehicles—gear
boxes.
2) 87089967 Parts and accessories for powertrains not elsewhere
classified
3) 40111010 New pneumatic radial tires, of rubber, of a kind
used on motor cars.
4) 94019010 Parts of seats of a kind used for motor vehicles not
elsewhere classified
5) 84099150 Parts not elsewhere classifie used solely or princi-
pally with spark-ignition internal-combustion piston engines.
6) 87083950 Parts and accessories of motor vehicles—brakes
and servo-brakes and parts thereof.
 The Rising Tide of Imports 307

While the Trade Commission has had the responsibility for coding
imports into the United States, the Census Bureau has had the respon-
sibility for coding exports. Each exporter is required to report the value
of the goods according to a code, known as Schedule B, assigned with
the assistance of the Census Bureau’s Foreign Trade Division. To make
trade figure consistent with its other economic reports, the Census Bu-
reau reclassifie export and import data into NAICS codes.
Not surprisingly, having two agencies publish trade data means that
two differing sets of figure are being circulated. The Trade Commis-
sion and Census Bureau may start with the same raw data, but they
process the data in different ways that are consistent with the distinct
missions of the two agencies. The Trade Commission is concerned with
trade practices, whereas the Census Bureau is concerned with the role
of trade in the overall U.S. economy. The Trade Commission Web site
has a translation wizard to reconcile HTS and NAICS codes. For ex-
ample, NAICS 336340, which covers steering and suspension compo-
nents, corresponds to a combination of fiv HTS codes: 87088030 for
McPherson struts; 87088045 for shock absorbers; 887089450 for steer-
ing wheels, columns, and boxes; 87089970 for other suspension parts;
and 87089973 for other steering parts.

THE BIG PICTURE IN TRADE

According to the Trade Commission, the United States imported

$87 billion of motor vehicle parts in 2007. These imports accounted for
27 percent of all shipments of vehicle components in the United States
in 2002, according to the Census Bureau. Both the Trade Commission
and the Census Bureau combined original equipment with aftermarket
parts, so it was not possible to determine the precise share of each. In
compiling the data we only counted original equipment parts destined
for cars and light trucks wherever possible.
The value of all imported parts more than doubled in a decade, from
$37 billion in 1996 to $87 billion in 2007, according to Trade Commis-
sion data (Figure 13.2). Through most of the 1990s, exports of motor
vehicle parts were roughly equivalent to imports. Were it possible to
split out original equipment from aftermarket parts in the trade data,
 308 Klier and Rubenstein

Figure 13.2 U.S. Motor Vehicle Parts Imports, Exports, and Trade Balance

100

80
Imports
60

40
Exports
($) billions

20

-20 Trade balance

-40

-60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: International Trade Commission, dataweb, and authors’ calculations.

original equipment exports may have actually exceeded imports in the

1990s.
Of the major vehicle systems—chassis, electronics, exterior, inte-
rior, and powertrain—the expectation may have been that electronics
would have the largest amount of imports. Although the percentage of
electronics imported is high (see Chapter 14), the system with by far the
largest value of imports has been the powertrain (Table 13.2).

Powertrain Imports

Vehicles assembled in the United States contained $28 billion worth

of imported powertrain parts in 2006, an increase from $10 billion a de-
cade earlier. Powertrain imports included $5 billion worth of complete
engines, $4 billion worth of complete transmissions, $8 billion worth of
drivetrain components, $6 billion worth of engine components, and $5
billion worth of air- and fluid-handlin components.
 The Rising Tide of Imports 309

Table 13.2 Value of Imports and Exports by System, 1995 and 2006
Imports ($, billions) Exports ($, billions)
System 1995 2006 1995 2006
Powertrain 10 28 8 13
Chassis 6 18 6 8
Body 4 12 8 11
Interior 2 5 1 2
Electrical 9 16 3 3
Other 6 8 9 11
SOURCE: International Trade Commission and authors’ calculations.

Assembly plants in the United States installed about one-half mil-

lion engines manufactured in Canada and one-quarter million each
made in Mexico, Japan, and Germany in 2006. Ford has been the pri-
mary producer of engines in Canada for export to U.S. assembly plants.
Chrysler has been especially reliant on importing engines into the Unit-
ed States from Mexico (see Chapter 3 for the location of the Detroit 3
engine plants).
The Japanese-owned assembly plants in the United States have
received most of their engines from North America. Honda, Nissan,
Subaru, and Toyota have all built engines in the United States although
they have imported about one-fift or their engines from Japan (Chap-
pell 2005f). Other Japanese carmakers imported their engines. Germa-
ny became a major source of engines after BMW and Mercedes-Benz
began assembly operations in the United States during the 1990s.
The increase in transmission imports came especially from Ja-
pan. Toyota receives about one-third of its transmissions from Aisin’s
Durham, North Carolina, plant, one-third from its own Buffalo, West
Virginia, plant, and one-third from Japan. “Transmissions may be the
greatest bottleneck facing Toyota” (Chappell 2005f). Nissan similarly
received a minority of transmissions from its plant in Decherd, Tennes-
see, and the remainder from Japan. The smaller Japanese-owned U.S.
assembly plants also imported transmissions from Japan.
About $6 billion worth of engine components were imported for
use in engines assembled in the United States. Leading components
included $660 million worth of filters $660 million worth of cylinder
heads, and $330 million worth of camshafts and crankshafts.
310 Klier and Rubenstein

Air- and fluid-handlin components accounted for $5 billion worth

of imports in 2006. Passenger air conditioning, engine cooling, and fuel
and exhaust line components each accounted for about one-third of the
total. Import levels were relatively low for fuel and exhaust lines be-
cause they are especially fragile and must be packed in elaborate in-
dividual coffinlik containers that are expensive to transport over long
distances. Most air- and fluid-handlin components imported into the
United States originated in Mexico.

Chassis Imports

The chassis has been the system where imports have made the
greatest percentage gains since the 1990s, primarily because the starting
base was so low. Imports may hold a larger market share in electronics-
related components, and powertrain imports may be more valuable, but
the chassis has become the principal “battleground” system between
domestic and imported sources.
Chassis imports grew rapidly in this period because major compo-
nents in the system—especially brakes, steering, and suspension—un-
derwent “commodification. Engineering advances have transformed
these chassis components from high-cost products requiring skilled la-
bor and careful handling to low-cost, easy-to-ship “generic” items that
are highly sensitive to labor-cost savings.
Despite commodification most chassis imports originated in high-
wage countries in 2006. Canada was the leading foreign source for four
of the fiv major chassis systems, with the exception of steering. Ja-
pan was the leading supplier of steering and was second to Canada in
brakes, tires, and suspension systems.
Among major chassis components, tires had the highest levels of
imports, with $5 billion in 2006. Brakes had $4 billion, suspensions had
$3 billion, and steering, wheels, and bearings each contributed about $2
billion to the import total.
Brakes have been viewed as especially vulnerable to outsourcing
from cheap-labor countries. Antilock brakes that once cost thousands
of dollars can be produced for under a hundred. Most brake imports
were components such as drums, discs, linings, and pads, rather than
complete modules.
 The Rising Tide of Imports 311

Imports of wheels have increased relatively rapidly, from $0.5 bil-

lion in 1995 to more than $2 billion in 2006. The wheel has been the
chassis component most susceptible to outsourcing from low-wage
countries. Canada was the leading source of wheels until it was passed
by Mexico in 2002. Wheel producers in China, as well as other low-cost
Asian countries such as South Korea and Taiwan, tripled their factory
capacity during the firs years of the twenty-firs century, from 10 mil-
lion to 30 million wheels per year. At first wheels from Asia were des-
tined primarily for the aftermarket, but OEM sales were likely to grow
as well (Chappell 2004e).
One of the oddities in the trade and census data was the import of
$120 million of steering components from the tiny country of the Prin-
cipality of Liechtenstein. These components originate at ThyssenKrupp
Automotive’s Presta subsidiary, which produced steering systems in
Eschen. Exports from that plant have dominated Liechtenstein’s overall
trade picture.

Exterior Imports

The major exterior components, such as stamped body panels and

bumpers, are among the least likely of all components to be imported.
Bulky and fragile to ship, these major body components have tradition-
ally been produced near the fina assembly plants.
Although large stamped body components are unlikely to be im-
ported, small body parts are. Mirrors, door handles, trim, and other
body parts rank among the highest percentage of the U.S. market held
by imports. In contrast with panels and bumpers, small body parts are
easy to ship and regarded as akin to generic bin parts. Nearly all of the
growth in the miscellaneous body parts market has been captured by
imports. Canada was the source of one-half of the small miscellaneous
body parts during the 1990s, but Mexico has been gaining share and
had one-fourth of the market in 2006.

Interior Imports

The leading interior suppliers rarely import finishe seats. The com-
bination of bulkiness and short delivery notice makes it especially im-
perative for seat suppliers to locate facilities near fina assembly plants.
312 Klier and Rubenstein

The interior manufacturers have not placed the same demand for prox-
imity on facilities producing seat parts, such as foam, frames, and cov-
ers. Along with electronics, plants producing seating parts have long
been established in Mexico.
Lear has been one of the largest employers in Mexico, with 30,000
employees in 26 plants, 14 of which were in the state of Chihuahua.
Into the twenty-firs century, Mexican plants have been responsible for
producing two-thirds of the parts used to put together seats in the Unit-
ed States. However, Mexico has been losing share to Canada, whose
share increased from one-fourth to one-third of the market in the early
twenty-firs century.

Electronics Imports

Import of electrical and electronics components increased relatively

modestly, from $8 billion in 1995 to $16 billion in 2006. At firs glance,
this modest increase may seem counterintuitive because electronics
content has been increasing rapidly, and it has long been regarded as the
quintessential candidate for outsourcing from low-cost labor countries.
The relatively modest growth in electronics imports in the twenty-
firs century is partly a legacy of high growth during the 1980s, at a time
when imports of others components were still limited. Wiring account-
ed for the largest share of electrical imports, and 80 percent of wiring
imports came from Mexico, which became the dominant producer of
wiring harnesses in the 1980s as the centerpiece of the maquiladora
program (see below). Relatively labor intensive and easy to ship, wir-
ing was the firs major component to be shipped in large batches from
foreign production sites.
The four leading importers of wiring harnesses from Mexico in
2003 were Delphi, Alcoa, Yazaki, and Lear. Delphi’s Alambrados y
Circuitos Electricos, Packard, and Rio Bravo Electricos divisions em-
ployed 26,000 workers at 18 Mexican plants in 2003 according to ELM.
Alcoa employed 18,000 in Mexico in 2003, according to ELM, half at
its Arneses y Accesorios de Mexico subsidiary and half at Areneses de
Juarez, Cableados del Norte, and Maquilados Fronterizos joint ventures
with Fujikura. Yazaki had 14,000 employees in two Mexican subsid-
iaries, Autopartes y Arneses de Mexico in Ciudad Juarez and Nuevo
Casas and AXA in Saltillo. Lear Corporation’s Electrical and Electron-
 The Rising Tide of Imports 313

ics Division employed 9,000 in 2003 in Chihuahua and Ciudad Juarez,

producing wiring harnesses for seat recliners, track adjusters, and other
power-assisted interior components.
Radio components have also been imported primarily from Mexico.
However, the overall value of radio imports has declined from a peak
of $3.6 billion in 2000 to $2.8 billion in 2006. As with other electrical
components, the quantity and percentage of imports may be increasing,
but because of rapidly declining prices, the value has decreased. Mexi-
co has been losing market share in the early twenty-firs century, in this
case to China. The value of radios imported from Mexico declined from
a peak of $2 billion in 2001 to $1.3 billion in 2006, whereas radios im-
ported from China increased from $300 million to almost $700 million
during those fiv years.
Imports have accounted for more than $1 billion, or 30 percent of
the total U.S. market for vehicle lighting. Mexico and Taiwan have re-
placed Japan as the leading suppliers of lighting equipment. Apodaca
has been the center of vehicle lighting production in Mexico, with large
facilities operated by Visteon and Guide. Robert Bosch produces light-
ing components in Juarez, Valeo in San Luis Potosi and Queretaro, and
Visteon in Hermosillo.
Electronics imports from China are set to increase. Within a few
days of each other in 2006, GM and Visteon both announced a shift of
worldwide electronics purchasing from Michigan to Shanghai. Shang-
hai is “at the hub of China’s electronics industry . . . and China is widely
viewed as the world’s new hub for consumer electronics” (Sherefkin
and LaReau 2006). However, because China is “GM’s largest growth
market . . . much of the electronics that GM buys in China are destined
for its Asian assembly lines, not U.S. shores” (Sherefkin and LaReau
2006).

NATIONAL ORIGIN OF IMPORTS

Canada, Japan, and Mexico were the countries of origin for 68 per-
cent of the parts imported into the United States in 2007. Imports in
2006 totaled $27 billion from Mexico, $19 billion from Canada, and
$13 billion from Japan. That is down noticeably from 1996, when the
314 Klier and Rubenstein

same three countries also accounted for 78 percent of total imports.

Canada was the country of origin for $12 billion in parts in 1996, Mexi-
co $11 billion, and Japan $8 billion. China and Germany were in fourth
and fift place in 2007, far behind the lead held by the top three with $7
billion and $5 billion, respectively.
Canada was the leading source of parts in 1995, followed closely
by Mexico and Japan (Figure 13.3). Canada and Mexico both gained
market share at the expense of Japan during the mid 1990s. Implemen-
tation of the North American Free Trade Agreement (NAFTA) and the
high yen–dollar exchange rates contributed to Japan’s decline during
the period. Mexico passed Canada as the leading source of imports for
the firs time in 2002, and the gap widened in subsequent years.
Canada lost market share after 1997, slipping from 31 percent to 22
percent in 2007, whereas the share of imports from Japan and Mexico
changed little. Meanwhile, China gained 7 percent during the 12-year
period, passing Germany as the fourth-largest source of inputs, and the
rest of the world gained the remainder.

Figure 13.3 Auto Parts Imports by Country

25

Mexico
20
Canada

15
($) billions

Japan Rest of
world
10

5
Germany
China

0
1996
1 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: International Trade Commission, dataweb, and authors’ calculations.

 The Rising Tide of Imports 315

Figure 13.4 Auto Parts Imports by System from Canada, Mexico, and
Japan, 2006
10
9 Mexico
8 Canada
Japan
7 Rest of world

6
($) billions

5
4
3
2
1
0
Powertrain Electrical Chassis Body Interior Other

NOTE: Powertrain comprises: engine, engine parts, flui and air, and drivetrain.
Source: International Trade Commission, dataweb, and authors’ calculations.

Canada, Japan, and Mexico have specialized in importing differ-

ent types of parts (Figure 13.4). Canada has been the leading source of
exterior and chassis components, which are bulky metal structures that
have traditionally been built close to fina assembly plants. Japan has
been the leading source of powertrain components, which are closely
tied to Japanese carmakers in the United States through keiretsu rela-
tionships. Mexico has been the dominant source of electrical and inte-
rior components that are especially sensitive to labor costs.

Imports from Canada

Canada’s distinctive contribution to the U.S. parts industry is a leg-

acy of policies from the 1960s that were designed to integrate the two
countries’ vehicle production. Prior to that time, Canada’s motor ve-
hicle industry was organized separately from that of the United States.
Canada placed tariffs of 17.5 percent on vehicles and 25 percent on
316 Klier and Rubenstein

parts imported from the United States and required that at least 60 per-
cent of content in domestically built cars be sourced from the British
Commonwealth.
A Royal Commission headed by Vincent Bladen reported in 1961
that the Canadian motor vehicle assembly plants and parts suppliers
would become increasingly uncompetitive because of the small size
of the domestic market. The Bladen Commission recommended closer
integration with the U.S. industry. The Canadian government reduced
tariffs on transmissions and engines in 1962 and on other parts a year
later. The 1965 Canada–U.S. Automotive Products Trade Agreement
eliminated most of the remaining vehicle tariffs.
In a series of letters of understanding sent to the Canadian govern-
ment, U.S. firm agreed to maintain a minimum level of production in
Canada, essentially at a level that exceeded sales in Canada. As a result,
more vehicles have been produced than sold in Canada each year since
1964. With 9 percent of the population of the United States and Canada
combined, Canada has produced about 15 percent of the two countries’
vehicles, thus well above its “fair share” based on population and sales.
Canada also had 11 percent of the two countries’ parts plants, according
to ELM International.
Canada’s disproportionately large contribution to North American
vehicle assembly also stemmed from the country’s lower health care
costs for employers. Because of national health insurance, fina as-
sembly costs as recently as 2002 were about $500 lower per vehicle in
Canada. “We do have a cost advantage here in Canada versus our pro-
duction, for example, in the United States. Health care costs probably
contribute just a little under half of that advantage,” according to GM
Canada president Mike Grimaldi in 2002 (Automotive News 2002a).
According to Canadian Auto Workers president Buzz Hargrove (Eng-
lish 2002), Canada held a $16-per-hour wage advantage over the United
States in 2002, when health care costs, productivity, and the value of
the Canadian dollar were taken into consideration. By 2008, a rising
Canadian dollar in combination with wage concessions agreed to by the
UAW in 2007 had essentially eliminated that cost advantage.
Exterior parts have been especially prominent in Canada’s supplier
industry. Five of the six leading suppliers based in Canada specialize
in exterior parts. The leading supplier has been Magna International,
 The Rising Tide of Imports 317

with 10,000 employees in 30-some production facilities across Ontario.

Magna’s largest division specialized in what the company calls “ex-
terior vehicle appearance systems,” such as plastic bumpers, fascias,
body panels, liftgates, and sealants. Other leading Canadian exterior
suppliers included ABC Group, Multimatic, SKD Automotive Group,
and AGS Automotive.
Chassis parts have also been important for Canada’s suppliers.
Magna’s second-largest unit has produced metal chassis and body com-
ponents such as cross members, floo pans, suspension systems, and
other support structures. Canada’s second-largest parts maker, Linamar,
with 3,000 employees at two dozen plants, mostly in Guelph, produced
brake drums and powertrain components such as cylinder blocks, heads,
camshafts, and crankshafts.
Canada’s parts industry, clustered in Ontario between Windsor and
Toronto, is within a one-day drive of U.S. vehicle production centers,
and plants in Windsor are only minutes from Detroit’s assembly plants.
But Canada’s advantageous proximity has been threatened by the drift
of U.S. fina assembly plants southward from Michigan. Newer plants
opened in the southern United States are beyond a one-day driving range
from the southern Ontario production center. Ontario’s auto industry is
tied more closely to the fate of Michigan than to the United States as a
whole, and more to the Big 3 than to the international transplants (see
Chapter 6 on border issues).

Imports from Japan

Canada’s parts industry has relied heavily on JIT delivery for and
by the Detroit 3. Japan’s import record, in contrast, has been heavily
influence by the changing needs of Japanese-owned assembly plants
in the United States.
When they opened assembly plants in the United States, Japanese
carmakers ordered their major suppliers to start producing parts in the
United States as well. “[U.S.-owned] large tier ones pressed [Presi-
dents] Bush and Clinton to press Japanese carmakers to buy more U.S.
content” (Chappell 2005g). Once they started producing in the United
States, many of these Japanese parts makers also became major suppli-
ers to Detroit 3 and European carmakers. By forcing their key suppliers
to build in the United States, Japanese carmakers caused parts imports
318 Klier and Rubenstein

from Japan to grow at a much lower level than would otherwise be ex-
pected from their increasing share of the U.S. light vehicle market.
Drivetrain components emerged as the leading imports to the Unit-
ed States from Japan after 2000. Complete transmissions have been
shipped from Japan to transplants in the United States, as well as com-
ponents for producing transmissions in the United States. Toyota in par-
ticular has been a major importer of transmissions into the United States
rather than depending primarily on U.S.-based suppliers. Meanwhile,
the value of engines exported from Japan to the United States declined
from a peak of $1.5 billion to less than $0.5 billion in 2006.
Powertrain imports are often for low-volume or newly established
products, for which production in the United States is not justifie at
the time, and may never be. In other cases, importing is a temporary
expediency pending construction of another U.S. plant or redeployment
of an existing one. Reliance on high-value imported powertrain com-
ponents is a major reason why transplants have had a lower impact
on the local economy than was predicted by development official and
promised by politicians.
Competing with Mexico or even Canada on price is difficul for
parts makers in Japan. Japanese suppliers face much higher production
costs than Mexican competitors, and much higher shipping costs than
Canadian competitors. Consequently, Japan’s market share of parts im-
ports is small for bulky just-in-time body and interior components, and
it is declining for most price-sensitive chassis components.

