Automakers in North America will soon start outsourcing niche vehicle assembly, say leading suppliers who are hoping to benefit from the new business.
Although assembly outsourcing has long been part of the European automotive scene, it has been absent from North America due to union opposition and the unwillingness of automakers to lose control of production programs.
Three US suppliers - Magna International Inc., ASC Inc. and Venture Industries Corp. - point to a growing market for low-volume niche vehicles in the USA. They believe they can fill that demand faster, more efficiently and at a higher profit margin than high-volume automakers.
'Generally, the more of the vehicle you gain control over, the better you can manage the cost to your advantage and the customer's advantage,' said Scott Pickelhaupt, vice president of marketing at Venture.
In addition to the three US suppliers, the potential for outsourcing in North America has attracted two experienced European coachbuilders: Group Lotus Ltd. and Wilhelm Karmann GmbH have opened engineering offices in the Detroit area since 1998.
Karmann builds about 100,000 niche vehicles per year in Germany for European automakers. These include the VW Golf cabriolet and wagon, Kia Sportage and Mercedes-Benz CLK cabriolet.
'It's a business we're familiar with. Whether we do it in North America depends on the automakers,' said Tim Olind, chief operating officer of Karmann USA Inc.
In March, Lotus bought an engineering group in Ann Arbor, Michigan, and will open its main US office in Southfield, Michigan, later this year. Lotus builds its own vehicles in the UK and this autumn will begin assembling the new Opel Speedster/ Vauxhall VX220 sports car for GM in Europe.
Said Tim Holland, vice president of Lotus Engineering: 'We are obviously capable of doing that' in North America.
One of the major reasons why American suppliers have trailed their European counterparts is the stance of their union - the United Auto Workers - against outsourcing of both vehicle assembly and even module assembly.
Another obstacle is the enduring belief among car company officials that they can build vehicles - even those with volumes of fewer than 30,000 a year - better than any supplier.
That attitude, according to suppliers, could change soon as automakers try to develop and launch niche vehicles in record time. The automakers 'make their money on the high-volume stuff,' said Rich Morphew, ASC vice president of business development in Southgate, Michigan. 'To take resources away from those and put them into something that - in terms of profit -is hardly on the radar screen, is really difficult.'
The effort is not new. In the late 1980s, Magna and ASC sought contracts to assemble vehicles for automakers. But industry sales slowed, both companies got into financial trouble and plans were abandoned.
Magna, ASC and Venture said they are talking to major automakers about managing vehicle projects. But they could not say which automaker might go first - or when.
Magna, of Aurora, Ontario, Canada, has made it clear it wants to build vehicles.
Last year Magna moved in that direction by buying European coachbuilder Steyr-Daimler-Puch. At its assembly plant in Graz, Austria, Steyr-Daimler-Puch builds the Jeep Grand Cherokee and the Mercedes-Benz E-class 4matic, M-class and G-wagen. In 2002, the company will begin building Saab convertibles.
The Graz plant has an annual capacity of 150,000 vehicles.
'At some point in the future we will replicate that ability in North America,' said Graham Orr, Magna executive vice president of corporate development. Orr would not say when.
Venture moved toward niche vehicle production earlier this year when it took control of Shelby American Inc. and its new low-volume assembly plant in Las Vegas, Nevada. The plant produces the limited edition Shelby Series 1 roadster.