Imports from Mexico

Mexico’s parts supplier industry has a profil that is very different

from those of Canada and Japan. Dominating production are electrical
and interior components, both of which take advantage of hourly wage
rates of less than $2 in Mexico in 2005.
The leading suppliers of electrical and interior components from
Mexico have been foreign-owned maquiladora plants. The term maqui-
ladora derives from the Spanish verb maquilar, which means to take
measure of payment for grinding or processing. The miller who did the
grinding would be compensated with a portion of the grain known as
the maquila, which was also the name of a colonial tax.
 The Rising Tide of Imports 319

Mexico’s Border Industrialization Program (BIP), established in

1965, permitted foreign companies to import materials from the United
States, assemble them in maquiladora plants, and export them back
to the United States without having to pay duty on the raw materials
brought into Mexico, the equipment in the maquiladora plants, or the
subassemblies shipped back to the United States. Antonio J. Bermu-
dez, firs head of the BIP, is credited with developing the idea as a way
to generate economic development in his hometown of Ciudad Juarez.
RCA was the firs large American company to open a maquiladora plant
in Ciudad Juarez in 1968.
It took another decade before U.S. auto parts makers started taking
advantage of the maquiladora laws. GM’s Packard Electric Division,
now part of Delphi, established Conductores y Componentes Electricos
to make wire harnesses in Ciudad Juarez in 1978. Electrical compo-
nents dominated Mexican early maquiladora production, accounting for
twice as many imports as all other systems combined into the 1990s.
GM’s Inland Division, now also part of Delphi, arrived in Ciudad
Juarez in 1978 to make seat covers and interior trim. Production of seat
components expanded rapidly into the twenty-firs century as the three
large assemblers of complete seats—Lear, JCI, and Magna—relocated
production of some individual components to Mexico and purchased
more individual seat parts from Mexican-based lower tier suppliers.
Maquiladora plants are strung out in Mexican cities along the U.S.
border, especially (from east to west) in Matamoros (across the border
from Brownsville, Texas), Reynosa (across from McAllen), Nuevo Lar-
edo (across from Laredo), Ciudad Juarez (across from El Paso), and Ti-
juana (across from San Diego). The more easterly cities have attracted
most of the auto parts maquiladoras because of their relative proximity
to Auto Alley, whereas Tijuana has more clothing and textile plants.
Auto-related maquiladora production is also clustered in larger northern
Mexican cities 100 miles or so south of the border, such as Nuevo Leon,
Monterrey, Chihuahua, and Hermosillo.
NAFTA authorized Mexicans to drive trucks fille with car parts
and other goods into the United States. However, U.S. and Mexican
government regulations blocked free cross-border truck movement for
several years after implementation of NAFTA. Administrative red tape
required trucks to be unloaded at warehouses in U.S. border towns and
driven into the interior of the United States on U.S.-registered trucks
320 Klier and Rubenstein

by American drivers. U.S. restrictions were ruled illegal in 2000, but

Mexican restrictions remained in effect. Mexican official have refused
to permit U.S. official to conduct security inspections required of im-
porters since the September 11, 2001, attacks. Fear of security-driven
border delays has forced major U.S.-owned maquiladoras to expand
inventory being held in the U.S. border towns, essentially adding to the
cost of producing in Mexico.
According to the México Maquila Information Center, 24 of the 100
largest maquiladoras in 2006 were motor vehicle suppliers. The three
largest maquiladoras on the list were motor-vehicle suppliers—Delphi,
Lear, and Yazaki. The 24 auto-related maquiladoras together employed
216,696 workers in Mexico in 2006, including 66,000 at Delphi in
Mexico, 34,000 at Lear, and 33,400 at Yazaki (México Maquila Infor-
mation Center 2006).
The number of maquiladora plants—most of which were not au-
tomotive related—increased from 600 in 1982 to 1,000 in 1986, 1,800
in 1989, and a peak of 3,630 in 2001. Employment in maquiladoras
increased from 70,000 in 1982 to 360,000 in 1988, and a peak of 1.3
million in 2000. In the firs years of the twenty-firs century, the number
of maquiladoras declined slightly from the 2000 peak. Mexican offi-
cials have feared that border plants will continue to decline in the face
of competition from lower-wage countries, notably China (México Ma-
quila Information Center 2007).
Further fanning fears for the future of the border plants, the growth
in the value of auto parts imported into the United States from Mexico
has been outpaced by the growth of imports from China for every year
since 1996.

The China Factor

China’s contribution to the U.S. parts market in the early twenty-

firs century could be seen in two ways. On one hand, China was play-
ing an insignifican role that barely registered in the statistical tables.
Only 5 percent of all imports and only 2 percent of the total U.S. auto
parts market came from China in 2006. Balanced against the statistical
record and geographic constraints was the universal assumption that
China would inevitably play a major role in all facets of the world’s mo-
tor vehicle industry, including original equipment parts production.
 The Rising Tide of Imports 321

China’s impressive compound annual growth rate of 58 percent be-

tween 1996 and 2006 was calculated from a very low starting base.
Otherwise stated, China accounted for 12 percent of the $45 billion
growth in imports from all countries during the decade. Imports from
China increased by $4.5 billion between 1996 and 2006, from $0.5 bil-
lion to $5 billion, but during the same decade, imports increased by
much greater dollar values from other countries, including $12 billion
more from Mexico, $6 billion more from Canada, and $6 billion more
from Japan.
Chassis and electrical components accounted for almost two-thirds
of all imports from China in 2006. China’s firs major impact in the
U.S. import market came through chassis components, which increased
from $142 million in 1995 to $2.55 billion in 2006 (Table 13.3). Among
major chassis components, imports from China increased during the

Table 13.3 Parts Imports from China by Major Subsystem, 2006

System Value ($, millions) % of total
Chassis 2,552 41.9
Wheels 877 14.4
Tires 843 13.8
Brakes 550 9.0
Bearings 162 2.7
Other chassis 120 2.0
Electrical 1,314 21.6
Radios 676 11.1
Other electrical 638 10.5
Engine 542 8.8
Components 253 4.1
Fluid & air 289 4.7
Generic 496 8.1
Body 474 7.8
Interior 347 5.7
Child’s seats 233 3.8
Other interior 114 1.9
Drivetrain 379 6.2
Total 6,104
SOURCE: Adapted by the authors from the ELM International database.
322 Klier and Rubenstein

decade from $9 million to $877 million for wheels, from $5 million to

$843 million for tires, and from $51 million to $550 million for brakes.
The aftermarket was the destination for most of these imports, but not
all of them, especially after 2001. “It’s a scary prospect right now to see
the Chinese gearing up for this [OEM wheel production]. Anybody in
the wheel business who thinks this won’t matter is about to have their
head served to them on a platter.”2
Imports of electronic components such as radios also increased
rapidly from China after 2000. Shanghai has become the center of
manufacturing motor vehicle electronics in China. General Motors has
moved its global electronics purchasing office and Visteon has moved
its global electronics group to that city.
Does Mexico have reason to fear competition from China? Imports
of radios from Mexico, which had increased from $1 billion to $2 bil-
lion between 1995 and 2001, declined to $1.3 billion in 2006. Simi-
larly, the total of all radio imports into the United States, which had in-
creased from $2.5 billion in 1995 to $3.4 billion in 2001, also declined
by $600 million to $2.8 billion in 2006. Meanwhile, imports of radios
from China increased from $319 million to $676 million between 2001
and 2006. Thus, as the cost of the average radio declined sharply in the
early twenty-firs century, China nearly tripled its share of imports from
9 to almost 25 percent in fiv years. China has started to make a dent in
Mexico’s dominance of electronics imports.
However, the growth in Chinese imports has not come without
some problems. “Lured by promises of long-term, high-volume con-
tracts from their major customers—and sometimes encouraged at gun-
point, metaphorically speaking—auto suppliers are findin plenty of
justificatio for their early caution about committing to the Chinese
market” (Automotive News Europe 2005). As in other newly industrial-
izing countries, China has faced quality control issues.
International parts makers in China are learning that a local sup-
plier-development program is a must. Patience is also a must since
it often takes as long as two years for a Chinese supplier to meet
international quality standards. Only 15 percent of Chinese sup-
pliers can meet those standards, says [manufacturing consultant
Frank] Ogden, who is vice president of global supplier develop-
ment for the PAC Group, a Shanghai consulting company. Prob-
lems range from not knowing how to meet a customer’s deadlines
 The Rising Tide of Imports 323

to inadequate testing of raw materials. “You can’t just walk into

a company and expect to buy off the shelf,” [TRW senior man-
ager for Asia Pacifi supplier development Clive] Woodward says.
“You have to be willing to work beside them and bring them up to
your quality level.” (Webb 2005)
Again, as in other newly industrializing countries, however, China
has seen rapidly improving quality. GM’s defect rate for parts in China
declined from 2,197 per million in 1999 and 1,397 per million in 2000
to only 23 per million in 2003. In comparison, GM’s worldwide defect
rate in 2003 was much higher (35 per million) and only slightly lower
(22 per million) in the United States (Armstrong 2004e). GM “expects
to increase its parts purchases from China 20-fold in six years—from
$200 million in 2003 to $4 billion in 2009—while spending about $5
billion on sourcing for its China production” (Automotive News Europe
2005). “We will see a shift into more electronics, air conditioning, and
also chassis parts, brake parts, steering parts . . .” (Lan 2007).
Though China’s quality control issues may fade over time, parts
destined for assembly plants in the United States cannot avoid the
6,500-mile journey across the Pacifi Ocean and the 2,500 mile journey
from the West Coast to Auto Alley. For all but the most labor-intensive
components, the obvious attraction of low-cost labor in the manufactur-
ing process would continue to be offset by the high costs of maintaining
a trans-Pacifi supply chain.

WHICH TYPES OF PARTS ARE EXPORTED?

Exports have performed differently than imports in the twenty-

firs century. Imports and exports increased at the same rate during the
1990s, but imports accelerated after 2000 while exports stagnated. The
combination of increasing of imports and stagnating exports has pro-
duced a widening trade imbalance in the United States.
Canada and Mexico have been on the receiving end of three-fourths
of the parts exported from the United States (Figure 13.5). In 2007, 55
percent of exports went to Canada and 20 percent to Mexico. A decade
earlier, the percentages were virtually the same.
 324 Klier and Rubenstein

Figure 13.5 Value of U.S. Parts Exports by Country

35

30
Canada

25

20
($) billions

15 Rest of world

10
Mexico

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: International Trade Commission, dataweb, and authors’ calculations.

Mexico and Canada play a more dominant role in exports from the
United States than they do with imports. With imports, Japanese- and
German-owned assembly plants in the United States have depended on
parts from their home countries, and other U.S.-based producers have
been scouring the world for low-cost suppliers. With exports, fina as-
sembly plants in Canada and Mexico have been virtually the only mar-
kets for original equipment parts made in the United States.
This pattern is a function of integration of parts-making and fina
assembly operations within the NAFTA zone during the 1990s. Final
assembly plants in Canada and Mexico make heavy and increasing use
of parts made in the United States, just as U.S. fina assembly plants
make heavy and increasing use of parts made by suppliers based in
Canada and Mexico.
The export pattern has varied by type of system. The overwhelming
majority of powertrain components and body stampings exported from
the United States are destined for Canadian assembly plants (Figure
 The Rising Tide of Imports 325

Figure 13.6 U.S. Exports by System to Canada and Mexico, 2006

10
Canada
9
Mexico
8 Rest of world

7
6
($) billions

5
4
3
2
1
0
Powertrain Electrical Chassis Body Interior Other

Source: International Trade Commission, dataweb, and authors’ calculations.

13.6). These parts are much less likely to be exported anywhere else, in
part because they are bulky and fragile to ship long distances.
Export of powertrain components accounted for much of the in-
crease in exports during the 1990s, especially engines and complete
transmissions destined for fina assembly plants in Canada and Mex-
ico. Exports of exterior components have hovered around $10 billion:
stampings have generated $1.5 billion worth of exports, lighting more
than $0.5 billion, and bumpers, glass, and wipers between $0.25 and
$0.5 billion each. The principal chassis export has been axles, with
more than $1 billion sent to other countries in 2006. Exports of interior
components have fluctuate between $2 and $3 billion; the leading in-
terior export has been seat parts for use at seat assembly plants located
near fina assembly plants.
As recently as the late 1990s, only electronics had a substantial
trade deficit reflectin the importance by that time of Mexico’s ma-
quiladoras. Exterior and drivetrain components showed trade surpluses
in the United States during the 1990s, and chassis, engine, and interior
326 Klier and Rubenstein

components had annual trade deficit in the $1 to $2 billion range. Dur-

ing the early twenty-firs century, imports increased faster than exports
by $1.5 billion per year for powertrains, $1 billion for interior parts, and
$0.5 billion each for electronics and exterior components.

OUTLOOK AND UNCERTAINTIES

Are any sectors of the U.S. parts industry impervious to foreign

competition? The short answer is no. As the auto sector becomes more
international, foreign competition manifests itself in more ways than
one. Domestic carmakers and their parts suppliers face competition
from imported vehicles (that include mostly parts produced abroad)
as well as from foreign carmakers and parts makers based in North
America. In fact the low exchange rate of the U.S. dollar is expected
to drive a fair amount of inbound foreign investment over the next few
years. Finally, trade in motor vehicle parts has been growing faster than
domestic production for many years. Yet, not all sectors are equally
exposed to foreign competition.
Of the fiv major systems, the body is the least vulnerable to import
competition. Large body panels have always been stamped out near
fina assembly plants, and that trend is likely to continue. They are too
bulky and fragile to ship long distance safely and efficient y. Similarly,
seats are too bulky to ship long distance and are designed to arrive at
the fina assembly ready for installation within hours of being built.
Nevertheless, large body and interior suppliers have been able to iden-
tify individual parts that can be produced in low-wage countries and
shipped to trim and seat plants in the United States for finishin before
being sent on to fina assembly plants in integrated modules.
Similarly, engines and transmissions will continue to be assembled
primarily in the United States, but they will contain a number of indi-
vidual parts that are manufactured overseas. Powertrain components
will continue to account for more imports than bodies and seats because,
to some extent, complete engines and transmissions will be imported,
such as small-displacement engines from Mexico and small-batch en-
gines and transmissions from Japan.
 The Rising Tide of Imports 327

At the beginning of the twenty-firs century, the main battleground

between domestic and foreign production was the chassis. The principal
chassis modules—brakes, suspension, steering, wheels, and tires—were
all vulnerable to outsourcing to lower cost producers. In general, the
chassis is the system that is least difficul to ship and least affected by
just-in-time delivery pressures. Innovations have reduced chassis prices
quickly, adding pressure to relocate production to low-wage countries.
“There are some advantages when you go to low-cost countries. But
on the fli side, you can’t ignore the costs of freight, duty, the cost of
inventory, the 45 days or whatever it is in the pipeline. Those are all true
costs. What we look at is the total delivered cost.”3

Notes

1. Unnamed GM source, quoted in Sherefkin and LaReau (2006).

2. Dick Lilley, president of Lilley Associates Inc., which tracks the original-equip-
ment wheel industry, quoted in Chappell (2004e).
3. Chip McClure, ArvinMeritor CEO, quoted in Automotive News (2005c).
 14
The Driving Force:
Electronics Suppliers

Historically, mechanical engineers controlled the destiny of

the vehicle. Now it is the electrical engineer.1

A 1960 vehicle needed electrical power to operate little more than

the lights, radio, heater motor, and wipers. The availability of ever
cheaper and faster microprocessors has spawned a tremendous amount
of control systems applications in the automotive industry in the last
two decades. From engine and transmission systems, to virtually all
chassis subsystems, some level of computer control is present. A car is
now actually a network of computers (The Economist 2007). As elec-
tronics have become increasingly prominent features of motor vehicles,
motorists have seen their service mechanics transformed into electrical
diagnosticians (Couretas 2000).
“Automotive electronics are major criteria of differentiation in the
automotive market. Car manufacturers use chips in increasing num-
bers to develop powerful electronic systems for driver information and
communication, in-car entertainment electronics, power train and body
control electronics, as well as automotive safety and convenience elec-
tronics” (Gupta 2005).
According to our database, 15 percent of all parts plants in the Unit-
ed States made an electronic part in 2006. Our figur is a little lower
than the average of four other studies: 11 percent according to the Cen-
ter for Automotive Research, 18 percent according to Merrill Lynch, 21
percent according to the U.S. Census of Manufactures, and 25 percent
according to Roland Berger Strategy Consultants (Armstrong 2004f;
Couretas 2000; Gupta 2005; Guyer 2004; Riches 2005). The dispar-
ity comes from classificatio challenges. Is the temperature regulator
counted as electronics or as part of the air conditioner? Is the seat ad-
juster counted as electronics or part of the interior?
Regardless of magnitude, the value of electronics has clearly in-
creased more rapidly than the value of the overall vehicle content. The

329
330 Klier and Rubenstein

value of the electronics content rose 8.3 percent in 2004, for example,
compared with only 2 percent for all content (Riches 2005). The world
market for motor vehicle electronics was expected to increase from $36
billion in 2004 to $58 billion in 2012, with most of the increase coming
from the interior system (Table 14.1). “If I’m going to grow in a fla
market, where is the growth? It’s in electronics.”2
The increasing importance of electronics is reflecte in the chang-
ing composition of the largest suppliers. Only six of the top 150 suppli-
ers in 1994 listed electronics as a capability, compared to 41 in 2006,
including eight of the nine largest (Automotive News 1995, 2007a).
Some of these 41 suppliers were electronics specialists, but most com-
bined electronics with capabilities in chassis, exteriors, interiors, and
powertrains.
In our database, 39 percent of plants making electronics parts could
not be allocated to a particular system. These parts included switches,
sensors, actuators, circuit boards, relays, and miscellaneous electronics
parts. Excluding these plants, 42 percent of electronics plants made a
part for the interior, 30 percent for the powertrain, 18 percent for the
exterior, and 10 percent for the chassis.
Given the large percentage of electronics parts that are not attribut-
able to a specifi system, this chapter is organized around the three prin-
cipal purposes of electronics: performance, safety, and convenience.
Performance-oriented electronics are found primarily but not exclu-
sively in the powertrain; safety-oriented parts are found in the interior,

Table 14.1 World Automotive Electronics Market and Anticipated

Growth by System
System 2004 ($, billions) 2012 ($, billions anticipated)
Powertrain 11.4 16.9
Chassis 4.2 6.7
Exterior 8.6 13.2
Security 1.8 2.4
Body 6.8 1- 0.8
Interior 11.5 21.0
Driver information 6.8 11.0
Safety 4.7 10.0
Total 35.7 57.8
SOURCE: Riches (2005).
 The Driving Force: Electronics Suppliers 331

Figure 14.1 Location of Electronics Parts Plants

SOURCE: Adapted by the authors from the ELM International database and other
sources.

exterior, and chassis; and convenience-oriented electronics are found in

the interior.
Most electronics parts are being made outside the United States,
as discussed in the previous chapter. Of those produced in the United
States, less than half have come from plants in the Midwest (Figure
14.1, Table 14.2). Two-thirds of plants producing electronics for the
exterior were in the Midwest, compared to only one-third of plants pro-
ducing parts for the interior.

PERFORMANCE: GETTING POWER FROM THE ENGINE

TO THE ACCESSORIES

Motor vehicles contain dozens of microprocessors, tiny computers

known as electronic control units (ECUs). Information in microproces-
332 Klier and Rubenstein

Table 14.2 Electronic Parts Plants in the Midwest

Electronic part Number of plants % in Midwest
Powertrain (engine management) 205 47.3
Chassis (wiring) 65 50.8
Exterior (lighting) 123 63.4
Interior 282 36.2
Safety 128 40.6
Driver information 112 28.6
Audio 42 42.9
Other electronics 432 46.8
Switches, sensors, actuators 282 43.3
Miscellaneous 150 53.0
Total electronics 1,107 46.2
SOURCE: Adapted by the authors from the ELM International database and other
sources.

sors is stored on semiconductors made from silicon chips. First-gen-

eration ECUs each performed one function, but electronics specialists
were able to combine multiple functions in ECUs, thereby reducing the
number needed.
ECUs collect, store, and display information about vehicle perfor-
mance, such as speed, oil pressure, engine temperature, distance trav-
eled, and operator behavior. Information is collected through sensors
embedded in key components. Based on information from sensors,
ECUs determine optimum settings for actuators that operate specifi
functions, such as opening a window or regulating the flo of heat into
the passenger compartment. ECUs can be regarded as the brain of the
system, sensors as the eyes and ears, and actuators as the hands.

Suppliers of ECU Components

Manufacture of semiconductors for the world’s motor vehicles was

an $18 billion business in 2005, accounting for nearly half of the total
electronics market (Gupta 2005). One-third of the semiconductors were
used in interior systems, one-fourth each in powertrain and exterior sys-
tems, and one-sixth in chassis systems (Table 14.3).
 The Driving Force: Electronics Suppliers 333

Table 14.3 Global Automotive Semiconductor Sales by System, 2005

and 2006
System Global sales 2006 ($, billions) % change 2005–06
Powertrain 4.7 6.2
Chassis 2.7 9.7
Exterior 4.8 14.1
Body 3.8 14.8
Security 1.0 11.3
Interior 5.8 11.7
Safety 2.5 20.2
Driver information 1.6 8.9
Audio 1.7 3.5
Total 18.1 10.5
SOURCE: Webber (2005b, 2006b).

The semiconductor market has been one of the most highly frag-
mented in the motor vehicle industry. According to Hansen (2003):
The automotive semiconductor industry has too many suppliers
. . . Yearly price cuts are guaranteed and pressures to cut prices
further when industry margins are already thin or nonexistent are
greater now than they have been in the last 15 years. While there
are plenty of new electronics features on the horizon, it can take
three to fiv years following the development of a new component
before it goes into volume production . . .
What still attracts semiconductor suppliers to the auto industry and
could bring in new players, is its relative stability. In 2001, when
the worldwide semiconductor market dropped 32 percent, the auto
semiconductor market dropped only 1 percent.
The three leading companies together held 29 percent of the market
in 2003, the top fiv had 43 percent, the top seven had 50 percent, and
the top 30 had 80 percent (Hansen 2003). Only one of the seven largest
made the list of Automotive News top 150 suppliers—Robert Bosch,
the world’s largest parts supplier overall and the sixth-largest automo-
tive semiconductor supplier in 2006. The fifth and seventh-largest—
NEC and Toshiba—were more familiar as small consumer electronics
producers than as motor vehicle suppliers.3 The four largest semicon-
ductor suppliers—Freescale, Infineon STMicroelectronics, and Rene-
334 Klier and Rubenstein

sas—were unfamiliar names to most consumers and auto workers alike

(Webber 2006a). All four, though, were spin-offs or mergers of well-
known firm between 1999 and 2004.

Freescale
Freescale, the largest semiconductor supplier, was the only U.S.-
based fir among the top seven. It was created in 2004 when Motorola
spun off its semiconductor products business. In 2006, Freescale was
acquired by the private equity fir Blackstone Group. Motorola had
originated in 1928 as the Galvin Manufacturing Corp., when brothers
Paul V. and Joseph E. Galvin took over a battery eliminator business.
The battery eliminator enabled radios to operate on household current
instead of batteries. The company produced one of the firs commercial-
ly successful car radios in 1930 (see below). The radio was sold under
the brand name Motorola, said to have been invented by Paul Galvin by
adding the suffi “ola,” which means sound, to the word “motor.” The
company’s name was changed to Motorola in 1947, the year it started
to sell televisions.
Motorola was a pioneer in development of semiconductors, set-
ting up a research center in 1949 in Phoenix, Arizona, one of the few
parts suppliers to locate a major production facility in that state. Its firs
mass-produced semiconductor, for use in car radios, came in 1957. In
1961 Motorola had its other major automotive-related breakthrough,
the silicon rectifie , which was critical to manufacturing an attractively
priced alternator and was the basis for the company’s leading position
among suppliers in engine-related electronics (HowardForums 2006).
The firs major application of Motorola microprocessors was an ECU
for motor vehicles in 1980.

Infineo
Second to Freescale was German-based Infineo Technologies AG.
Like Freescale, Infineo was spun off from one of the world’s largest
electronics firms in this case Siemens AG, in 1999 (Floerecke 2005).
Siemens’s predecessor Telegraphen-Bauanstalt von Siemens &
Halske was founded in 1847 by Prussian inventor Werner von Siemens
and mechanical engineer Johann Georg Halske to erect Europe’s firs
telegraph line between Berlin and Frankfurt, using equipment patent-
 The Driving Force: Electronics Suppliers 335

ed by Siemens. Siemens became one of the world’s largest companies

in the twentieth century through generation of electrical power and
telecommunications.
The motor vehicle industry was not a significan component of the
Siemens empire until the rapid rise in electronics content in the late
twentieth century. Siemens set up an automotive engineering business
unit in 1989, and spun it off as the independent Siemens Automotive
AG in 2000. Although it was one of the world’s 10 largest parts sup-
pliers, with worldwide sales of $12 billion in 2004, Siemens generated
only one-eighth of its total 2004 worldwide revenues of $95 billion
from the motor vehicle industry.

STMicroelectronics
Unlike the other three of the four largest semiconductor suppliers,
STMicroelectronics (ST) did not trace its roots to the motor vehicle
industry. It was a product of a 1987 merger between Italy’s Micro-
elettronica and France’s Thomson Semiconducteurs and was known as
SGS-Thomson Microelectronics until 1998.
Although it was the third-largest motor vehicle supplier of electron-
ics, ST derived only 15 percent of its revenues from that industry in
2006. Communications, consumer products, and computers were the
largest segments at ST.

Renesas
Renesas, the fourth-place semiconductor company with 7 percent of
the market and the leading microcontroller supplier, was spun off from
prominent parts suppliers. Renesas was established in 2003 as Japan’s
largest semiconductor supplier through a joint venture between Hitachi,
which owned 55 percent, and Mitsubishi Electric Corp., which owned
the other 45 percent.
Founded in 1910 by Namihei Odaira as an electrical repair shop,
Hitachi—the name combined Japanese words for sun (“hi”) and rise
(“tachi”)—produced its firs automotive product in 1930, a generator.
Hitachi Automotive Products, set up as a separate division in 1985, was
only one of 10 U.S. subsidiaries and accounted for one-sixth of U.S.
sales.
336 Klier and Rubenstein

The name Mitsubishi was firs applied in 1874 to a shipping com-

pany originally called Tsukumo Shokai, launched in 1870 by Yataro
Iwasaki on the island of Shikoku. The company started out with three
steamships chartered from a powerful local clan called Tosa. Yataro’s
son Hisaya expanded into banking, real estate, marketing, and adminis-
tration into the twentieth century. After World War II, the company was
split into 139 companies, most of which abandoned the name Mitsubi-
shi. Motor vehicle parts production originated in 1934 at the predeces-
sor of Mitsubishi Heavy Industries. Motor vehicle electronics produc-
tion originated at the predecessor of Mitsubishi Electric Corp., founded
in 1921 to produce electric fans.

Engine Management

The most powerful computer on most cars is the engine control

unit, referred to here as “engine ECU” to avoid confusion with the elec-
tronic control unit, which is also abbreviated “ECU.” The engine ECU
is a special-purpose computer that manages such engine functions as
fuel injection, idle speed, and ignition timing. The engine ECU fire the
spark plugs, opens and closes the fuel injectors, and turns the cooling
fan on and off.
The engine ECU makes decisions through processing information,
for example, engine coolant temperature and amount of oxygen in the
exhaust, that it receives from sensors embedded in key engine com-
ponents. Based on information from input sensors, the computer de-
termines optimum settings for actuators that operate engine functions.
By accounting for many variables and compensating for behavior of
individual drivers, the engine ECU reduces engine emissions and fuel
consumption and extends engine life.
The principal incentive for electronic engine management has prob-
ably been stricter emissions laws. Controls were needed to regulate the
mixture of air and fuel so that the catalytic converter could remove pol-
lutants from the exhaust. Also driving growth in powertrain electronics
has been the replacement of mechanical power steering and throttles
with sensors and wires. Electronic throttle control uses sensors and
wires to control the throttle based on the pressure the driver puts on the
accelerator.
 The Driving Force: Electronics Suppliers 337

Rather than engine ECU specialists, engine electronics have been

integrated into production of mechanical components by large Tier 1
suppliers. Continental, Delphi, Denso, Robert Bosch, TRW, Valeo, and
Visteon have been major players in engine management electronics.

Wiring Suppliers

Electrical components get their power from a battery. Six-volt bat-

teries were sufficien to generate the electricity needed to run the hand-
ful of electrical components found in motor vehicles during the firs half
of the twentieth century. Twelve-volt batteries became standard during
the 1950s to handle the increasing number of power accessories appear-
ing in vehicles then.
As power consumption continued to increase by 5 percent per year,
conventional wisdom proclaimed during the 1990s that the twelve-volt
battery would soon be obsolete, to be replaced with a 42-volt battery.
Carmakers started announcing the imminent arrival of the 42-volt bat-
tery and ordered suppliers to plan accordingly. However, the 42-volt
battery was shelved because engineers figure out how to make the 12-
volt battery more efficien (Truett 2004).
The leading supplier of batteries has been Johnson Control (JCI), al-
ready described as one of the two leading interior suppliers (see Chapter
7). JCI entered the battery market through acquisition of Globe-Union
Inc. in 1978. The company sold 80 percent of its batteries to the af-
termarket (JCI 2006). In 2006, JCI formed a joint venture with Saft, a
French company specializing in the design and manufacture of high-
tech batteries. The venture combined Saft’s capabilities in lithium ion
technology with JCI’s automotive electronics capability in order to pro-
duce lithium ion battery packs and control systems for gasoline-electric
hybrid vehicles. Its firs manufacturing facility, located in France, was
up and running by early 2008. The venture also operates a battery tech-
nical development center in Milwaukee (Truett 2007b).
Power is carried from the battery to the components through the
vehicle’s wiring. Because of growing complexity of wiring, carmakers
have increased their sourcing of a platform’s complete wiring system
from a single supplier (Chew 2004b). Wiring suppliers have been asked
to design a complete system three years in advance of a vehicle launch.
The average entry-level vehicle had $315 worth of wiring in 2004, and
338 Klier and Rubenstein

high-end models had $757 (Chew 2004b). Although the amount of wir-
ing has increased rapidly in vehicles, prices have declined sharply.
The amount of wiring needed to connect all the convenience equip-
ment would be excessive. Inside the door, for example, wires would
be needed to connect power-window, mirror, lock, and seat controls.
To address the challenge of fittin more wiring into a fixe amount
of space, suppliers have used coaxial cable and developed fla wire. A
vehicle’s wiring is put together into a so-called wiring harness at a dedi-
cated supplier plant. The vast majority of wiring harnesses that end up
in vehicles made in North America have been produced in Mexico (see
Chapter 13). Vehicles may contain some two dozen modules, including
a central module called the body controller. For example, the driver’s
door contains a module that monitors all of the switches. Pressing the
window switch causes the door module to close a relay that provides
power to the window motor. “OEMs have packaging needs in headlin-
ers, dashboards and in the doors and mirrors, where traditional wiring
solutions won’t allow you to package.”4
The two leading suppliers of wiring in North America have been
Yazaki North America and Sumitomo. Both are Japanese owned.

Yazaki North America

Yazaki North America was the leading Japanese-owned electron-
ics supplier and second-largest of all Japanese-owned suppliers in the
United States, behind Denso. The company claimed to have invented
harnesses in 1929 to bundle together the large amount of otherwise cha-
otic wires that thread through motor vehicles and has been the world’s
leading supplier of wiring harnesses, with one-fourth of the world mar-
ket. Yazaki started selling harnesses in the United States in 1966 and
gained production capability through acquiring Circuit Controls Corp.
in Petoskey, Michigan, in 1987, and Elcom, Inc. and EWD Limited Li-
ability Co., both in El Paso, Texas, in 1988.

Sumitomo
Sumitomo Electric Industries was part of one of Japan’s largest en-
terprises, with interests in aerospace, chemicals, coal, finance forestry,
insurance, metals, real estate, and transportation, as well as electronics.
The company’s roots may go back further than those of any other parts
 The Driving Force: Electronics Suppliers 339

supplier, possibly to 1590, when Kyoto medicine and book shop owner
Masatomo Sumitomo is said to have opened an establishment to pro-
duce and sell copper items. The wiring operation began in 1897.

SAFETY SYSTEMS

A mid-twentieth-century auto industry “truth” was that safety didn’t

sell. GM president Alfred P. Sloan argued against installing safety glass.
“I do not feel that it is equitable to charge the General Motors stock-
holders with the cost of it [safety glass] if the public shows it is not
interested to pay a reasonable extra for it,” Sloan told shareholders in
1932. “And so far they have not evidenced that willingness” (Cray
1980, pp. 270–271).
In 1956 Ford heavily promoted “Lifeguard Design,” a package of
safety features that included seat belts, deep-dish steering wheel, and
sun visors. Ford’s safety campaign was an abject failure: Ford trailed
Chevrolet by 67,000 vehicles in 1955 and outsold it by 37,000 in 1957,
but in the safety campaign year of 1956, Chevrolet outsold Ford by
190,000.
Stung by consumer resistance, carmakers tried to make interiors
safer in ways that did not remind motorists of the dangers of driving or
require them to modify their behavior. Padded instrument panels, softer
edged trim, and blunter control buttons were marketed as comfort and
appearance features rather than for safety and did not require motorists
to change their behavior. The principal exception was seat belts, which
required drivers and passengers to take the action of clicking them into
position. With the increased diffusion of electronics, key safety innova-
tions in the late twentieth and early twenty-firs century have included
airbags in the interior, lighting in the exterior, and stability control in
the chassis.

Interior Safety

The interior safety system received the most improvements during

the twentieth century. The two principal interior safety features have
been seat belts and airbags.
340 Klier and Rubenstein

Seat belts
The firs automotive customers for seat belts were drivers of race
cars and other vehicles used in dangerous stunts and competitions. Irvin
Air Chute is said to have manufactured the firs automotive seat belts
for Barney Oldfield s Indianapolis 500 race car during the 1920s.
Dozens of suppliers began to make seat belts in response to Ford’s
1956 safety campaign. Seat belts were already being made for aircraft,
so early manufacturers of automotive seat belts included aviation sup-
pliers, such as Davis Aircraft and American Safety Equipment, as well
as Irvin. Brown Automotive and Superior Industries were also early
automotive seat belt manufacturers. After the campaign failed, seat
belt manufacturers turned to the aftermarket, where they were sold for
as low as $1 with private labels of such retailers as NAPA, Shell Oil,
Sears, and Pure Oil.
An intensive education campaign to promote the use of seat belts
was undertaken during the 1960s by the National Safety Council and
the Advertising Council, as well as by the American Seat Belt Council
(ASBC), a manufacturers’ association formed in 1961. The U.S. De-
partment of Transportation mandated seat belts in all cars beginning
in 1968. Once seat belts were installed in all new cars, the aftermarket
disappeared, leading to a consolidation into a handful of original equip-
ment manufacturers.
Despite the national seat-belt campaign, as well as intrusive warn-
ing bells and buzzers, few motorists bothered to use them. It took anoth-
er generation of driver education to make buckling up an unreflectiv
habit. Seat belt use increased from 12 percent in 1986 to 58 percent in
1994 and 82 percent in 2005 (Glassbrenner 2005).

Airbags
Officiall known by the more prosaic “Supplemental Restraint Sys-
tem” (SRS), airbags were developed during the 1960s, firs installed in
luxury vehicles during the 1970s, and required in all cars in 1998 (and
in other light vehicles in 1999). A crash sensor located in the front of
the vehicle detects rapid deceleration and sends a signal to activate the
inflato in 25 to 55 milliseconds.
When firs made available, the airbag was viewed with suspicion
by safety advocates because motorists did not have to do anything to
 The Driving Force: Electronics Suppliers 341

activate it. The ASBC-led seat-belt lobby feared that airbags would
be counterproductive to its campaign to promote universal use of seat
belts: motorists might incorrectly view the airbag as a substitute for the
seat belt. Once the major suppliers of seat belts also became the major
suppliers of airbags, the dispute dissipated. The ASBC expanded its
mission to include all forms of automotive occupant restraints and was
renamed the Automotive Occupants Restraint Council in 1988.
Suppliers of safety systems have consolidated into three major pro-
viders that together hold about three-fourths of the $3 billion North
American airbag market. Autoliv was the leading supplier of airbags
in 2005 with two-fifth of the North American market, followed by TK
and TRW, each with one-sixth of the market. Delphi, Key, and Toyoda
Gosei split most of the remainder of the airbag market. TRW was firs
and Autoliv second in seat belts.

Autoliv. Autoliv pioneered seat-belt technology in Europe in 1956,

and it started selling seat belts in the United States in 1993 and airbags
a year later. As Europe’s leading safety supplier, Swedish-based Autoliv
had played a major role in establishing the reputation for safety of its
fellow Swedish firm Volvo.
Autoliv became the U.S. leader when it acquired Morton Interna-
tional’s Automotive Safety Products division in 1997. Morton was well
known to U.S. consumers as the best-selling table salt. Expansion into
other products came through development of specialty chemicals, ad-
hesives, and coatings. Morton’s airbag research began in 1968 as an ex-
tension of interest in chemicals, and it produced the firs commercially
successful airbag system in 1980.
Autoliv further expanded its share of the safety restraint market
through acquisitions, including the seat-belt operations of the Japanese
company NSK in 2000 and the Restraint Electronics operations of Vis-
teon in 2002. Airbags accounted for about one-half of Autoliv’s sales
and seat belts for about one-third in 2003. It held about 30 percent of
the U.S. market for airbags in 2002, down from 44 percent in 1997, and
10 percent of seat belts.

TRW. TRW started producing seat belts in 1962 and airbags in

1989. It got into the seat-belt business through the acquisition of indus-
try pioneer Hamill Manufacturing from Firestone. Its airbag business
342 Klier and Rubenstein

was strengthened in 1996 through acquisition of Magna International’s

operations. TRW held about one-third of the airbag market in 1997 and
a higher share of the seat-belt market.

TK. Founded in 1933 by Takezo Takada to make textiles, TK start-

ed making seat belts in Japan in 1960 and in the United States in 1984.
Airbags were produced in Japan beginning in 1983 and in the United
States in 1992. TK Holdings had about one-fift of the U.S. market in
both seat belts and airbags.

Exterior Safety

Safety features added to the exterior have been far less controver-
sial than those in the interior. Lighting enabled the driver to see an oth-
erwise dark road and others to see an otherwise dark vehicle.
Oil lamps were firs attached to vehicles around 1902, and they were
replaced by acetylene gas lamps about four years later. Electric head-
lamps were introduced during the 1910s; filament were made initially
of carbon, then tungsten. The electric lamps were the firs headlamps
that were useful for illuminating dark roads. Hella introduced rear lights
in 1915, a red one for illumination and a yellow one for braking. Lamps
with sealed beams became the dominant design from around 1941 until
1983.
As nighttime driving became more common and roads more crowd-
ed, motorists complained that they were being blinded by oncoming
headlights. In response, manufacturers inserted a second filamen in the
lamp during the 1920s. The illumination of both filament was known
at the time as “driving or country beam.” When another car approached,
the driver used only the filamen projected lower and to the right, a posi-
tion then known as “passing beam.”
Exterior lighting is an important design element because it is a high-
ly visible component. During the 1950s, the twin filamen headlamp
was replaced with dual headlamps, one of which was always used (“low
beam”) and the other only on dark roads with no other vehicles in sight
(“high beam”). Meanwhile, rear lamps were integrated into the tailfin
of the era.
After spending much of the twentieth century developing uniform
lighting standards, manufacturers have replaced interchangeable round
 The Driving Force: Electronics Suppliers 343

headlamps with individualized styles and shapes. Unique irregularly

shaped exterior lights have given each vehicle a distinctive look, but
they are more expensive to replace than the uniform headlamps of the
past.
Into the twenty-firs century, exterior lighting suppliers faced two
particular issues. The firs was competition between halogen and xenon
headlamps. Halogen lamps, introduced in the 1960s, were cheaper and
easier to produce, but newer xenon lamps were more durable, brighter,
and color adjustable. It was generally assumed that xenon headlamps
would follow the traditional model of appearing on more expensive
models firs and eventually diffusing to lower priced models. However,
xenon headlamps cast a bluish light whose acceptance among consum-
ers was not assured.
The second distinctive issue faced by exterior lighting suppliers was
an adaptive front lighting system. On a curve, headlamps swiveled up to
15 degrees in the same direction that the steering wheel was turned. Two
types of adaptive lighting have been developed. One housed additional
bulbs in specially engineered reflector within the headlight lens assem-
bly. The other used motors and projector lenses to pivot the headlamps.
Swiveling headlamps diffused more rapidly in Europe, where roads are
more winding, while they remained illegal in the United States.
Three independent suppliers were the leading producers of head-
lamps in the United States between the 1920s and 1970s. Two were
the country’s dominant electricity pioneers, Westinghouse Electric Co.
and General Electric Co. Neither has remained a supplier of automotive
headlamps, although GE produced other components into the 1990s.
The third independent supplier, TungSol, stopped making automotive
light bulbs before World War II.5
During the height of vertical integration, Ford and GM produced
most of their own headlamps. Responsibility for making Ford’s head-
lamps passed to Visteon in the 1990s. GM obtained headlamps from its
subsidiary Guide Lamp, started in 1906 by Hugh J. Monson, William
F. Persons, and William Bunce in Cleveland, a center for manufactur-
ing automotive accessories, because no other lamp makers were there.
General Motors acquired Guide in 1928 and relocated lamp production
to Anderson, Indiana, a year later. A second Guide plant was opened in
Monroe, Louisiana, during the 1960s.
344 Klier and Rubenstein

Guide was especially buffeted by GM’s late twentieth century re-

structuring. GM merged Guide with Fisher Body in 1986 and with In-
land in 1990, then sold it in 1998 to Palladium Equity Partners L.L.C., a
New York leveraged-buyout fund management firm Guide then passed
to B.N. Bahadur, founder and principal of BBK, a Southfield Michigan,
consulting fir to troubled suppliers (Armstrong 2004d). Guide file
for Chapter 11 protection and disappeared as a major parts supplier.
German and Japanese companies have become the leading suppli-
ers of exterior lighting in the United States.

Osram Sylvania
The largest exterior lighting supplier, German-owned Osram Syl-
vania, with one-third of the world market, was created in 1993 when
Siemens’s Osram division acquired GTE’s Sylvania division. Osram
Sylvania has supplied the U.S. market primarily through imports. Its
major production facility in the United States was a 50–50 joint venture
with Valeo in Seymour, Indiana.
The word “osram” was coined in 1906 as a combination of “osmi-
um” (a metal) and “Wolfram” (German for tungsten). Siemens & Hal-
ske AG (now Siemens AG) gained control of Osram through a merger
with Osram’s original owner Auer-Gesellschaft and AEG in 1919. Wer-
ner von Siemens had been the firs German to produce a light bulb in
1880, one year after Edison.
Sylvania Products Co. was formed as a spin-off of Nilco Lamp
Works in 1924 to make radio tubes. Nilco (an acronym for Novelty
Incandescent Lamp Co.) had been established in 1906 to make nov-
elty lights as well as to recycle old light bulbs by cutting off the glass
tips, replacing the filaments and resealing the bulbs. Nilco merged with
Hygrade Incandescent Lamp Co. in 1931. Hygrade made carbon-fil -
ment light bulbs beginning in 1909 and tungsten filamen light bulbs
beginning in 1911. The combined company, called Hygrade Sylvania
Corp., sold lamps under the Hygrade brand and radio tubes under the
Sylvania brand. The company changed its name to Sylvania Electric
Products, Inc. in 1942, merged with General Telephone in 1959, and
became known as General Telephone & Electronics, later GTE.
 The Driving Force: Electronics Suppliers 345

Stanley Electric
The leading supplier of exterior lighting to Japanese-owned assem-
bly plants was Stanley Electric. Stanley Electric, founded in 1920, was
named by its founder Takaharu Kitano for Sir Henry Morton Stanley,
the nineteenth-century African explorer famous for rescuing Dr. Liv-
ingston. Stanley has constructed two plants in Ohio to supply Honda.

North American Lighting

North American Lighting was a joint venture created in 1983 to
supply Toyota and other Japanese-owned North American plants. It was
originally owned 50 percent by Hella, 40 percent by Koito Manufactur-
ing Co., and 10 percent by Ichikoh. Hella sold its shares to Koito in
1998.

Hella
Hella was founded in Germany in 1899 by Sally Windmuller to
make lanterns and bulb horns (cornets) for carriages and bicycles, as
well as cars. The “Hella” brand name was firs used in 1908 for acety-
lene gas headlamps. Hella opened its firs U.S. plant in 1980 in Flora,
Illinois, to serve Volkswagen’s Westmoreland plant that had opened two
years earlier. A second plant was opened in Detroit in 1983 to supply
relays and electronic control modules.

Stability Control

Electronics suppliers specializing in the chassis have focused on

electronic stability control (ESC), which uses sensors to work with the
brakes, steering, and suspension to make sure a vehicle keeps going in
the direction a driver intends and does not spin out of control (Lewin
2007). ESC compares the vehicle’s trajectory with what sensors say the
driver intended. If they differ, brakes are applied to one or more of the
wheels to reposition the vehicle back to the course intended by the driv-
er. The system uses two sets of sensors. One set measures the motion of
the vehicle, including acceleration and wheel and turning speeds. The
other set measures driver behavior, including steering angle and accel-
erator and brake pressure (Automotive News 2007c). “Electronic stabil-
346 Klier and Rubenstein

ity control is mostly a software add-on for cars with antilock brakes
because it uses the same sensors and actuators” (Lewin 2007).
In 2005, 40 percent of vehicles in Europe and 72 percent in Ger-
many had ESC. The U.S. market share was only 25 percent, although
it was expected to rise to 70 percent in 2010. The growth was expected
because of a 2006 U.S. National Highway Traffi Safety Administra-
tion recommendation that electronic stability control be mandatory for
all light vehicles sold in the United States starting with the 2009 model
year (Wernle 2006). “With one less CD player in the car and more ESC,
we might have several thousand fewer people killed on the roads.”6
The North American stability control market was, not surprisingly,
dominated by German companies. Continental had 40 percent of the
North American stability control market in 2005, Bosch 37 percent, and
TRW 7 percent.
Continental is one of the companies currently developing a brake-
by-wire system that it intends to introduce by 2010. According to the
company, the new system will be 30 pounds lighter than a hydraulic
brake system. Bernd Gombert, who developed the system for the com-
pany, said, “[W]e are concerned with intelligent electronics, but we
don’t want to build brake components” (Floerecke 2007).

INTERIOR CONVENIENCE COMPONENTS

Convenience was far down the to-do list for nineteenth-century motor
vehicles. In the absence of enclosed passenger compartments and wind-
shields, the top convenience items were sturdy outerwear and goggles.
Gauges and controls made vehicles more convenient to use into the
twentieth century. A speedometer, an odometer, a fuel level gauge, and
a clock became common during the 1910s. Gauges were soon added
to show oil pressure, engine temperature, and battery amperage. Con-
trols also proliferated, beginning with the starter, lights, and ventilation.
These gauges and controls at firs were bolted to the body almost as
afterthoughts, but during the 1910s they were integrated into the design
of the interior.
With the essential operating equipment set in place and standard-
ized by the 1920s, carmakers started loading up the interior with fea-
 The Driving Force: Electronics Suppliers 347

tures that enhanced comfort and convenience rather than performance.

The most notable addition during the 1920s was the nation’s brand-new
medium of popular entertainment, the radio. Another burst of conve-
nience features appeared after World War II, most prominently power
assists for windows, door locks, and seat adjusters.
Carmakers have struggled to fin entirely new realms of comfort
and convenience beyond the entertainment and power assists of earlier
generations, but they have continually refine the details of the features.
The most significan change, especially during the 1980s, was replace-
ment of large clunky motors with electronics, enabling more features to
be packed into the limited interior space.

The Control Center: Cockpit

Across the front of the passenger compartment, beneath the wind-

shield, is a plate, known for most of the twentieth century as the dash-
board. The dashboard—originally stamped from steel and more re-
cently molded from plastic—contains cutouts so that other parts can
be inserted. A cluster of gauges and switches, known as an instrument
panel, is mounted on the driver’s side of the dashboard.
“Instrument panel” and “dashboard” sound too old-fashioned to de-
scribe twenty-first-centur interiors. Carmakers and suppliers prefer to
use the term “cockpit,” following a long tradition of trying to closely
align the driving experience with piloting an airplane. “Instrument pan-
el” lingers as a term for the portion of the cockpit in front of the driver,
but many of the “cockpit” controls are actually housed in the center
console or driver’s door.
Electronics contribute an estimated 44 percent of the value of the
cockpit. The instrument panel monitors a communications bus that
sends updated information, such as speed and temperature, several
times a second to the appropriate gauge. One-half of the vehicle’s total
wiring is packed into the cockpit. The molded plastic housing of the
dashboard comprises only about 3 percent of the value of a cockpit.
Heating and cooling systems contribute an estimated 23 percent of the
value of a cockpit, trim 21 percent, and safety restraints 9 percent (CSM
Insights 2001).
Like seats, instrument panels and dashboards were traditionally put
together on the fina assembly line from a large collection of individual
348 Klier and Rubenstein

parts. “Outsourcing a module such as the cockpit would mean major

changes for Nissan’s supply base. Currently [1999], Nissan itself is the
gathering point for the dozens of subcomponents that go into the cock-
pit.”7 One-fourth of cockpits were being delivered in 2005 by outside
suppliers as complete modules ready for installation. These cockpit mod-
ules integrated so-called infotainment components with HVAC compo-
nents in the center or “mid-console” part of the instrument panel.
As with other modules, fina assembly is made more efficien by
replacing dozens of individual components with a single installation. In
addition to gauges and panels, a cockpit module may also include the
heating and cooling system, safety restraints, and the audio equipment.
More importantly, though, the cockpit replaces components that were
among the most difficul to install, because they went in places difficul
for fina assembly workers to reach.

Speedometers. Early motor vehicles were capable of moving much

faster than the pedestrians, horse-drawn carriages, streetcars, and as-
sorted chickens, dogs, and pigs then fillin the roads. Taking advantage
of that capability, early motorists—often selfis rich young men inex-
perienced at driving—often plowed through the teeming throngs at high
speed, frightening and scattering them.
To facilitate sharing of the increasingly crowded roads, many U.S.
localities enacted speed limit laws during the firs decade of the twen-
tieth century, and European countries updated nineteenth-century laws.
To obey speed limits, motorists needed a device to show how fast their
vehicles were moving. Credit for inventing the speedometer is disputed.
Numerous Web sites carry the following identically worded paragraph.
“The Chinese invented the speedometer. In 1027, Lu Taolung presented
the Emperor Jen Chung with a cart that could measure the distances it
spanned by means of a mechanism with eight wheels and two moving
arms. One arm struck a drum each time a ‘li’ (about a third of a mile)
was covered. Another rang a bell every 10 li.”
Nice story, but that sounds like an odometer, not a speedometer,
and the odometer is said by the Encyclopaedia Britannica to have been
invented by Roman architect and engineer Vitruvius in about 15 BCE.
Vitruvius is said to have attached to a wheel of known circumference
a wheelbarrow-like frame that automatically dropped a pebble into a
 The Driving Force: Electronics Suppliers 349

container upon each revolution of the wheel. The odometer may be the
third-oldest car part, following the wheel and the seat.
As for the disputed speedometer, Warner Electric Co., part of Altra
Industrial Motion, credits its founder, Arthur Pratt Warner (1870–1957),
with the invention. Warner is said to have invented the speedometer that
became “the industry standard” while serving as vice president and gen-
eral manager of Warner Electric between 1903 and 1912. Overland is
said to be the firs U.S. car to have a speedometer as standard equipment
in 1908. Warner, based in Beloit, Wisconsin, became the largest U.S.
manufacturer of speedometers. Reorganized in 1912 as the Stewart-
Warner Manufacturing Co., the company, now known as Stewart
Warner Performance, specializes in industrial clutch and brake technol-
ogy rather than car parts (Warner Electric 2005; Wisconsin Historical
Society 2007).
Electrical engineer Nikola Tesla (1856–1943) is also credited with
inventing the speedometer. Tesla, best known for inventing alternating
current, is said by a number of sources to have invented the speedom-
eter in 1916 (e.g., Autotech 2004; DASH Electronics and Speedometer
n.d.; Electroherbalism 2007; U-S-History.com 2005). No information
is given in these Web sites that Tesla ever manufactured or sold his
invention.
Meanwhile on the other side of the Atlantic, Continental company
history suggests that the speedometer was patented in 1902 by Otto
Schulze, an engineer from Strasbourg, now in France, then in Germany.
The date is earlier than the Warner and Tesla claims, but the production
predecessor of Continental did not start manufacturing speedometers
until the 1920s, two decades after Warner.
Schulze’s “eddy current” speedometer had a shaft attached to a
wheel at one end and a magnet at the other end. As the shaft revolved
at a particular speed, a metal disc close to but not touching the magnet
also turned, but only by a few degrees because a spring prevented it
from rotating the full 360 degrees. A pointer attached to the metal disc
indicated the speed. Production of the Schulze eddy current speedom-
eter began in Germany in 1905. The speed of the wheel’s rotation was
transmitted to the speedometer by means of an electric signal across
a wire beginning in the 1950s, and electronically via a computer chip
beginning in the 1980s (Siemens VDO 2002).
350 Klier and Rubenstein

Continental
Regardless of the speedometer’s origin, the leading supplier of
cockpit modules into the twenty-firs century was Continental AG,
Germany’s second-largest parts maker behind Robert Bosch. Continen-
tal gained its leadership position by acquiring Siemens VDO in 2007.
Siemens VDO in turn was formed through a 2001 merger between Sie-
mens Automotive AG and Mannesmann VDO.
Speedometer expertise came through VDO. VDO’s predecessor
Otto Schulze Autometer (OSA), established in 1920 by Adolf Schin-
dling, Georg Häußler, and Heinrich Lang, started making speedometers
in 1923. OSA (known after 1925 as OTA) merged in 1928 with another
speedometer specialist, Deuta Werke, to form VDO Tachometer AG—
an acronym for Vereinigte Deuta OTA (union of Deuta and OTA). Man-
nesmann AG gained majority control of VDO in 1991 and completed
the takeover in 1994.
Competitors in supplying cockpit modules were the two down-
sized former captive suppliers Delphi and Visteon, as well as major
interior suppliers JCI and Lear. A joint venture of Valeo SA and Textron
Automotive formed in 2000 was also a major cockpit supplier. Textron
provided the instrument panel and trim and Valeo the electronics and air
conditioning (Miel 2000).

Infotainment Center: Not Just a Radio Anymore

By the Roaring Twenties, with vehicles mechanically sound and

reasonably reliable, motorists were ready for more creature comforts.
Passenger compartments were enclosed, and outfitte with sofalike
seating. Vehicle interiors were ripe for marriage with the new medium
of mass entertainment then sweeping America, the radio.
Like the speedometer, the car radio also has a disputed origin. Mo-
torola, produced by Galvin Manufacturing Corporation, has been most
commonly cited as the firs practical car radio, meaning affordably
priced for most motorists, in 1928. Philadelphia Storage Battery Cor-
poration, generally known as Philco, sold a radio called Transitone for
use in a car two years earlier. As noted in Chapter 2, Bill Lear claimed
to have made the firs car radio back in 1922, before assigning the rights
to Motorola.
 The Driving Force: Electronics Suppliers 351

No matter who created it, the car radio diffused quickly, essentially
simultaneously with the spread of radio for home entertainment. A ra-
dio was an option on most new cars during the early 1930s, despite
costing more than $100, and by the time automotive production was
halted for World War II, radios were being installed in all but the cheap-
est models.
Additions to the basic prewar AM radio included push buttons for
tuning in favorite stations during the 1950s, FM band during the 1960s,
stereo speakers during the 1970s, tape decks during the 1980s, CD play-
ers during the 1990s, and satellite receivers during the 2000s. Through
all of these technological updates, audio equipment has retained the
prominent position accorded to it in the center of the dashboard.
Audio systems have been integrated with information services, a
combination now known as infotainment or telematics. Telematics sys-
tems combine radio with navigation devices, DVDs, GPS systems, traf-
fi reports, voice-activated cellular phones, and MP3 players.
Early radios were made by independent suppliers, including Radio
Corporation of America (RCA) and Zenith Corporation, as well as Philco
and Galvin (the company name was changed to Motorola in 1947). To
make its own radios, Ford acquired Philco in 1961, but sold it in 1974 to
GTE-Sylvania, now part of Philips. GM’s Delco Radio Division made
radios at a plant in Kokomo, Indiana, acquired from Crosley Manufac-
turing Co. in 1936. The division’s successor, Delco Electronics System,
became part of Delphi.
The car radio business is still dominated by Ford and GM’s spun-
off parts divisions, Visteon and Delphi. Chrysler also used to make its
own radios but sold its plant in Huntsville, Alabama, to Siemens VDO
in 2004. The acquisition gave Siemens VDO 6 percent of the U.S. radio
market and made it the largest supplier of electronics to Chrysler.

Panasonic
Panasonic, a division of Matsushita Electric Industrial Co. (MEI),
was the leading automotive audio equipment supplier in North America,
especially to international carmakers. MEI, founded in Japan in 1918,
firs used the brand name Panasonic in 1955 to market radios in North
America. In 2003, MEI applied the Panasonic name to a division that
consolidated the development, manufacturing, and sales functions of
fiv Japanese electronics firms Automotive Multimedia Co., AVC Co.
352 Klier and Rubenstein

Automotive Systems, Kyushu Matsushita Electric Co., Ltd. (KME),

Matsushita Communication Industrial Co. (MCI), and MEI Automo-
tive Electronics Business Promotion Center and Corporate Automotive
Electronics Marketing Division.

Continental
Discussed earlier in the chapter as the leading supplier of cockpits,
Continental acquired Motorola’s automotive electronics business for $1
billion in 2006. The acquisition gave Continental additional capabilities
in electronics for powertrain and chassis systems and made it the lead-
ing telematics producer worldwide. Continental was the main supplier
for GM’s OnStar technology, and it developed a telematics product for
Ford, called “Ford SYNC.” Continental designed and manufactured the
hardware, and Microsoft designed the software (Snavely 2007b).

OUTLOOK AND UNCERTAINTIES: WILL THE TAIL WAG

THE DOG?

The increasing importance of electronics in future motor vehicles is

a given. What is up for grabs is control over the provision of the electron-
ics. A four-way battle is being waged among vehicle producers, parts
producers, hardware producers, and software producers. Along the way
we are observing some interesting combinations of different players.
A case in point was the Ford SYNC system, which linked telephones,
MP3 players, and other devices to car electronics. The major contribu-
tors were Microsoft, which provided the operating system, Continental,
which provided the electronic hardware, and Ford, which provided the
automotive technology (Automotive News 2007d).
Vehicle producers have traditionally played the dominant role in
the production process. Carmakers that took the early lead in provid-
ing electronics, notably German luxury brands Mercedes-Benz and
BMW, stamped their own names on elaborate driver information cen-
ters. However, these driver information centers proved too complex for
most drivers and dragged down quality ratings. BMW’s iDrive “is so
complicated that even BMW’s own executives have had trouble learn-
 The Driving Force: Electronics Suppliers 353

ing how to use it” (Teich’s Tech Tidbit 2003). To change the radio, “Tug
the controller back, rotate it clockwise two clicks, depress it, rotate it
clockwise two more clicks, depress it again and then, finall , rotate the
knob to your desired station. Got it? That’s six steps—assuming you
know the right path—all while looking at the display instead of the road
ahead” (Bornhop 2002). The question, then, is not if electronics will
play an increasingly important role but whether carmakers can success-
fully integrate the electronics functions.
Traditional vehicle parts suppliers have played an increasing role
in provision of all systems, including electronics. The in-dash radio has
long carried the brand name of the parts maker, as have navigation de-
vices and cell phones more recently. Roland Berger forecast in 2000,
“Because only a few electronics suppliers will be able to shoulder the
huge capital investments required to develop new products, OEMs will
have to source most of their electronics from only a few key suppliers.
And as the value of outsourced electronics increases, the value of OEM
content will decline, increasing the suppliers’ bargaining power” (Crain
2000).
Martin Anderson of Babson College predicted in 1997, “‘We will
see the Hewlett-Packards and IBMs of the world among the major auto-
motive suppliers. And we will see a power struggle between carmakers
and software suppliers over who owns the software architecture of the
car . . . If you can update an engine’s performance by downloading a
new software program,’ Anderson asked, ‘whose engine is it?’” (Chap-
pell 1997). We might also ask, will the consumer be aware of such link-
ages? The computer on which this book was written features a label that
states “Intel inside,” but motor vehicle cockpits do not yet announce
“Infineon or “Freescale” inside.
IBM predicted in 2005 that, by 2010, “almost all cars will have
essentially the same mechanical systems. What will make the cars dif-
ferent will be software that operates the systems in ways specifi to the
brand of car” (Moran 2005). The world’s dominant software provider,
Microsoft, gained its firs visibility in motor vehicles with a deal to
brand Fiat’s driver information center. Microsoft is counting on driv-
ers increasingly insisting on connectivity with their computers, most of
which prominently display the Microsoft name. “What we are looking
at really is the car as a mobile PC . . . It is about the digital lifestyle and
integration between the car, offic and home.”8
354 Klier and Rubenstein

Which suppliers will become the major providers of electronics

going forward is not obvious. At stake are not merely the billions of
dollars in manufacturing contracts, but even more important, the elec-
tronics provider’s visibility to the consumer, and ultimately its brand
recognition.
Notes

1. Martin Anderson, director of supply chain programs, Babson College, quoted in

Chappell (1997).
2. Dave Royce, Siemens VDO Automotive Corporation North American corporate
strategy head, quoted in Kosdrosky and Snavely (2004).
3. The top seven in 2004 in terms of world share were Freescale Semiconductor (12
percent), Infineo (9 percent), STMicroelectronics (8 percent), Renesas (7 per-
cent), NEC (6 percent), Bosch, and Toshiba (Webber 2005a).
4. James Spencer, president, Delphi Packard Electric Systems, quoted in Chew
(2004b).
5. Letter from David R. Dayton, a lamp engineering consultant for incandescent
and halogen lamps, to the U.S. Department of Transportation Document Man-
agement Section, October 17, 2001, accessed at http://dmses.dot.gov/docimages/
pdf75/147722_web.pdf.
6. Manfred Wennemer, CEO Continental, quoted in Landler (2005).
7. Emil Hassan, Nissan North America senior vice president, quoted in Chappell
(1999).
8. Manuel Simas, Microsoft European automotive business development manager,
quoted in Mackintosh (2006).
 15
Conclusion: Surviving the Car Wars

[Consumers and investors] are looking at Detroit and say-

ing . . . get real . . . quit your crying, work together to fix your
problems or get out of the way.1

This book was written to shed light on the manufacturers of motor

vehicle parts. Parts suppliers employ far more people and add much
more value to the vehicle than do carmakers. Yet our understanding of
the parts makers is quite limited.
We know much more about the identity and struggles of the com-
panies whose names are on the vehicles. Much is written about the his-
tories of the companies and their leaders, the features of their brands,
and the distinctive assets and the challenges of each. But vehicles are
made of thousands of parts about which we know relatively little. Who
are the companies that made all of these parts? How do they relate to
one another and to their customers, the carmakers? And where are these
parts made?
The U.S. auto industry through most of the twentieth century con-
sisted of three major carmakers responsible for making most of their
own components, supplemented by thousands of mostly small parts
suppliers. In the twenty-firs century, the number of major carmakers
competing in the United States has increased with the addition of for-
eign-owned carmakers, and many suppliers have become major players
in the vehicle production process.
Thus, the relationship between carmakers and suppliers has been
transformed from a hierarchical one, with a steep pyramid shape, to
a complex Venn diagram of interrelations among many competitive
carmakers and many competitive suppliers. “Those are very difficul
relationships to manage . . . People within the OEMs just are not trained
to manage these relationships” (McKinsey & Company Automotive &
Assembly Extranet 2005, p. 4).

355
356 Klier and Rubenstein

The role of parts makers has evolved as substantial changes have

occurred in the motor vehicle industry as a whole. Some of the most
important changes include
• a shift from in-house production of parts by carmakers to out-
sourcing to independent suppliers;
• a smaller number of Tier 1 suppliers working directly with the
carmakers;
• a complex supply chain of Tier 2 suppliers working with Tier 1
suppliers, Tier 3 suppliers working with Tier 2 suppliers, and so
forth;
• an increase in the demand for just-in-time delivery of parts to the
fina assembly plant; and
• a quickening pace of technological change, especially in areas
of energy conservation, reduced emissions, and enhanced safety,
partly driven by regulatory requirements.
“‘Relentless’ and ‘brutal’ are the two words most often used to de-
scribe competitive pressure in the automotive supply chain. Battered by
global over-capacity, shorter model lifecycles and seemingly permanent
rebates of up to $5,000 per car, automakers are passing the pain—with
interest—on to their suppliers” (Murphy 2004). Given these competi-
tive pressures, a good relationship with its supply base represents one of
the most significan competitive advantages a carmaker can have.
A good relationship with suppliers is a central element of the com-
petitive advantage in the U.S. market held by Japanese carmakers, es-
pecially Toyota. Most succinctly, SupplierBusiness.com cites two basic
models for carmaker–supplier relationships: the command and control
contract (or adversarial) model preferred by the Detroit 3 and the col-
laborative (or partnership) model preferred by Japanese automakers
(Snyder 2005).
Time and time again during the course of this study, suppliers have
repeated in private that relations with the Detroit 3 are poor, especially
in comparison with their Japanese customers. Supplying the Detroit 3
calls for “testosterone games to see who can squeeze more, pay more
slowly, or demand extortion—uh, excuse me, productivity.”2
The Detroit 3 model of supplier relationships has been one of “exit”
and the Japanese model one of “voice,” according to economists Susan
 Conclusion: Surviving the Car Wars 357

Helper and John Paul MacDuffie The Detroit 3’s exit model has been
characterized by “short-term relationships, limited amounts of collabo-
ration, and the willingness of either party to ‘exit’ the relationship for
short-term gain.” The Japanese model has been characterized by “lots
of collaboration (with supplier ‘voices’ being heard)” (McKinsey &
Company Automotive & Assembly Extranet 2005, p. 1).
Differences in quality and efficienc between Japanese and U.S.
carmakers observed in the twentieth century have narrowed if not dis-
appeared altogether in the twenty-firs century. The principal measure
where the gap between Japanese and U.S. carmakers has widened in the
twenty-firs century is in supplier relations.

SUMMARY OF FINDINGS

This book set out to document the existing structure of the North
American motor vehicle parts industry. The key to the analysis was
creating a database that allowed us to describe and analyze the industry
at an unprecedented level of detail. The ability to draw on a database
of 4,268 individual parts-making plants in North America, including
plant-level geography and product information, allowed us to analyze a
little-known industry at a rich level of detail. We have identifie several
major trends currently shaping this industry.
• Role of the Midwest. Most parts for motor vehicles were once
made in and near southeastern Michigan. The area has lost its
dominance in parts production, but it is still home to the largest
number of plants. Most of the parts for the powertrain and ex-
terior continue to be made in the Midwest because the parts are
relatively bulky and are most efficientl produced near sources
of both inputs (especially steel) and customers.
• Carmaker–Supplier Networks. Most parts need to be produced
within a one-day delivery radius of the customer in order to ensure
arrival at the fina assembly plant on a just-in-time basis. Only a
handful of parts, though, need to be produced right next door to
the fina assembly plant. The seat is the single most prominent
example of a major module that is invariably made within one
358 Klier and Rubenstein

hour of the fina assembly plant. Carmakers and suppliers depend

on logistics specialists to coordinate the flo of information and
goods within a network.
• Auto Alley. The U.S. motor vehicle industry is still highly clus-
tered, but it is now located in a narrow north–south corridor
known as Auto Alley. The industry’s traditional Midwest core
now forms the northern end of Auto Alley. It is still home to most
facilities operated by the Detroit 3 carmakers. But newer plants
have headed south within Auto Alley, especially those operated
by foreign-owned companies. The primary reason for selecting
a southern location within Auto Alley has been to minimize the
likelihood of a unionized workforce. Southern plants have some-
what lower wage scales, but the principal benefit have been
much lower benefi packages and more flexibl work rules.
• Global Shifts. The percentages of parts made outside the United
States and inside the United States by foreign-owned companies
have increased. Production of relatively bulky, low-value inte-
rior and exterior systems has been less likely to leave the United
States. Instead, motor vehicle parts imports have grown for both
high-value powertrain modules (e.g., complete engines and trans-
missions) and low-value, high-labor-content routine electronics
parts.

OUTLOOK AND UNCERTAINTies FOR PARTS SUPPLIERS

On paper, the U.S. auto industry looked set to prosper in the twenty-
firs century. New vehicle sales in the United States remained at histori-
cally high levels through the 1990s and into the twenty-firs century.
Despite globalization of the industry, most vehicles sold in the United
States were still being assembled in the United States from parts made
mostly in the United States. In 2008, news stories suggested that a Chi-
nese automaker is planning to assemble cars in North America (Ying
2008).
The supplier sector of the industry looked to be prospering as well.
As this book has shown, suppliers were already responsible for adding
 Conclusion: Surviving the Car Wars 359

two-thirds of the value to vehicles in the early twenty-firs century, and

the share was expected to rise. Having been given more responsibility
by carmakers, suppliers have evolved into providers of complex manu-
facturing tasks that required their own research and development.

Buffeting Headwinds

Though the overall industry conditions appear favorable for parts

producers, in reality individual motor vehicle parts producers had to
navigate a challenging course to survive in a competitive environment.
The parts industry based in North America has been buffeted by what
billionaire investor Wilbur Ross (2006) has called “the perfect storm.”
Key elements of what could be more modestly described meteorologi-
cally as strong headwinds include:
• Shifting Market Shares. Parts suppliers live and die by the for-
tunes of the carmakers. Suppliers dependent for their business
primarily on the Detroit 3 carmakers have had to quickly adjust
to a sharp decline in volume, more than 3 percent annually in
the firs decade of the twenty-firs century. Conversely, suppli-
ers dependent on foreign-owned carmakers have had to quickly
respond to a corresponding increase in volume.
• Globalization of Supply Chains. Suppliers producing com-
modity or generic parts are facing increased competition from
producers located in low-wage countries such as China. On the
other hand, suppliers producing high-tech and research-intensive
parts face increased competition from European and Japanese
suppliers with close ties to foreign-owned carmakers.
• High Cost of Inputs. The motor vehicle industry is the major
manufacturing destination for steel, glass, aluminum, rubber, and
a host of other materials, not to mention petroleum. Rising costs
for these materials have been borne primarily by suppliers. As
carmakers expect suppliers to lower the price of their product
annually over the life of the contract, passing on cost increases to
carmakers is next to impossible.
• Technological Changes. In many instances technological chang-
es are driven by regulatory requirements, such as safety and
emission standards. Some technological improvements, such as
360 Klier and Rubenstein

more efficien internal combustion engines, are incremental and

are being pursued by existing suppliers. New technologies, such
as hybrids, electric, fuel-cell, and other alternative-fuel vehicles,
are potentially much more disruptive to the existing supply chain.
New suppliers will compete to provide new technology. A tech-
nological breakthrough can therefore have major implications
for Auto Alley because it is not certain that new suppliers will
feel compelled to locate in the traditional production region.

Supplier Restructuring

The consequences of Ross’s “perfect storm” have been severe for

some parts suppliers.

Bankruptcy
Twenty-fiv suppliers ranked among the 150 largest file for Chap-
ter 11 bankruptcy protection between 1999 and early 2008. Suppli-
ers dependent on the Detroit 3 have been especially vulnerable. “As
Detroit’s auto makers struggle with slowing sales, a slew of the parts
manufacturers who depend on them have skidded into financia trouble.
Several already have sought bankruptcy protection and others are rac-
ing to fi debt-laden balance sheets” (Pacelle 2005). “The lenders are
very leery of people in the automotive parts business. They think the car
companies are killing the suppliers.”3 Filing for Chapter 11 can serve as
a backstop for a beleaguered company, providing some breathing room
for its restructuring. In the case of Dana, it worked out that way. The
case of Collins & Aikman illustrates, however, that restructurings can’t
always be pulled off. Having file for bankruptcy and unable to emerge
with a workable business plan, the company went out of business.

Private equity investment

Equity investment firm owned 25 percent of industry revenues in
2007, according to management consultancy fir AT Kearney, and the
figur was expected to rise to 36 percent in 2010 (Simon 2007b). Ma-
jor players have included Blackstone Group LP, Carlyle Group, Cer-
berus Capital Management, Heartland Industrial Partners, and Questor
Management Group. They have specialized in applying state-of-the-art
management practices to struggling undervalued and underperforming
 Conclusion: Surviving the Car Wars 361

suppliers. Capital is provided to fi these struggling parts makers, usu-

ally in order to generate quick profits In some cases, the massive invest-
ment is designed to be recovered by a public sale of shares to investors.
“The growth of control by investment firm is bound to raise concern
at the Detroit 3, which have traditionally been uneasy with such deals.
Automakers worry that financia returns for these owners will take pri-
ority over quality and delivery, said a spokesman for one car company”
(Sherefkin 2001).

Restructuring labor contracts

With a rising share of motor vehicle production undertaken by non-
union labor, both at home and abroad, owners of unionized plants have
argued that their labor costs need to be reduced. For their part, union
leaders have accepted the argument that protecting jobs and pensions
required them to offer concessions. Suppliers have introduced two-tier
wage structures, placing newly hired employees on a lower scale than
veterans. Buyouts have been offered to entice voluntary retirement
by long-term employees. Especially intractable has been the desire
of employers to reduce their legacy costs, that is, their responsibility
for retiree health-care and long-term disability benefits Establishing a
union-managed voluntary employees’ beneficiar association (VEBA)
was one way to shift responsibility from the company to separate man-
agement, such as the UAW.4

Survival Strategies

Successful suppliers are adopting one of three business models: sys-

tems integrator, high-tech module developer, or low-cost parts provider.
“Trying to combine all three in one corporate structure will be futile.”5
Two of these three business models are typical of many industries: com-
panies often choose between trying to be the most efficien low-cost
producer or the most advanced high-tech producer. In the auto industry,
carmakers have also opened the door to the systems integrator.

Systems integration
Systems integrators benefi from having relatively low manufactur-
ing and research and development costs. As they bring together modules
and components provided by other suppliers, they add value through
362 Klier and Rubenstein

efficien management and cost control. Magna International, an espe-

cially exuberant proponent of systems integration, started calling itself
a Tier 0.5 supplier, and even trademarked the term Tier 0.5. Ignoring
Magna’s trademark, other suppliers began to call themselves Tier 0.5 to
promote their ability to design and manufacture entire vehicle systems
(Chappell 2002).
Becoming a systems integrator has attracted many suppliers, who
have been encouraged by carmakers wishing to deal with fewer larger
suppliers, but some financia analysts have questioned the model’s log-
ic. A study by Booz Allen Hamilton compared the returns on investment
of highly specialized suppliers and broad-based system suppliers with
the industry average. For many companies, the time and effort invested
in becoming a system supplier failed to produce the desired effect. “All
too often, activities are merely transferred from automaker to supplier
with no gain in efficienc . In fact, some tasks of system integration can
be handled far more efficientl by the automaker. The automaker, after
all, is responsible for the vehicle concept” (Ziebart 2002).

High-tech suppliers
The second survival approach for suppliers is to develop unique
technologies. Especially attracted to this business model are technol-
ogy-oriented suppliers. Increased electronics content is especially im-
portant to high-tech suppliers. “Companies that develop features their
customers will pay a premium price for will win. For example, there are
more and more sensors and actuators. The whole market in the devel-
oped countries has gone nuts relative to driver features such as power
sliding doors in minivans. You’ve got this huge motors market.”6
Examples of high-tech module specialists are Autoliv and Freuden-
berg-NOK. Freudenberg-NOK was the largest supplier of engine seals
and the world’s largest producer of molded rubber products other than
tires. The company prides itself on its “laser-sharp focus on the core
competencies of sealing, vibration control and elastomeric technolo-
gies” (Freudenberg-NOK 2007). Autoliv was the leading supplier of
airbags in the United States and worldwide. Their firs product was lo-
cated inside the steering wheel to protect the driver. Additional airbags
have been located in the instrument panel in front of the passenger, at a
lower level to protect knees, and as “curtains” along the sides of the in-
terior. Each successive airbag system developed has generated revenue
 Conclusion: Surviving the Car Wars 363

for Autoliv and its competitors. “[D]river and passenger airbags have
become a commodity. But extra airbags, such as side curtains or knee
bolsters, are promoting growth for companies such as Autoliv Inc.”7

Low-cost suppliers
Meanwhile, some contrarian suppliers are findin success by fol-
lowing the industry’s traditional model of producing generic parts and
components. “It’s hard for a supplier to survive just building to the
automaker’s design. There’s nothing setting you apart. You’re just com-
peting on price, and that’s really hard.”8 Even though it is “really hard,”
the strategy is working for some suppliers. They gain contracts through
low-price bids, build revenues through large-volume production of
specifi parts and components, and earn profit through lean manage-
ment and efficien operations. Suppliers with revenues between $50 and
$200 million “are poised to emerge as industry stars” (Kosdrosky and
Snavely 2005).
Many of the parts makers adhering to the “efficiency model have
moved down the supply chain to lower tiers. A thriving practitioner of
this model, Illinois Tool Works, made door handles, seat latches, and
hundreds of generic “bin” parts for motor vehicles, as well as a wide
variety of parts for consumer and industrial applications. The company
has earned a profi through efficien management practices, notably de-
centralizing operations to several hundred autonomous business units
while maintaining an exceptionally lean central staff.

OUTLOOK AND UNCERTAINTIES FOR COMMUNITIES

The twenty-first-centur auto parts industry in the United States is

concentrated in a region known as Auto Alley, a 700-mile-long north–
south corridor through the interior of the United States between the
Great Lakes and the Gulf of Mexico, with extensions into Canada and
Mexico. This book presents the contemporary Auto Alley as the sum of
a complex web of relationships between carmakers and their suppliers.
364 Klier and Rubenstein

Changing Shape of Auto Alley

Within Auto Alley are situated most of the country’s fina assembly
plants, but the shape of Auto Alley has been evolving in the twenty-firs
century.

Traditional clustering in Michigan

For most of the twentieth century, the motor vehicle industry was
highly clustered in and near southeastern Michigan. The area’s preemi-
nence in the auto industry derived from the emergence of Ford, GM, and
Chrysler, which were all based there. For most of the twentieth century,
the Detroit 3 produced nearly all of their parts in and near southeastern
Michigan, although they assembled most of their vehicles elsewhere.
Thus, the preponderance of Michigan’s Detroit 3 auto jobs have tradi-
tionally been in parts-making facilities.

Geographical implications of market shifts

Into the twenty-firs century, the declining fortunes of the Big 3—
now more modestly known as the Detroit 3—have brought declining
fortunes to Michigan’s economy. Michigan was losing 6 percent of its
auto industry jobs annually in the firs years of the twenty-firs century.
During the twentieth century, Michigan’s motor vehicle employment
frequently declined, but with very few exceptions, these were all tem-
porary or cyclical declines: workers were laid off during slow-selling
years and hired back during boom years. In contrast, Michigan’s job
losses in the early twenty-firs century were structural in nature. Be-
cause of the changes discussed in this book, the jobs lost during this
time period were not going to return. This represented a stunning re-
versal of the late 1990s during which the auto industry was booming.
Michigan had to adjust to this harsh new reality. Its implications for fu-
ture vehicle employment in the state have been difficul for Michigan’s
citizens and policymakers to recognize and accept.
Management and technical operations have remained in the Detroit
area, but the growth in production employment has been further south
in Auto Alley. Ironically, as the Detroit 3 made the necessary capacity
reductions at plants at the periphery of their footprint, they were more
concentrated at the northern end of Auto Alley at the beginning of the
twenty-firs century than they had been for many decades.
 Conclusion: Surviving the Car Wars 365

Carmaker–supplier networks
The tightness of an assembly plant’s network of suppliers deter-
mines that plant’s regional economic footprint. Surrounding each of
these assembly plants is a supplier network extending, for the most part,
to within a one-day shipping distance as a result of widespread adoption
of just-in-time delivery. However, just-in-time does not mean that sup-
pliers must be located immediately next door to fina assembly plants.
In fact, most of the supplier networks extend far beyond the immediate
vicinity of an assembly plant.

Location by type of part

Just-in-time doesn’t mean the same geographical arrangement for
each type of part. Rather, the specifi geography of the supplier rela-
tionship is heavily influence by the nature of the part being produced.
Parts can be classifie as those that need to be made within an hour or
so of the fina assembly plant, those that need to be within a one-day
drive, and those that can be made further away. Seats are nearly always
produced within an hour of an assembly plant. Sequencing and kitting
operations are also located in a very close vicinity. At the other end of
the distance spectrum, most electronics parts are produced outside the
United States.

Attracting New Plants

States within Auto Alley have provided incentives to entice carmak-

ers to locate in one of their communities. Financial incentives have in-
cluded tax breaks, training programs, and site improvements.9
To attract Toyota, the state of Kentucky agreed in 1985 to provide
$147 million in incentives. The package included $10.3 million for land
acquisition, $20 million for site preparation, $10.3 million for water
and gas lines, $7.2 million for a training facility, $12.2 million for a
wastewater treatment facility, $32 million for highway improvements,
and $55 million for training and education. The state also took on an
obligation estimated at $168 million to assist in paying interest on debts
that Toyota could incur in conjunction with plant construction.
Kentucky’s commitment of at least $147 million to Toyota repre-
sented a substantial escalation in the subsidies being offered to inter-
366 Klier and Rubenstein

national carmakers at the time. Less than a year earlier, Illinois had
attracted Mitsubishi with subsidies totaling only $86 million, and $86
million was sufficien to entice Subaru to Indiana a year later. Honda,
the firs Japanese carmaker to build an assembly plant in the United
States, received only $24 million from Ohio fiv years earlier (Molot
2003; Rubenstein 1992).
The University of Kentucky concluded that the Georgetown plant
would generate $632.6 million in property, sales, and income taxes dur-
ing its firs 20 years. Other economists offered differing views on what
benefit to measure and how to measure them. For example, econo-
mist Larry Ledebur calculated expected benefit to be only $267.5 mil-
lion and therefore concluded that Kentucky had overpaid for Toyota
(Fiordalisi 1989).
In hindsight, Kentucky may have paid more than its neighbors for
an assembly plant during the 1980s, but the Bluegrass State appreci-
ates thoroughbreds, and in Toyota it backed the company that subse-
quently proved to be the Triple Crown winner in the global automotive
industry competition. For its $147 million subsidies, Toyota promised
Kentucky in 1985 that it would spend $800 million to build and operate
the Georgetown facility and employ 3,000 workers with a $90 million
annual payroll in order to assemble 200,000 vehicles per year. All fi -
ures soon climbed to substantially higher levels than Toyota had prom-
ised. In 1997, Toyota’s investment in the plant had reached $4.5 billion,
7,689 workers were employed, 435,000 vehicles were assembled, and
payroll was $470.4 million (CanagaRetna 2004).
Between 1986 and 2005, [a 1998 University of Kentucky Gaton
College of Business and Economics] study noted that Kentucky
would collect over and above the costs of the incentive package,
approximately $1.2 billion in tax revenues, attributable to the direct
and indirect effects of Toyota’s operations in the commonwealth.
In terms of state revenue collections, discounted cash flo analy-
sis in 1985 indicated an annual rate of return of 8.5 percent from
increased revenue collections attributable to the direct and indirect
effects of the plant’s operations. A 1992 economic impact study,
also carried out by the University of Kentucky, revealed that the
projected rate of return had increased to 16.8 percent per annum.
These projections were revised upward again in the 1998 study
which indicated that the updated annual rate of return stood at 36.8
percent. (CanagaRetna 2004, p. 74)
 Conclusion: Surviving the Car Wars 367

A generation later, the lesson other states seemed to have learned

from Kentucky was the value of subsidizing assembly plants. During
the 1990s, incentives averaged about $100 million per assembly plant.
Incentives increased because carmakers “learned to bargain” (Molot
2003). That Kentucky had backed a winner was the real point. States
that had subsidized also-rans were getting much less value for their
money. Earlier subsidies paled in comparison with the $409 million
package provided to Kia by the state of Georgia in 2005. To attract an
assembly plant projected to employ 2,900, Georgia offered Kia a whop-
ping $141,000 per worker. How could such a figur be justified
The stakes are high. West Georgia badly needs Kia’s jobs as the
textile industry has flagge in recent years.
Georgia’s prestige as an economic center is on the line, too. Car
factories in neighboring states like Alabama are churning out pay-
checks by the thousands, while the Peach State stands to lose its
only plants, Ford’s and General Motors’. (Woods 2006)
It was not just that Kia’s assembly plant would arrive. Georgia
official argued that an assembly plant always brings along supplier
plants.
As we documented earlier in this book, “just-in-time” does not trans-
late into “right next door.” Many suppliers only need to be within one
day’s drive of an assembly plant. In Kia’s case, Georgia was unlikely
to see many supplier plants materialize because much of Kia’s supplier
base had already built plants within the one-day radius of the Georgia
site to support the nearby Hyundai plant in Alabama. “Hyundai (Kia’s
corporate parent) is supported by 78 suppliers in the U.S. and Mexico,
35 of them located in Alabama. Kia has promised Georgia there will be
at least fiv suppliers in the state” (Columbus Ledger-Enquirer 2006).
The spatial characteristics of assembler–supplier networks pre-
sented in this book call into question the logic of providing enormous
subsidies to carmakers. States have been providing generous subsidies,
especially to fina assembly plants, in part not because of jobs gener-
ated inside these plants but primarily because of the multiplier effect,
that is, the number of supplier jobs that are expected to come along
with fina assembly. The number of suppliers within close range of the
assembly plant rarely exceeds 30, suggesting that the supply chain of
an individual assembly plant is regional in nature. Furthermore, within
368 Klier and Rubenstein

a given supplier network, many supplier operations count among their

customers more than that one assembly plant.
Consider the fate of the Greensburg, Indiana, site of an assembly
plant opened by Honda in 2008. Greensburg has seen the arrival of
several thousand new jobs at the Honda plant as well as in such services
as grocery stores and restaurants. The community, though, has not seen
a boom in parts makers other than the inevitable seat plant plus a few
trim producers. Southeastern Indiana is strategically placed between the
southern end of the traditional auto production region centered in the
Great Lakes and the northern end of the recent growth in Kentucky and
points south. Most suppliers to Honda are already capable of delivering
to Greensburg within one day from existing sites in Auto Alley.
Greensburg also demonstrated the strategy of infillin within Auto
Alley. As Auto Alley has extended fully between the Great Lakes and
the Gulf of Mexico, manufacturers have been taking a second look at
sites that were passed over during the push south in the late twenti-
eth century. Trying to avoid competition for labor with existing plants
will increasingly take precedence in selecting specifi sites within Auto
Alley.

CONCLUSION

The analysis presented in this book is intended to provide a frame-

work that helps put in context ongoing developments in the motor ve-
hicle parts industry. We demonstrated that underneath the robust cluster
that characterizes this industry in North America lies a complex web of
very dynamic relationships. We suggest that it is at that level of detail
one has to assess the impact of ongoing changes, be they in trade or
technology.
Based on our analysis, we believe that the fundamental geography
of auto assembly in North America is not likely to change anytime soon:
most vehicles sold in North America will continue to be assembled in
North America. But more parts will be coming from elsewhere in the
world. And the parts made in North America and vehicles assembled
in North America will increasingly be produced by corporations with
global headquarters outside North America.
 Conclusion: Surviving the Car Wars 369

All of this means that there will be more turmoil ahead for suppli-
ers. Surviving companies will have picked a winning strategy of either
low-cost supplier, high-value supplier, or systems integrator. Survivors
will have selected winning customers, those that are gaining market
share, while reducing exposure to those that are losing market share.
Surviving suppliers will also have selected a winning global strategy.

Notes

1. Tim Leuliette, chairman, president, and CEO of Metaldyne Corporation, in a

speech to the Federal Reserve Bank of Chicago (2006).
2. Tim Leuliette, CEO of Metaldyne, quoted in Sherefkin and Wilson (2003).
3. John Doddridge, Intermet CEO, quoted in Automotive News (2002b).
4. In their 2007 labor contract, the union and each of the Detroit 3 agreed to establish
a VEBA.
5. Michael Heidingsfelder, Roland Berger managing partner, quoted in Guilford
(2002).
6. Jim Gillette, CSM Worldwide analyst, quoted in Wernle (2005c).
7. Jim Gillette, CSM Worldwide analyst, quoted in Wernle (2005c).
8. Greg Salchow, director of investor and public relations at Noble International Ltd.,
supplier of laser welding, quoted in Kosdrosky and Snavely (2005).
9. For a comprehensive discussion of state and local economic development policies,
see Bartik (1991).
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 The Authors

Thomas Klier is a senior economist in the economic research department

at the Federal Reserve Bank of Chicago. His research focuses on the effects
of changes in manufacturing technology, the spatial distribution of economic
activity, and regional economic development. Since joining the Chicago Fed in
1992, he has written widely on the evolving geography of the auto industry.
Dr. Klier’s work has been published in scholarly journals, including the
Journal of Regional Studies, the Journal of Business and Economic Statistics,
the Industrial Geographer, Economic Development Quarterly, the Review of
Regional Studies, Journal of Environmental Planning and Management, and
Public Choice.
Dr. Klier received an MBA from Friedrich-Alexander-Universitaet
Erlangen-Nuernberg, Germany, and a PhD in economics from Michigan State
University.

James Rubenstein is professor of geography at Miami University, Ohio,

where he teaches courses on urban planning and urban and economic geogra-
phy. He received an AB in public affairs from the University of Chicago, an
MSc in city and regional planning from the London School of Economics, and
a PhD in geography and environmental engineering from the Johns Hopkins
University.
Dr. Rubenstein is the author of 35 chapters and articles, including 18 on
the auto industry. He is also the author of fiv books: The Cultural Landscape:
An Introduction to Human Geography (Prentice Hall, now in its ninth edition),
Making and Selling Cars: Innovation and Change in the U.S. Automotive In-
dustry (The Johns Hopkins University Press, 2001), The Changing U.S. Auto
Industry: A Geographical Analysis (Routledge, 1992), The French New Towns
(The Johns Hopkins University Press, 1978), and An Introduction to Geogra-
phy (Prentice Hall, 1995, with William Renwick).

397
 Index

The italic letters f, n, and t following a page number indicate that the subject information
of the heading is within a figure note, or table, respectively, on that page.

AAM (American Axle and Aluminum companies, 128

Manufacturing). See American American Axle & Manufacturing
Axle and Manufacturing (AAM), 255–256
ABC Group, 120 UAW organizing at, 295
AC Spark Plugs, 43 American Federation of Labor (AFL),
Accelerators, 336 284–285
Accenture, 194 American Metal Company, 164
Actuators, 332 Anderson, Indiana, 46
AFL (American Federation of Labor). Anderson Consulting, 194
See American Federation of Labor Antilock brake systems, 268
Aftermarket suppliers, 3, 10 A.O. Smith, 94
and product innovations, 263–264 Apollo Management equity firm 190
AGC Automotive (joint venture), 245 Arcelor Mittal, 122–123
AIHI (Automotive Industries Holding Arizona suppliers, 334
Inc.). See Automotive Industries Arkansas
Holding Inc. perceived disadvantages for suppliers,
Airbags, 339, 340–341, 362–363 220
Air conditioning systems. See Heating wheel supplier plants, 263
and cooling systems Armco Steel Corporation, 123–124
Aisin, 78–79 Arvin, Richard, 73
Akron, Ohio, 230, 232–237. See also ArvinMeritor Inc., 73, 255, 256, 292, 299
Tire suppliers Asahi Glass Company, 245–246, 247,
polymer research companies, 241 248
union organizing, 286 Assemblers. See Carmakers
AK Steel, 123–124 Assembly lines. See also Just-in-time
Alabama (JIT) delivery
assembly plants, 145, 219, 222 body drop station, 83–84
auto industry growth, 204 invention of moving, 41
competition of nearby states for Association of Licensed Automobile
suppliers, 367 Manufacturers (ALAM), 39, 235
firs supplier plants, 241 Audio equipment plants. See
ALAM (Association of Licensed Infotainment components
Automobile Manufacturers). See Authors’ study. See also Data sources;
Association of Licensed Research about carmakers and
Automobile Manufacturers suppliers
Alcoa Corporation, 128, 312 geographical structure of this book,
Alfa (Mexican company), 70 13–14
Alfred Teves Group, 268, 270 limitations, 3
AlliedSignal Automotive, 268, 269–270 summary of findings 357–358
Alliston, Ontario Honda plant, 144

399
400 Klier and Rubenstein

Auto Alley Auto-Lite strike, 283–284

about, 203–204 Autoliv, 341, 362–363
automotive industry prior to, 207–209 Automobile industry. See also
brake and suspension suppliers in, Carmakers; Suppliers
267–272 “bulk-gaining” nature, 133–134
changes taking place in, 358, 363–367 changes in U.S., 2–3
chassis suppliers move to the south, data sources, 8–13
251 fashion trends, 99–100
defined 3, 213 geographical shifts in United States,
East-West, 209–212 207
fate of suppliers in northern end, 249 geographic location, importance to
foreign-owned suppliers, 224–226 the bottom line, 83
future outlook, 226–227 government subsidies, 157
growth over three decades, 222–224 impact of national health insurance
impact on Canadian suppliers, 317 on, 316
infillin stage, 219–222 outsourcing of suppliers, 275–277,
labor availability within, 220–222 297
location of supplier and assembly research and development, 20, 26
plants in, 205, 206f, 218f restructuring and job losses in twenty-
Mexican suppliers and, 319 firs century, 296–297
push into deep South, 217–219 structural change over last century,
push into lower Midwest and the 355–357
South, 213–217 Automotive Industries, 175
reasons for different locations of parts Automotive Industries Holding Inc.
plants in, 272–278 (AIHI), 177
three stages of development, 213 Automotive Technology Systems, 166
union membership within, 279 Auto parts. See also Exports of auto
wage rates, 276 parts; Generic auto parts (“nuts
AutoAlliance (Mazda-Ford joint venture) and bolts”); Imported auto parts;
firs assembly plant, 215 Suppliers; Warehousing operations
supplier network, 152, 154t, 155t, “bulk-gaining” and “bulk reducing,”
156t, 157t 133
union plant, 279 from China, 201
Auto bodies. See also Chassis suppliers; in database created for this book, 11
Exterior parts suppliers difficult in tracking total values,
destinations for U.S. exports of, 324, 9–10
325f distribution centers, 199–200
imports, 315f early makers of, 34–38, 40
less vulnerability to import impact of just-in-time delivery, 138,
competition, 326 365
materials used, 92, 96, 98, 100 information management services,
modules, 83 182, 188, 192–193
painting of, 95–100 inventories, 20
processes used, 90–91, 94, 96 logical sequencing of, 40–41
stamping of, 83–85 order of vertical integration of, 38
suppliers, 90–95 recent annual total values, 2
 Index 401

Auto parts (continued) supplier network, 149, 154t, 155t,

shifting combinations of, 17–20 156t, 157t
two kinds of companies that make, 3 Bodies. See Auto bodies
and vertical integration, 31–32 Body controller
Auto parts classificatio Body drop, 83
challenges with classing electronics BorgWarner Automotive, 75
parts, 329, 330 Brake modules, 266–268, 267
Harmonized Commodity Description development, 267–268
and Coding System (HS) numbers, imports, 310
305–307 safety system suppliers, 345–346
Harmonized Tariff System (HTS) suppliers, 268–271
codes, 307 Branch assembly plants, 207–209
North American Industrial demise, 216
Classificatio System (NAICS) Brazil Chrysler truck assembly plant, 273
codes, 9–10, 13, 307 Bridgestone/Firestone Inc., 231, 238–
Axles, 253 239. See also Firestone tire
destinations for U.S. exports, 325 company
relation to transmissions, 255 Bridgewater Interiors, 167
suppliers, 255–256 Briggs, Walter Owen, 89–90
Briggs Manufacturing Company, 89, 90
Bankruptcy of suppliers, 360 British-owned parts plants in United
BASF Corporation, 126, 127, 128 States, 226
Batteries GKN Automotive, Inc., 257–258
and electrical components, 337–338 NSG/Pilkington, 246–247
for hybrid electric vehicles, 81–82 TI Automotive fuel line supplier,
Battery eliminators, 334 264–265
Bearings, 114–116. See also Axles Brose Automotive, 197, 198
imports, 310 Budd, Edward, 92, 93
Behr GmbH., 72–73 Buick, David Dunbar, 43
Beloit, Wisconsin, 349 Buick (company), 43
Bendix, Vincent, 269 Bumpers, 83, 100–102
Bendix Corporation, 269, 285 suppliers, 102–103
Benteler Automotive, 73, 74 U.S. exports, 325
Bermudez, Antonio J., 319 Bundy Group, 265
Bethlehem Steel Company, 123 Buyout firms See Private equity
B.F. Goodrich tire company, 232, investors
233–234
“Big 3” carmakers. See “Detroit 3” C&A (Collins & Aikman Corporation).
carmakers See Collins & Aikman
Blackstone Group, 174, 260, 334 Corporation
BMW Cadillac Automotive Company, 35, 97
assembly plants in Deep South, 218, California. See also NUMMI (GM-
219 Toyota joint venture)
iDrive, 352–353 assembly plants, 223
South Carolina assembly plant, 226 Los Angeles assembly plants, 209
wheel supplier, 262
402 Klier and Rubenstein

CalsonicKansei North America Inc., 72 need for good relationship with

Canada. See also Magna International; suppliers, 356–357
Ontario; Windsor, Ontario with only one U.S. plant, 142
assembly plants, 301, 316 optimal vs. actual locations of
assembly plants in 1979 and 1980, assembly plants, 205
214f, 215f painting of auto exteriors, 90–91
Canadian-owned parts plants in U.S., pattern bargaining with unions, 286–
226 288
comparative advantage of its exports, reason for closing coastal assembly
315–316 plants, 216
competition with Mexico, Japan and size, relative to suppliers, 1–2
others, 312, 314–315 state incentives for, 366–368
suppliers, 316–317 states with most assembly plants, 204
types of parts imported from, 309, supplier parks and distribution
310, 311, 315 centers, 196–200
U.S. exports to, 323–325 tiered supplier system, 109–110
value of parts from, 313–314 use of fewer suppliers over longer
Canadian Auto Workers (CAW), 290 time, 19–20
Canton, Ohio, 115–116 Carmaker-supplier proximity, 8, 133–
CAR (Center for Automotive Research), 135, 357–358. See also Just-in-
13, 14t, 16. See Center for time (JIT) delivery
Automotive Research changes, 365
Car doors. See Door modules common distances of suppliers from
Carmaker communities. See also Auto assembly plants, 156, 157
Alley; specifi states and localities Carmaker-supplier relations
future outlook, 363–368 annual survey, 25–26
subsidies from, to attract new plants, competitive advantage resulting from
365–366 good, 15–17, 20
Carmakers. See also “Detroit 3” effect on organizational strategies in
carmakers; International both groups, 17–21
carmakers; “Japanese 3” importance, 14–15
carmakers; Just-in-time (JIT) Japanese vs. American, 21–25
delivery; Suppliers; Supply chain Carnegie Steel Company, 124
geographical linkages Carpets, 171–172
assembly of auto bodies, 83–87, 90 Case, Jerome I., 63
defined 1 Catalytic converters, 73, 336
employment rates, 2007, 3t CAW (Canadian Auto Workers). See
geographic proximity to suppliers, Canadian Auto Workers
133–135 Census of Manufactures. See U.S.
growth of assembly plants in Auto Census of Manufactures
Alley, 222–223 Centerbridge Capital Partners, 257
light vehicle assembly plants in U.S. Center for Automotive Research (CAR),
and Canada, 1979, 1980, 214f, 16
215f Cerebus Capital Management (private
and lower-tier suppliers, 129–131 equity firm) 95
map of North American locations, 13f CEVA Logistics, 188, 190–191
 Index 403

Champion, Albert, 43 Chips. See Electronic control units

Chassis parts. See also Safety-oriented Chrysler, Walter, 43
electronics Chrysler Corporation, 273. See also
stability control, 345–346 “Detroit 3” carmakers
value of imports from China, 321– acquisition of Dodge Brothers, 36
322 branch assembly plants, 208, 209
Chassis suppliers Diamond-Star (joint venture), 215
determinants for plant locations, Dodge Main complex, 61
252–253 Dodge Ram pickup, 64
future outlook, 272–274 joint ventures, 77
imports from foreign, 310–311, 315f leading seat supplier, 291
map of plant locations in U.S., 252f New Castle, Indiana drivetrain plant,
in Midwestern states, 253–260 293–294
number of parts plants in Midwest, outsourcing of exterior parts
254–255t suppliers, 103–105
reason for outsourcing to, 251 pattern bargaining at, 287
six major modules in a chassis, 251, powertrain production plants, 61
252 reason for being in third place, 31
in Southern states, 260–272 relationship with Ryder Logistics, 189
UAW organizing at, 291–293 relations with suppliers, 23
vulnerability to import competition, stamping plants, 86, 87, 89
327 supplier network, 149, 150f
Chester, Pennsylvania, 135 Supplier Park (Toledo) assembly
Chevrolet, Louis, 44 plant, 103
Chevrolet Motor Company, 44, 45 Toledo assembly plant suppliers, 199
Chevrolet Volt hybrid, 81–82 Toledo Jeep plant, 273
Chicago, Illinois, 34, 197–199 vertical integration, 34
China. See also Shanghai CIO (Congress of Industrial
auto parts, 201 Organizations). See Congress of
auto parts defect rates, 323 Industrial Organizations
Chinese carmaker coming to North Climate control modules, 71
America, 358 Clincher Tire Association, 233, 235
competition with Mexico, 322 Clocks, 246
foreign suppliers in, 118 Clutch supplier, 75
imports by General Motors CNF (Consolidated Truck Lines ). See
Corporation from, 313 Consolidated Truck Lines
imports by Visteon Corporation from, Coase, Ronald, 32
313 Coastal states, assembly plant closures,
imports of auto parts from, 320–323 216
imports of radio components from, Cockpit modules, 347–349
313, 322 Collective bargaining. See Unionization
imports of wheels from, 262, 263– of auto workers
264, 311 Collins & Aikman Corporation (C&A),
suppliers’ challenges, 201 172, 173–175, 179, 180
value of electronics exports to U.S., Colocation, 133
321, 322 Color Marketing Group, 99
404 Klier and Rubenstein

Colors of cars, 95–100 Authors’ study; Research about

Comfort. See Convenience-oriented carmakers and suppliers
electronics systems auto parts customers within supply
Commodities suppliers, 120–128 chains, 12
Components, 18–19 on carmaker-supplier relations, 25–
Computer control of cars, 329. See also 26, 141–142
Electronic control units imports and exports of auto parts,
Congress of Industrial Organizations 305–307
(CIO), 285 lower-tier suppliers, 110–111
Consolidated Diesel Company, 64 maps of supplier and assembler
Consolidated Truck Lines (CNF), networks, 143
195–196 problems with identifying electronics
Continental AG, 231, 240, 265, 268 suppliers, 329, 330
brakes, 270 Dayton, Ohio, 45, 72, 210
ESC systems market share, 346 Dayton Engineering Laboratories
radios, 352 Company (Delco), 45, 210
speedometers, 349–350 brakes, 271
Controls, 346 radios, 48, 351
cockpit, 347–349 Delco (Dayton Engineering Laboratories
Convenience-oriented electronics Company). See Dayton
systems, 346–350 Engineering Laboratories
suppliers, 350–352 Company
wiring for, 338 Delphi Corporation, 47–52, 130, 265,
Cooling systems. See Heating and 268, 271
cooling systems Mexican plants, 312, 320
“Corner” modules, 264 radios, 351
C.R. Wilson Carriage Company, 37–38 speedometers, 350
Cross-docking, 185, 199 UAW organizing at, 295, 296
Cummins, Clessie Lyle, 64 Denso Corporation, 72, 265
Cummins Engine, 72 Design of bumpers, 101–102
Cummins Komatsu Engine Company, 64 DesRosier Automotive Consultants’
CVJ (constant velocity joint) joints, research, 16
257–258 Detroit, Michigan
Ohio carmakers before rise of Detroit,
Daimler-Benz, 218, 219 229–230
DaimlerChrysler and Ontario, Canada transportation
Dayton, Ohio Thermal Products plant, issues, 139–141
72 proximity of powertrain parts
exterior module supplier, 105–106 producers to, 65, 67
fuel cell vehicle plans, 80 purchase of stamping plant by City,
Dana, Charles, 257 107n1
Dana Corporation, 104, 257, 273 “Detroit 3” carmakers, 15, 29. See also
UAW organizing at, 291–293 Chrysler; Ford; General Motors
Dashboards, 170–171, 173, 347 attempts to imitate Toyota production
Data sources, 8–13, 14t. See also system, 187
in Auto Alley during 1980s, 216
 Index 405

“Detroit 3” carmakers (continued) Duco lacquer, 98

branch assembly plants, 207–209 Dundee, Michigan, 77
carmaker-supplier relations compared Dunlop, John B., 237
with Japanese, 22–25 Dunlop tires, 241
export of parts to foreign plants, 301 du Pont, Eleuthère Irénée, 97
imports of foreign suppliers’ parts, du Pont, Pierre, 97, 98
301, 302f DuPont Corporation, 96, 97–98, 99–100
in-house stamping plants, 86–90 Dura Automotive, 172, 175
legacy in Ohio, 229 Durant, William C., 42–46, 98, 210, 211
maps of supplier networks, 143 Durr Industries, 104
number of U.S. plants, 142
parts plants costs, 293–294 Eagle-Picher, 291, 292–293
position on UAW organizing of Eaton Corporation, 68, 292
suppliers, 288 ECUs (Electronic control units). See
powertrain plants, 57 Electronic control units
resistance to early unionization, 285 Edward Ford Plate Glass Company, 243,
supplier networks, 149 244
supplier relationships, 22–23 Electrocoating of body parts, 96
switch to just-in-time delivery, 138 Electronic control units (ECUs), 331, 332
type of relationship with suppliers, suppliers, 332–339
356–357 Electronics. See also Convenience-
Detroit Diesel, 64–65 oriented electronics systems;
DHL, 184, 187, 188, 191 Performance-oriented electronics
Diamond-Star (Mitsubishi-Chrysler joint systems; Safety-oriented
venture), 215 electronics systems
Diesel engines, 62–65 estimated percent of auto plants that
Disc brakes, 267 make, 329
Displacement, 55–56 relative percent increase it provides to
Distribution centers, 199–200 automobile value, 329–330
Ditzler Brothers, 97 total worldwide value for, 330, 330t
Dmax, 64–65 value for U.S. exports of, 325–326
Dodge Brothers, 35, 36, 37, 40, 93 value of cockpit, 347
Dodge cars, 36 value of electronics imports from
Door modules, 171, 173, 175, 177, 180 China, 321, 322
wiring modules inside of, 338 Electronics suppliers
Dow Automotive, 126, 127–128 convenience-oriented systems, 350–
Driveline modules 352
relation with powertrains, 253 future outlook for, 352–354
suppliers in Midwest, 253–258 imports from foreign, 312–313, 315f
Driver information. See Navigation locations of exterior and interior parts
devices plants, 331, 332t
Driveshafts, 253 map of locations of parts plants, 331f
suppliers, 257–258 in Mexico, 318–320
Drivetrains, 65, 74–75 performance-oriented systems, 332–
Chrysler supplier Meltadyne, 293–294 339
imports from Japan, 318
406 Klier and Rubenstein

Electronics suppliers (continued) parts plant locations in United States,

relative value of imported parts from, 216
308 European supplier parks, 196–197
safety-oriented systems, 340–341, Evans, Fred S., 36
343–345, 344–346, 346 Exhaust systems, 65, 73–75
tendency towards concentration, 353 imports, 310
Electronic stability control (ESC), Exports of auto parts, 301
345–346 data sources, 307
Electronic switches. See Switches total value in past decade, 307–308,
Elizabethtown, Kentucky union 309t
organizing, 291–292 types of parts exported and
ELM International database of auto destinations, 323–326
suppliers, 10–11 Exterior parts. See also Auto bodies;
El Paso, Texas suppliers, 338 Bumpers; Frames; Lighting
Emission standards, 336 equipment; Windows
and diesel engines, 62 destinations for U.S. exports of, 325
Employee benefits 361 value of U.S. exports of, 326
Employment in auto industry. See also Exterior parts suppliers. See also Chassis
Wage rates of auto workers suppliers; Paint suppliers
carmakers, 3t, 277 future outlook, 105–107
suppliers, 11, 16, 277 imports from foreign, 311
total industry, 277 integrated exterior modules, 103––
Energy sources for production (natural 105
gas), 243 map of locations of plants, 84f
Engine bearings, 68–69 outsourcing to, 85–86
Engine block components, 65, 67–70 products and plants in Midwest, 85t
Japanese-owned plants, 76–77 Exterior safety systems, 342–344
Engines. See also Diesel engines; suppliers, 344–346
Gasoline engines
engine ECU (electronic computer Fabrics. See Fibers for interiors
unit), 336–337 FAG Group, 116
imported from Japan, 318 Fascia, 101–102
imports of parts from foreign Faulconer, Robert C., 35
suppliers, 309 Faurecia, 73, 74, 299
vulnerability to import competition, seats, 167, 168
326 Federal-Mogul, 68–69
Epsilon, LLC, 167 Federal Steel Company, 124
Equity investors. See Private equity Fiat cars, 353
investors Fibers for interiors, 172, 176. See also
Ernie Green Industries, Inc., 166–167 Headliners and carpets
ESC (Electronic stability control). See Firestone, Harvey S., 235, 236
Electronic stability control Firestone tire company, 232, 235. See
European assembly processes, 106–107 also Bridgestone/Firestone Inc.
European carmakers Firestone tire fatalities, 239
Auto Alley investors, 218 Fisher Body Company, 46, 48, 88, 286,
344
 Index 407

Fisher Body Company (continued) production costs in 1903, 37

seats, 161 radios, 351
Flat Rock, Michigan, 215 reasons for success, 31
Flex-N-Gate Corporations, 102, 103 reduction of Tier 1 suppliers, 299
Flint, Michigan, 210–211, 227n2 role in UAW strike against Dana, 292
early carmakers, 42–43 role in UAW strike against JCI, 289–
Florida Production Engineering Inc., 166 290
Fluid-handling component imports, 310 Rouge assembly plant, 6–7, 41–42,
Foamex International Inc., 120 58–59, 89, 125
Ford, Edward, 244 services from Penske Logistics, 189
Ford, Henry, 93 stamping plants, 86, 87, 89
business model, 39 supplier network, 149, 151f
Ford Motor Company. See also supplier park in Chicago, 197–199
Assembly lines; AutoAlliance Taurus, 197
(Mazda-Ford joint venture); tire suppliers, 235, 239, 240
“Detroit 3” carmakers; Glass Torrence Avenue Plant (Chicago), 197
Products (Ford Motor Company); vertical integration, 34, 38–42
PPG; Visteon Corporation Ford SYNC, 352
Batavia plant, 59 Foreign-owned suppliers. See also
black exteriors, 95, 97, 98–99 Imported auto parts; International
brake suppliers, 270 carmakers; Japanese suppliers
branch assembly plants, 208 in China, 322–323
Chester, Pennsylvania plant, 135 differences with unions, 280–282
closures of assembly plants, 219 fuel handling module parts, 264
company-owned stores (“branch growth of plants in Auto Alley, 224–
houses”), 33 226
early suppliers, 36–38 increase outside and inside U.S., 358
expansion of plants into Ohio, 210 market share in U.S., 301
Ford Explorer fatalities, 239 powertrain parts, 69–70, 75–79
Ford F-150 (truck), 4–7 steel, 125–126
Ford Manufacturing Company, 40 tire companies, 231, 236–240
“give back” of Visteon plants to, 296 types of parts imported from, 315
glass plants, 247, 248 wage and union membership rates,
Highland Park assembly plant, 40, 58, 276
84, 208 Foreign suppliers
influenc of Bendix employees on, Asian countries, 311, 313
269 4PL (Fourth Party Logistics). See also
Kansas City plant, 42 3PL service providers
logistics provider, 186 definition 194
Model T production, 93, 161 function, 192–194
1956 safety campaign, 339, 340 Frames, 84–85, 94
Ontario, Canada plants, 58, 59 hydroform, 90–91
pattern bargaining at, 287 Freescale Semiconductor, 333, 334,
Pinto, 100 354n3
Piquette Avenue assembly plant, 40 Freight chain management, 182–185
powertrain plants, 57–59
408 Klier and Rubenstein

Fremont, California. See NUMMI (GM- General Motors Corporation. See also
Toyota joint venture) Dayton Engineering Laboratories
French suppliers. See also Michelin Tire Company; Delphi Corporation;
& Rubber Company “Detroit 3” carmakers; DuPont
fuel tanks, 266 Corporation; Guide Lamp;
glass, 245, 246 NUMMI (GM-Toyota joint
STMicroelectronics, 333–334, 335, venture); Saturn
354n3 axle plants and parts supplier, 255–
Freudenberg-NOK, 362 256
Front-wheel drive, 253, 255 brake operations, 268
joints created for vehicles with, 257– branch assembly plants, 208–209
258 Buick City assembly plant in Flint,
Fuel cell vehicles, 80 Michigan, 210–211, 212f
Fuel handling modules choice of exhaust system suppliers,
components in, 261 74
geographic distribution of parts closures of assembly plants, 219
suppliers, 264 consolidation of engine/transmission
imports, 310 divisions, 60–61
parts suppliers, 264–266 defect rate for parts from China, 323
Fuel injection parts suppliers, 265–266 diesel engines, 64–65
Fuel level gauges, 346 diesel division, 65
Fuel line suppliers, 264–265 expansion of plants into Great Lake
Fuel tank suppliers, 266 area, 210–211
Fujikura, 128 4PL provider, Vector, Ltd., 194, 195–
196
Gadsden, Alabama, 241 fuel cell vehicle plans, 80
Galvin, Paul and Joseph, 334 glass supplier, 246
Galvin Manufacturing Corporation, 334 hybrid vehicle development, 81–82
Gasoline engines. See also Diesel investment in aviation companies,
engines; Engine block components 269
Chrysler plants, 61 Metal Fabricating Division, 88
earliest automobile, 35–36, 37 Moraine, Ohio assembly plant union,
Ford plants, 57–59 278–279
General Motors plants, 60 1970s parts plants in the South, 216
how they work, 55–56 1937 strike, 282–283, 286
map of carmaker’s plants, 58f opening of parts plants in Mexico,
Gauges, 346 319
Gecom (Greensburg Equipment and pattern bargaining at, 287
Components Manufacturing). plants in Auto Alley in 1980s, 216
See Greensburg Equipment and powertrain production plants, 60
Components Manufacturing reasons for success, 31
GEMA (Global Engine Manufacturing reduction of Tier 1 suppliers, 299
Alliance). See Global Engine rejection of safety glass, 339
Manufacturing Alliance seat suppliers, 167, 168
General Electric Company, 343 Shanghai presence, 322
stamping plants, 86, 88
 Index 409

General Motors Corporation (continued) Goodrich, Benjamin Franklin, 233–234,

supplier network, 152f, 178 236
tire suppliers, 233, 240 Goodyear, Charles, 232, 234
vertical integration, 33–34, 38–39, Goodyear blimp, 235
42–46 Goodyear Tire & Rubber Company, 231,
warehouse space owned by, 184 232, 234–235, 240–241
wheel suppliers, 263 Great Lakes region automotive industry,
General Seating of America, 164 209–211
General Tire, 232, 235–236. See also Grede Foundries, Inc., 119
Continental AG Green, Ernie, 166
Generic auto parts (“nuts and bolts”), 34 Greensburg, Indiana, 368
complexity of some, 119 Greensburg Equipment and Components
data on suppliers, 110–111 Manufacturing (Gecom), 119
number of plants in Midwest, 112t Greer, South Carolina, 219
Georgetown, Kentucky Toyota plant, Guide Lamp, 313, 343–344
7–8, 146, 147f, 216, 366
Georgia Hancock, Thomas, 232
assembly plants, 219 Harmonized Commodity Description
subsidies to Kia Motors, 367 and Coding System (HS) numbers,
German suppliers, 226. See also 305–307
Continental AG; Robert Bosch Harmonized Tariff System (HTS) codes,
Corporation translation into NAICS codes, 307
cockpit modules, 350 Harrison Radiator Corporation, 45, 48
ECS systems, 346 Hartford Rubber Works Company, 38
exterior lighting, 344, 345 Hawkins, Norval, 208
Infineo Technologies AG, 333, Hayden International, 104–105
334–335, 354n3 Hayes Wheels, 262, 263, 264
thermal systems, 72–73 Headlights. See Lighting equipment
Germany Headliners and carpets, 171–172, 177.
exports of engines to Japanese See also Fibers for interiors
carmakers in U.S., 309 Heany, John, 44
value of parts from, 314 Heartland Industrial Partners, 174
GKN Automotive, 257–258 Heating and cooling systems, 347, 348
Glass Products (Ford Motor Company), air conditioning system imports, 310
247, 248 cooling systems, 71
Glass suppliers, 241, 243–248. See also thermal systems, 70–73, 75
Toledo, Ohio; Windows Hella, 345
exports from U.S., 325 Hendrickson, G.R., 210–211
locations outside of Toledo, Ohio, 248 Hidden Creek Industries, 175
other types of modules made, 245 High-tech suppliers, 362–363
Global Engine Manufacturing Alliance Hitachi, 335
(GEMA), 77 Holland, Michigan, 176
Globalization Honda Motor Corporation. See also
of auto glass production, 244–245 “Japanese 3” carmakers
of supply chains, 157–158 Alliston, Ontario plant, 144
Goldsmith, James, 240 Anna, Ohio plant, 144, 145
410 Klier and Rubenstein

Honda Motor Corporation (continued) IAC (International Automotive

assembly plants in U.S., 142 Components). See International
East Liberty, Ohio plant, 143, 144, Automotive Components
145f, 281 Ikeda Bussan Company (Nissan joint
engine plants, 76–77 venture), 167
exterior lighting supplier, 345 Illinois
firs plants in United States, 213, 214 Ford Motor Company facilities in
glass supplier, 248 Chicago, 34, 197–199
Greensburg, Indiana plant, 368 Normal, 215
Keihin Corporation (kieretsu), 266 Ottawa, 243
Lincoln, Alabama plant, 145 state subsidies to Mitsubishi, 366
Marysville, Ohio plant, 143, 144, Illinois Tool Works (ITW), 117–118, 363
145f Imported auto parts. See also Foreign-
Ohio subsidies to, 366 owned suppliers
opinion about supplier parks, 199 from Canada, Mexico and Japan,
relation with suppliers, 21–22 2006, 315f
seat suppliers, 168 common kinds of parts imported and
stamping plants, 90 places of origin, 305–313
supplier network, 143–146, 150, 151, data sources, 305–306
154t, 155t, 156t, 157t effect of imports on government data,
suspension supplier, 166–167 10
transmission plants, 76, 77–78 future outlook, 326–328
Honeywell, 283 imports by “Detroit 3” and
Hoover Precision Products Inc., 165 international carmakers in U.S.,
Horsepower, 55–56 301–302
HS codes. See Harmonized Commodity nationality of owners of largest
Description and Coding System suppliers in U.S., 302–304
(HS) numbers national origins of, 313–322
HTS codes. See Harmonized Tariff total value in past decade, 307–308,
System (HTS) codes 309t
Hubcaps, 261 Indiana
Hyatt Roller Bearing Company, 45–46 Anderson, 46
Hybrid electric vehicles, 80, 81–82. See assembly plants, 222, 368
also Lithium ion batteries foreign-owned supplier plants, 226
Hydroform technology, 90–91 fuel injection plants, 266
Hydrogen fuel cell vehicles. See Fuel cell Greensburg plant, 368
vehicles Kokomo Chrysler plants, 61–62
Hyundai Newcastle drivetrain plant, 293–294
joint ventures, 273 state subsidies to Subaru, 366
Hyundai Motor Company Indianapolis Air Pump Company, 73
assembly plant, 219 Inergy Automotive Systems (joint
engine plants, 77 venture), 266
exterior module suppliers, 103–104 Infineo Technologies AG, 333, 334–
suppliers in Alabama, 367 335, 354n3
 Index 411

Infotainment components, 348, 350, 352. Irwin, William Glanton, 64

See also Navigation devices; ISG (International Steel Group). See
Radios and radio components International Steel Group
audio equipment plants, 332t Ishibashi, Shojiro, 238–239
driver information parts plants, 332t Isuzu diesel engines, 64
Inoac Corporation, 177 Italian supplier, STMicroelectronics,
Instrument panels, 347, 348 333–335, 335
Interior convenience components, 346– ITT Automotive, 268, 270
349. See also Seats and car ITW (Illinois Tool Works). See Illinois
interiors Tool Works
suppliers, 350–352 IUE-CWA. See International Union
Interior safety systems, 339–340 of Electronic, Electrical, Salaried,
suppliers, 340–341 Machine and Furniture Workers-
Intermet Company, 119 Communications Workers of
International Automotive Components America
(IAC), 179–180 Iwasaki, Toshiya, 245
International borders and supply chains,
139–141 Japan
International Brotherhood of Teamsters, imports of auto parts from, 317–318
280 imports of chassis parts and systems
International carmakers. See also from, 310
European carmakers; Foreign- imports powertrain parts and systems
owned suppliers; “Japanese 3” from, 309
carmakers types of parts imported from, 315
Chinese, coming to North America, value of parts from, 313–314
358 Japanese carmakers
choice of plant locations in United powertrain parts imports, 309
States, 219–222 reason for reduced imports from
impact on U.S. suppliers, 299 Japan, 317–318
imports into U.S. of foreign-made “Japanese 3” carmakers. See also Honda;
parts, 302 Nissan; Toyota
union plants in U.S., 279 firs assembly plants in United States,
International/Navistar, 63 213–216
International Steel Group (ISG), 122–123 growth of plants in Ohio, 229
International Trade Commission, 306 just-in-time delivery, 138
International Union of Electronic, number of U.S. plants, 142
Electrical, Salaried, Machine and preference for nonunion seat
Furniture Workers- suppliers, 290
Communications Workers of stamping facilities, 90
America (IUE-CWA), 278–279, supplier relations, 21–22, 24–25,
280 356–357
Intertec Systems, LLC (joint venture), Japanese-inspired lean production. See
177 Lean production
Inventory control, 185, 186–187. See Japanese style management, 77
also Cross-docking and unionization, 280–282
Iron and steel, 121–126
412 Klier and Rubenstein

Japanese suppliers, 226. See also impact on supplier proximity with

Foreign-owned suppliers carmakers, 134–137
airbags and seat belts, 342 and location of seat and interior
bearings, 116 suppliers, 179
exterior lighting, 345 and location of suppliers, 365
fuel injection modules, 266 role of seat suppliers, 160–161
glass, 245–246, 247 and supply chain geographical
growing numbers of, operating in linkages, 136–141, 202
U.S., 304
North American competitors, 318 Kanban highway, 213
Renesas, 333–334, 335 Kansas City
tires, 231 assembly plants, 223
wiring suppliers, 338–339 Ford plant, 42
Jatco, 78, 79 Kantus, 72
JCI (Johnson Controls Inc.). See Johnson Kawasaki Steel Corporation, 124
Controls Inc. Keihin Corporation (Honda keiretsu),
Jeep, 104 266
Grand Cherokee engines, 107n1 Keiretsu defined 22–23
J.I. Case Corporation, 63, 64 Kelley-Springfiel Tire Company, 240
JIT (Just-in-time) delivery. See Just-in- Kelsey-Hayes Wheel Corporation, 262,
time (JIT) delivery 268, 270, 285
J&L (Jones & Laughlin) Steel Kentucky
Corporation, 123 Elizabethtown union organizing,
Johnson, S.A. (Tony), 175 291–292
Johnson, Warren S., 164–165 firs Japanese assembly plant, 215,
Johnson Controls Inc. (JCI) 216
battery operations, 337 foreign ownership of parts plants, 224
interior integration by, 176–177 Georgetown Toyota plant, 7–8, 146,
location of seat plants, 170 147f, 216, 366
seats, 161, 162–163, 164–167 incentives to Toyota Motor Company,
speedometers, 350 365–366
start in business, 116 Japanese-owned supplier plants, 226
Tier 2 supplier, 103 parts plants in 1980s, 217
union organizing at, 289–290 Kettering, Charles F., 45, 97, 210
J.P. Morgan, 63 Khan, Shahid, 102
Just-in-sequence, 199–200 Kia Motors, 104
Just-in-time (JIT) delivery. See also assembly plant, 219
Carmaker-supplier proximity; Georgia subsidies to, 367
Lean production; Supply chain number of suppliers for Georgia
management plant, 135
advantage of milk runs, 184 use of rolling chassis, 273
benefits 20 Kokomo, Indiana Chrysler plants, 61–62
Canadian suppliers and, 317 Komatsu, Ltd., 64
changes brought about by, 137–138 Koyo Company, 116
difficultie in providing, 138–141 Kuehne + Nagel International, 187
impact on seat suppliers, 162 Kuka Roboter GmbH, 104
 Index 413

Labor. See also Employment in auto plant locations, 343

industry; Unionization of auto suppliers, 343–345
workers U.S. imports, 313
availability within Auto Alley, 220– Linamar Corporations, 70, 317
222 Litchfield P.W., 234
and geographical location of Lithium ion batteries, 81, 337
suppliers, 248–249, 275 Little Motor Car Company, 44, 45
impact of auto industry restructuring L-O-F (Libbey-Owens-Ford). See
on, 296–297 Libbey-Owens-Ford
impact of disputes on just-in-time Logistics. See Supply chain logistics
delivery, 139 Los Angeles assembly plants, 209
restructuring contracts with, 361 Louisiana, 223
Lansing, Michigan, 227n2 perceived disadvantages for suppliers,
Laredo, Texas border, 141 220
Latex. See Rubber Low-cost suppliers, 363
Lean production Lower-tier suppliers, 109–110. See also
impact on Ford and GM, 47 Tier 1 suppliers
introduction by Toyota into North of bearings, 114–116
America, 148 characteristics, 111–113
major book introducing idea to U.S., decline in numbers of, 299
16 difference from Tier 1 suppliers, 117
need for inventory control, 186–187 distinguishing, from Tier 1 suppliers,
recommended reading about, 158n1 110–111, 118
relation with just-in-time delivery, examples of smaller, 113–114
237 General Motor’s involvement with
and stockpiling of auto parts, 135– selection, 178
136 location, 112
Lear, William, 163 map of locations, 113f
Lear Corporation of metal, plastic and aluminum, 120–
interior integration by, 177–178, 179, 128
180 of metal parts, 117–119
interior trim operations, 175 of non-metal parts, 119–120
location of seat plants, 169, 170 pressure to outsource, 112
plants in Mexico, 312–313, 320 relation with higher-tier suppliers,
radios, 350 129–130
seats, 161, 162, 163–164 special manufacturing expertise,
speedometers, 350 130–131
union organizing at, 290 LTV Steel (Ling-Temco-Vought), 123
Leland & Faulconer, 35
Libbey Glass Company, 243 Machine That Changed the World, The,
Libbey-Owens-Ford (L-O-F), 244, 247 16
Libbey-Owens Sheet Glass Company, Magna International, 90–92, 93–94
243–244 business model, 362
Liechtenstein’s exports to U.S., 311 exports to U.S., 317
Lighting equipment Magna Steyr, 105–106
innovations, 342–343 seats, 162, 167–168
414 Klier and Rubenstein

Magna International (continued) imports of lighting equipment from,

union organizing at, 289, 290–291 313
Mahle Inc., 70 Nissan suppliers, 154–155
Malcomson, Alexander Y., 40 Toyota Baja plant, 148
Maquiladora plants, 318–320 transportation issues with United
Martinrea (Budd), 90, 92–94 States, 139, 141, 319–320
Marysville, Ohio, 213, 214 types of parts imported from, 315
Masland Corporation, 177 U.S. exports of auto parts to, 323, 325f
Mason Motor Company, 44, 45 value of parts from, 313–314
Materials used in automobiles. See also Michelin Guidebooks, 237–238
Commodities suppliers; Fibers for Michelin Tire & Rubber Company, 231,
interiors; Safety features 237–238
aluminum, 128 Michelin Man, 238
auto bodies, 92, 96, 98, 100 Michigan. See also Detroit, Michigan;
iron and steel, 121–126 Flint, Michigan; Southeastern
plastic fuel tanks, 266 Michigan
plastics, 126–128 auto parts made in, 29
rubber and synthetics, 231–232, 234 decline of automotive industry in,
silica and glass, 242 203–204
for wheels, 261, 262 expansion of parts plants outside of,
Maxwell-Briscoe, 293 210–212
Mazda, 79. See also AutoAlliance Ford Rouge assembly plant, 6–7,
(Mazda-Ford joint venture) 41–42, 58–59, 89, 125
McCormick, Cyrus, 63 foreign-owned supplier plants, 226
MEI (Mitsubishi Electric Industrial importance of vertical integration to,
Company). See Mitsubishi Electric 31–32
Industrial Company importance to automobile industry,
Menlo Logistics, 196 2–3, 7, 29
Menlo Worldwide, 195 job losses tied to vertical integration,
Mercedes-Benz, 352 212
entry into Auto Alley, 219 Lansing, 227n2
supplier network, 149, 154t, 155t, location of only Japanese assembly
156t, 157t plant, 215
Meridian Automotive Systems, 102–103 market shift away from, 364
Meritor Automotive, Inc., 73, 256 Plymouth JCI plant, 289–290
Merrill Lynch research on suppliers, 13, Pontiac, 227n2
14t, 17 powertrain suppliers’ move outside
Metaldyne, 118, 294 of, 211–212
Mexico powertrain suppliers’ plants, 332t
assembly plants, 301 Saginaw plants, 48
brake plants, 271 share of nation’s parts plants in 1970s
carmaker/supplier networks, 157t and 1980s, 217
competition with China, 322 shift of automobile industry to, 207
imports of auto parts from, 311, 312– soda ash, 243
313, 318–320 transportation issues with Canada,
imports of engines from, 309 139–141
 Index 415

Michigan (continued) Illinois subsidies to, 366

Traverse City, 293 and Japan’s largest glassmaker, 245
UAW organizing in, 293 stamping plants, 90
Microprocessors. See Electronic control supplier network, 143, 144f, 154t,
units (ECUs) 155t, 156t, 157t
Microsoft Corporation, 352, 353 transmission supplier, 79
Mid-American Inc., 113–114 union plant, 279
Midland Steel Corporation, 285 Mittal, Lakshmi N., 122
Midwestern states. See also names of Mobis, 104, 273
specifi States Modules, 18–19. See also Systems
assembly plants with Southern U.S. firs Japanese supplier of, 72
suppliers, 149–154, 155t, 156t Mogul bearings, 68–69
brake parts suppliers, 268 Monroe, 272
chassis suppliers, 253–260 Morgan, J.P., 124
electronics suppliers plant locations, Morton International, 341
331, 332t Motor Carrier Act of 1980, 183
fuel handling parts plants in, 266 Motorola Corporation
increase of assembly plants expected electronics division, 352
by 2009, 223 radios, 163, 350, 351
increase of supplier plants from 1980 semiconductor business, 334
on, 223–224 Mott, Charles Stewart, 43–44
Japanese and German suppliers’ plant Mufflers 73
locations, 226 Multimatic Investments Ltd., 91
locations of brake plants, 270 Murray Body Company, 38
locations of suspension plants, 270, Muzzy-Lyon, 68–69
272
low number of seat plants in, 169 NAFTA, impact on Mexican trucking,
parts plants in 1970s, 216–217, 217t 141
reason for moving chassis production NAICS (North American Industrial
back to, 273 Classificatio System). See North
role in automotive industry, 357 American Industrial Classificatio
share of nation’s parts plants in 1970s System (NAICS) codes
and 1980s, 217, 217t Navigation devices, 351, 352. See also
suppliers more likely to be located Infotainment components
outside of, 119, 271 New Departure Manufacturing Company,
unionization in, 279 46
Minimills, 125–126 New England Glass Company, 243
Mississippi assembly plants, 219, 220, NHK Spring Company, 164
221, 222 Nippon Sheet Glass Company, 247
Mitsubishi Electric Corporation, 335, Nissan. See also CalsonicKansei North
336 America Inc.; “Japanese 3”
Mitsubishi Electric Industrial Company carmakers
(MEI), 351 assembly plants in U.S., 142, 219
Mitsubishi Motor Corporation cockpit modules, 348
Diamond-Star (joint venture), 215 engine plants, 77
engine plants, 77 firs plants in United States, 214–215
416 Klier and Rubenstein

Nissan (continued) firs Japanese assembly plants, 213,

Ikeda Bussan Company (joint 214
venture), 167 Ford and GM parts plants, 210
imports of powertrain parts, 309 Ford engine assembly plants, 59
relation with suppliers, 21–22 Ford Motor Company expansion into,
stamping plants and suppliers, 90, 95 210
supplier networks, 149, 150, 151, growth of “Japanese 3” carmakers
154t, 155t, 156t, 157t plants, 229
suppliers in Mexico, 154–155 Honda plants, 143, 144, 145f, 154,
transmission plants and suppliers, 75, 281
78–79 Honda suppliers, 78, 143, 144–146
Noisiness inside automobiles, 171–172 importance of carmakers to, 229–230
Normal, Illinois, 215 Oberlin JCI plant, 289–290
North American Industrial Classificatio parts suppliers in 2007, 249
System (NAICS) codes, 9–10, 13, primary types of suppliers, 230
307 Rossford, 244, 248
North American Lighting, 345 steel suppliers, 124
North Carolina fuel injection plants, 266 subsidies to Honda, 366
Northeastern states, 207, 223. See two primary types of suppliers, 230
also Coastal states, assembly plant union at GM’s Moraine assembly
closures plant, 278–279
NSG/Pilkington, 245, 246–247, 248 Ohio Module Manufacturing Company,
NSK (Nippon Seiko Kabushiki Kaisha), 103–104
116 Ohio River division of Auto Alley, 213
seat-belt operations, 341 Olds, Ransom E., 35
NTN Bearings, 116 Oldsmobile (company), 39
NUMMI (GM-Toyota joint venture), Olds Motor Works, 36
148, 155, 215 O’Neil, William F., 235, 236
union plant, 279 OnStar technology, 352
Ontario, Canada. See also Windsor,
Oakwood Group, 113 Ontario
Oberlin, Ohio JCI plant, 289–290 Ford Motor Company plants, 58, 59
Odometers, 346, 348–349 Honda plants, 144, 154
OEM (original equipment parts suppliers, 317
manufacturers), 3. See also transportation issues with Michigan
Suppliers plants, 139–141
changes in assembly process, 19 Original Equipment Suppliers
electronics, 353 Association (OESA), 16–17
relationship of carmakers with, 14–15 Osram Sylvania, 344
OESA (Original Equipment Suppliers Ottawa, Illinois, 243
Association ). See Original Overland cars, 349
Equipment Suppliers Association Owens, Michael J., 243, 244
Ohio. See also Akron, Ohio; Toledo, Ohio
carmakers before rise of Detroit, Packard, James W. and William D., 46
229–330 Packard cars, 64
“Detroit 3” carmakers legacy, 229 Packard Company, 48, 50
 Index 417

Packard Electric, 46 defined 55

Painting operations at carmakers, 95–100 future outlook, 80–82
Paint suppliers, 96–98 generic parts in, 65
Palladium Equity Partners, LLC, 344 geographical location of producers,
Panalpina, 187 56–57
Panasonic Corporation, 351–352 imports, 308–310
Parts. See Auto parts international carmakers, 75–79
Pattern bargaining, 286–288 relation with driveline and steering
Pennsylvania Ford plant, 135 modules, 253
Penske, Roger, 189 Powertrain suppliers, 65–76. See also
Penske Logistics, 186, 187, 188, 189 Powertrain components
Performance-oriented electronics imports from foreign, 315f
systems, 331, 332 map of locations of powertrain plants,
suppliers, 332–339 67f
Philco (Philadelphia Storage Battery move outside of Michigan, 211–212
Corporation) radios, 350, 351 plants, 332t
Pilkington, 244. See also NSG/Pilkington UAW organizing at, 291–293
Piston engines, 55 Power windows, door locks and seat
Pittsburgh Plate Glass Company. See adjusters, 347
PPG Industries PPG Industries, 96, 97, 99–100, 245,
Planning Perspectives Inc. (PPI) Working 247–248. See also Platinum (PPG)
Relations Index, 25–26 PPI (Planning Perspectives Inc.). See
Plastech Engineered Products, 103, 197, Planning Perspectives, Inc.
198 Prince, Edgar, 177–178
Plastic Omnium, 102, 266 Prince Corporation, 176–177
Plastics companies, 126–127 Private equity investors, 179–180, 240,
Platinum (PPG), 247–248 257
Plymouth, Michigan JCI plant, 289–290 about, 360–361
Polymer research plants, 241 Blackstone Group, 174, 260, 334
Pontiac, Michigan, 227 in glass suppliers, 247
Powder coatings, 96
Power brakes, 268 Quality evaluation of automobiles,
Power steering, 336 109–110
Powertrain components. See also
Powertrain suppliers Rack-and-pinion steering, 259, 260
destinations for U.S. exports of, Radial tires, 238, 239
324–325 Radiators, 71
powertrain parts plants in the Radio Corporation of America (RCA),
Midwest, 66t 351
value of U.S. exports of, 326 Radios and radio components, 313. See
vulnerability to import competition, also Infotainment components
326 components imported from Mexico
Powertrains. See also Chassis suppliers; vs. China, 322
Performance-oriented electronics early supplier of radios and eight-
assembly, 56 track tape systems, 163
assembly plants in the Midwest, 57–65 firs radios, 334, 347
418 Klier and Rubenstein

Radios and radio components (continued) Safety-oriented electronics systems,

inventors of radio, 350 339–346
Panasonic, 351–352 parts plants, 332t
Philco, 350, 351 suppliers, 340–341, 344–346
Radio Wire and Coil Company, 163 Saginaw, Michigan plants, 48
Rapaille, G. Clotaire, 99 Saint-Gobain Group, 245, 246
RCA (Radio Corporation of America). Salomon Brothers, 174
See Radio Corporation of America San Antonio, Texas, 222
R&D. See Research and Development Saturn
(R&D) assembly plant, 142
Rear-wheel drive, 253 logistics services providers, 189
steering vehicles with, 258–259 supplier network, 149, 153f, 154t,
Recirculating ball steering, 259 155t, 156t, 157t
Remey Electric Company, 46 Schenker, 187
Renesas, 333–334, 335–336, 354n3 Schulze, Otto, 349
Republic Motors, 44–45 Seat adjusters, 175
Republic Steel, 123 Seat belts, 339, 340
Research about carmakers and suppliers, Seat frames, 164, 165, 168
16–17. See also Authors’ study Seats and car interiors. See also
Research and Development (R&D) Convenience-oriented electronics;
automobile industry, 20, 26 Headliners and carpets; Safety-
hybrid electric vehicle technology, oriented electronics
81–82 contribution to quietness, 171–172
lower-tier suppliers and, 129–131 geographic proximity of suppliers to
Rhodes, Governor James, 213, 214 carmakers, 136
Robert Bosch Corporation, 265 history of seat development, 161–163
brakes, 268, 269–270 imports, 311–312, 315f
market share of ESC systems, 346 interior trim modules, 170–172
Mexico plant, 313 uniqueness of this sector, 159–160
semiconductor sales, 333 Seats and car interiors suppliers. See
speedometers, 349–350 also Johnson Controls Inc.; Lear
Rockwell, Edward D. and Albert F., 46 Corporation
Rockwell International, 256 Canadian suppliers, 316–317
Rolling chassis production, 273–274 destinations for U.S. exports from,
Ross, Wilbur, 179–180 325
Rossford, Ohio, 244, 248 effectiveness of joint ventures, 167
Rubber, 231–232 future outlook, 179–180
Rubber barons, 236 interior trim suppliers, 128, 172–175
Ryder Logistics, 188–189 locations of seat plants, 169–170
map of interior parts plants, 173f
Safety features. See also Exterior safety Mexico, 318–320
systems; Interior safety systems seat suppliers, 161–170
bumpers, 100–101 systems integrators, 176–179
glass, 242 Toyota suppliers, 148
safety glass, 339 UAW organizing of, 288–291
value of U.S. exports of parts, 326
 Index 419

Seats and car interiors suppliers Auto Alley push into deep South in
(continued) 1990s, 217–219
vulnerability to import competition, brake and suspension module
326 suppliers, 266–272
Seat springs, 165 carmaker/supplier networks, 149–
Seiberling, Frank A., 234, 236 154, 155t, 156t
Semak SA, 70 chassis parts suppliers, 260–266
Semiconductor suppliers, 332–339 Honda plants, 145, 146
worldwide auto semiconductors sales locations of brake plants, 270
by system, 2005, 333t locations of suspension plants, 272
Sensors, 332 nationality of suppliers, 224–226
airbag, 340 parts plants in 1970s, 217
for electronic stability control, 345 plants, 76, 222–226
Sequencing and kitting operations, reason for suppliers’ move to, 275
199–200 South Korea. See Mobis
Severstal, 125 Speedometers, 346, 348–349
Shane Steel Processing, Inc., 114 Spicer, Clarence W., 257
Shanghai, 322 Spicer Axle. See Dana Corporation
electronics exports to U.S., 313 Stamping operations at carmakers, 83–85
Shipping industry, 183–184. See also Japanese carmakers, 90–95
Supply chain logistics map of locations of plants, 87f
land-based companies, 184–191 stamping dies, 130
ocean-going companies, 191 U.S. carmakers, 85–90
transportation issues between U.S. Stamping suppliers, 198
and its neighbors, 139–141, 319– Stanley Electric, 345
320 State and local economic development
Shock absorbers, 271–272 incentives, 365–366
Siemens AG, 334–334, 344 Steel companies, 121–126
Silica suppliers, 242 Steering modules, 258–259
Silver cars, 99–100 imports, 310, 311
SKF, 116 power steering, 336
Sloan, Alfred P., 339 relation with powertrains, 253
Slyvania Products Company, 344 safety system suppliers, 345–346
Smith, Fred L., 39 steering parts supplier, 259-260
Smryna, Tennessee, 213, 214 Steering reach rod, 260
South Carolina Stewart Warner Performance, 349
assembly plants, 218, 219 STMicroelectronics, 333–334, 335,
brake plants, 269 354n3
foreign ownership of parts plants, 224 Stockman, David A., 174–175
fuel injection plants, 266 Storage. See Warehousing operations
German-owned supplier plants, 226 Stronach, Frank, 91
Southeastern Michigan Subaru
early carmakers and suppliers, 39 assembly plant, 222
early suppliers, 35–36 engine plants, 77
Southern states Indiana subsidies to, 366
attraction for suppliers, 297 seat supplier, 164
420 Klier and Rubenstein

Subaru (continued) geographic pattern of plant openings

supplier network, 154t, 155t, 156t, in Auto Alley, 216–217
157t growth of plants in Auto Alley, 223–
Sumitomo Electric Industries, 338–339 224
Sumitomo Rubber Industries, 241 impact of international competition
Superior Industries International Inc., on, 299
262–263 impact of rapid price drop in
Supplier parks, 196–199 production on, 268, 271
Suppliers. See also Carmaker-supplier importance to carmakers, 1–2
proximity; Chassis suppliers; invisibility, 3
Electronics suppliers; Exterior key finding from authors’ database,
parts suppliers; Foreign-owned 12
suppliers; Glass suppliers; management and structural issues,
Lower-tier suppliers; OEM 91–92
(original equipment map of North American plant
manufacturers); Powertrain locations, 13f
suppliers; Seats and car interiors market share of U.S.-owned, 301
suppliers; Supply chain mistakes made by, 69
geographical linkages; Supply nationality of largest ones operating
chain logistics; Tier 1 suppliers; in U.S., 302–304
Tire suppliers nineteenth century, 35
alternative corporate structures, 117 outsourcing impact on, 275–277, 297
business models, 361–363 relationships with “Detroit 3” vs.
carmaker’s fear of single, 178–179 “Japanese 3” carmakers, 356–357
challenges faced by, 359–360 relations with 3PL providers, 201–
changes over the past century, 355 202
commodities suppliers, 120–128 research and development by, 20, 26
consolidation, 19 restructuring of, 360–361
in database created for this book, shift from parts and components to
10–13, 141–142 modular systems, 18–19
defined 1 top 150 in sales by nationality, 304t
degree of leanness for American vs. unionization, 282–287
Japanese carmakers, 187 unions at former “Detroit 3,” 294–296
differences among research studies Supply chain geographical linkages.
about, 13, 14t See also Carmaker-supplier
early twentieth century, 35–38, 40 proximity; Just-in-time (JIT)
employment rates by specialty, 2007, delivery
3t future outlook, 156, 157–158
European 3PL services providers, maps of supplier and assembler
187–188 networks, 143
future outlook, 358–359, 368–369 networks of suppliers and assemblers,
future outlook for their communities, 141–156, 157t
363–368 reasons for linkages, 133–136
geographic and capitalization Supply chain logistics. See also Freight
diversity among, 4–8 chain management; Supply chain
management; Vertical integration
 Index 421

Supply chain logistics (continued) rolling chassis production, 273–274

asset-based and non-asset based shatter-proof glass, 242
services, 182 speedometers and odometers, 348–
costs in United States, 182, 183, 349
184–185 steering, 258–259
definitio of logistics, 182 telematics systems, 351, 352
fourth-party logistics (4PL), 192–200 tires, 231–235
future outlook, 200–202 U-joints, 257
order of seat-type loading, 136–137 unitized construction, 84, 85, 93
third-party logistics (3PL), 182–191 for wiring equipment, 338
unexpected difficulties 138–139 Teksid Aluminum North America Inc., 70
Supply chain management, 182, 185–187 Telematics systems, 351, 352
by carmakers, 196–200 Tenneco Automotive, 73, 74, 272
hierarchy, 193f Tennessee
by 4PL providers, 192–194 brake plants, 269
Suspension modules, 271–272 firs Japanese assembly plants, 213,
geographical separation of parts and 214
module plants, 267 Japanese-owned supplier plants, 226
imports, 310 parts plants in 1980s, 217
suppliers, 166–167, 272 Saturn plant, 149
Swedish supplier, Autoliv, 341, 362–363 Tesla, Nikola, 349
Switches Texas
modules that control, 338 assembly plants, 220, 222, 223
number of plants that make, 332t El Paso suppliers, 338
Systems, 18–19. See also Modules Fort Worth supplier, 72–73
Systems integrators, 361–362 Laredo border, 141
Textiles. See Fibers for interiors
Taiwan exports of lighting equipment to Textron Automotive speedometers, 350
U.S., 313 Thermal systems. See Heating and
Technologies used in auto-making. cooling systems
See also Assembly lines; Fuel cell ThomasKrupp, 126
vehicles; Hybrid electric vehicles; Thompson, Charles E., 259–260
Materials used in automobiles; Thomson, Robert W., 237
names of specifi parts, 3PL service providers. See also 4PL
components or modules (Fourth Party Logistics)
airbags, 362–363 difficulties 192
auto bodies, 90–91, 94, 96 functions, 182–187
brakes, 267–268, 346 leading ones, 182, 187–191
electronic fuel injection, 265 view of 4PL (Fourth Party Logistics),
gasoline engines, 55–56 194
glazing and glass tinting, 245 Throttles, 336
hydroform technology, 90–91 ThyssenKrupp, 93, 94, 126, 311
impact of technology on suppliers, TI Automotive, 264–265
359–360 Tier 0.5 suppliers, 362
interior safety innovations, 339 Tier 1 suppliers. See also Lower-tier
lighting, 342–343 suppliers
422 Klier and Rubenstein

Tier 1 suppliers (continued) Toshiba Corporation, 354n3

carmaker’s issues with, 178 Tower Automotive, 90, 94–95, 197, 198
challenges faced by, 356 Toyota Borshoku Company, 166, 179
contracts under just-in-time delivery, Toyota Motor Corporation. See also
138 Aisin; Denso Corporation;
difference from lower-tier suppliers, “Japanese 3” carmakers; NUMMI
117 (GM-Toyota joint venture); Toyota
importance to automotive innovation, Borshoku Company
20 See also Koyo Company
involved in engine management assembly plants in U.S., 142, 146,
electronics, 337 215, 216, 219
reasons for recent decline, 299 Camry, 4–5, 6–7
relations with carmakers and lower- choice of Tupelo, Mississippi for
tier suppliers, 129–130 assembly plant, 221, 222
used by Honda, 146 engine plants, 76
Tijuana, Mexico, 319 4PL provider, Vascor, Ltd., 194–195
Timken Company, 115–116 fuel cell vehicle plans, 80
Tires Georgetown, Kentucky plant, 7–8,
first 38 146, 147f, 215–216, 366
materials and technologies, 232, 233, glass supplier, 248
234, 235 heijunka principles of supply
mounting on wheels, 261 management, 185, 187
Tire suppliers. See also United Rubber hybrid electric vehicles, 81, 82
Workers (URW) importance of OEM suppliers to
abandonment of Akron, Ohio, 236– market share success, 15
241 imports of powertrain parts, 309, 318
concentration in Akron, Ohio, 230– Prius, 82
236 relation with suppliers, 21–22
impact on Akron, Ohio, 236 seat suppliers, 166–167
imports from foreign, 310 stamping plants, 90
locations of plants outside Ohio, 238, steel supplier, 124
239, 241 supplier network, 143, 146–148, 150,
materials and technologies, 237, 238 151, 152, 154t, 155t, 156t, 157t
TK Holdings, 342 transmission plants and suppliers, 75,
T&N plc, 69 78–79
Tokyo Seat Company. See TS Tech Ltd. view of logistics and materials
seats handling, 185
Toledo, Ohio. See also Glass suppliers view of supplier parks, 199
Chrysler plants, 103, 199, 273 Transaxles, 255
glass suppliers, 230, 241–248 Transmissions, 56
suppliers, 249, 257 bearings for, 115
UAW organizing at, 291–292 Chrysler plants, 61–62
unionization, 1930s, 283–284 Ford plants, 58
Toledo Glass Company, 243 General Motors plants, 60
Tomkins, 120 imports from foreign suppliers, 309
Torque, 56 imports from Japan, 318
 Index 423

Transmissions (continued) Union of Needletrades, Industrial and

for Japanese carmakers and suppliers, Textile Employees (UNITE), 280
75–76, 77–79 Uniroyal Goodrich Company, 237, 238
location of Honda’s suppliers, 146 UNITE (Union of Needletrades,
map of carmakers’ plants, 59f Industrial and Textile Employees).
relation with axles, 255 See Union of Needletrades,
suppliers, 74–75 Industrial and Textile Employees
vulnerability to import competition, United Auto Workers (UAW), 277
326 2007 agreement with “Detroit 3”
Transplants, 213 carmakers, 296–298
Transportation. See Shipping beginnings, 282–287
Traverse City, Michigan, 293 organizing at former “Detroit 3”
Trim. See Seats and car interiors suppliers, 293–296
Trim Masters (joint venture firm) organizing at seat and interior
165–166 suppliers, 288–293
Trucks United Motors, 45–46
assembly of, 84, 273 United Rubber Workers (URW), 279,
axle suppliers, 256 286, 287
bumpers, 101 United Steelworkers of America (USW),
diesel engines, 62–65 279
kinds not included in this book, 278 United Technologies Automotive (UTA),
Toyota assembly plants, 148 177
Toyota engine plants, 76 United Technologies Corporation (UTC),
TRW Automotive Inc., 259–260, 268 177–178
airbags and seat belt operations, Unitized construction, 84, 85, 93
341–342 UPS Supply Chain Services, 187–188,
brakes, 270 190
market share of ESC systems, 346 warehouse space owned by, 184
TS Tech Ltd. seats, 167, 168–169 URW (United Rubber Workers). See
TungSol, 343 United Rubber Workers
Tupelo, Mississippi, 221, 222 U.S. Census of Manufactures, 9–10
Two-toned cars, 99 U.S. Rubber Company, 232, 233, 287
U.S. Steel Corporation, 124
UAW (United Auto Workers). See United USW (United Steel Workers). See United
Auto Workers Steel Workers
U-joints, 257 UTA (United Technologies Automotive).
Undercarriage. See Chassis suppliers See United Technologies
Unionization of auto workers, 275–277. Automotive
See also Pattern bargaining; UTC (United Technologies Corporation),
United Auto Workers (UAW) United Technologies Corporation
estimated number of union members,
2006, 277 Valeo Inc., 71, 299
future outlook, 296–298 Mexico plants, 313
impact of union decline, 361 speedometers, 350
rise and fall of auto unions, 277–287 Vance Alabama plant, 219
in the 21st century, 288–296 Vascor Ltd., 194–195
424 Klier and Rubenstein

Vector Ltd., 194, 195–196 suppliers’ exit from making

Vertical integration. See also Stamping suspension modules, 272
operations at carmakers; Supply Wheels, 261
chain logistics bearings, 115
advantages, 31, 32–34 suppliers, 262–264
disadvantages, 31–32 Wilson, Charles R. and J.C. Wilson, 38
“downstream,” 32, 33 Windows, 241–242. See also Glass
fall of, at Ford and GM, 46–52 suppliers
Michigan job losses tied to, 212 tinting, 245
outlook for future, 52–53 Windsor, Ontario, 317
rise of, at Ford and GM, 38–46 Ambassador Bridge, 140–141
suppliers for Ford and GM, 36–46 union organizing in, 290
suppliers who preceded carmakers, Wipers, U.S. exports, 325
34–35 Wiring
“upstream,” 32 and batteries, 337
Viscolac lacquer, 98 cockpit, 347
Visteon Corporation, 5–6, 47–53, 197, harnesses, 338
198 imports of wiring harnesses, 312
headlight operations, 343 plants, 332t
Mexico plants, 313 suppliers, 338–339
Restraint Electronics operations, 341 value of wiring systems in vehicles,
Shanghai presence, 322 337–338
speedometers, 350 Wisconsin, 349
UAW organizing at, 295–296
Volkswagon Yazaki Corporation
diesel engines, 62 Mexican plants, 312, 320
New Beetle, 102 North America electronics division,
Westmoreland plant, 345 338
Vulcanization, 232
Zenith Corporation, 351
Wage rates of auto workers, 275–277. ZF Group, 197, 198
See also Employee benefit
at seat and interior suppliers, 288–289
Walbro Corporation, 265
Warehousing operations, 184–185. See
also Distribution centers
Warner, Arthur Pratt, 349
Warner Electric Company, 349
Westinghouse Electric Company, 343
Weston-Mott Company, 44
Wheel modules, 260–261
boutique wheels, 261–262
combined with brake and suspension
parts, 264
imports, 310, 311
 About the Institute

The W.E. Upjohn Institute for Employment Research is a nonprofi re-

search organization devoted to findin and promoting solutions to employ-
ment-related problems at the national, state, and local levels. It is an activity of
the W.E. Upjohn Unemployment Trustee Corporation, which was established
in 1932 to administer a fund set aside by Dr. W.E. Upjohn, founder of The
Upjohn Company, to seek ways to counteract the loss of employment income
during economic downturns.
The Institute is funded largely by income from the W.E. Upjohn Unem-
ployment Trust, supplemented by outside grants, contracts, and sales of pub-
lications. Activities of the Institute comprise the following elements: 1) a re-
search program conducted by a resident staff of professional social scientists;
2) a competitive grant program, which expands and complements the internal
research program by providing financia support to researchers outside the In-
stitute; 3) a publications program, which provides the major vehicle for dis-
seminating the research of staff and grantees, as well as other selected works in
the field and 4) an Employment Management Services division, which man-
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The broad objectives of the Institute’s research, grant, and publication pro-
grams are to 1) promote scholarship and experimentation on issues of public
and private employment and unemployment policy, and 2) make knowledge
and scholarship relevant and useful to policymakers in their pursuit of solu-
tions to employment and unemployment problems.
Current areas of concentration for these programs include causes, conse-
quences, and measures to alleviate unemployment; social insurance and income
maintenance programs; compensation; workforce quality; work arrangements;
family labor issues; labor-management relations; and regional economic de-
velopment and local labor markets.

425