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Marginal: Elevate Your Capabilities—Or...

I don’t want to depress you, but we need to face up to some things in this industry. Sooner, not later.

On a scale of 1 to 10, how bad would you say things are in the auto industry right now? Depending on where you work, where you’re located, and what you do, your answer might be 10, as in “Absolutely awful.” For people in southeastern Michigan, at both OEM and supplier companies, who are blue collar or low- to mid-level white collar workers, things are not ideal. Not at all. But like the amplifiers used by the members of Spinal Tap, chances are good that things are going to be cranked up to an 11 before too long. Consider:

  • Chrysler Group is in a bad situation. If it is sold, then there will undoubtedly be the redundancies that happen when an acquisition is made. If it isn’t sold, its market position may suffer due to doubt about its long-term viability going forward.
  • Ford is not out of the proverbial woods. Not by a long shot. It went from having the market-leading Taurus, F-Series, and Explorer to a situation where it has renamed an anemic-selling sedan (i.e., down 27.1% in the first three months of ’07) Taurus, where it has to watch with some dismay as the General Motors pickups fly out of dealerships and Toyota is making its presence known in the pickup market, and where the Explorer is doing just a bit better than the aforementioned Five Hundred sedan—down 25.1%.
  • General Motors is clearly the strongest of the Detroit Three, but no one in the Ren Cen is breathing a sigh of relief. Toyota is continuing to grow and is rolling toward becoming the world’s number-one vehicle manufacturer. And with the forthcoming UAW negotiations, GM’s comparative strength might make it the obvious target.
  • Suppliers galore are in some sort of “restructuring.” That is a nice way of saying “Closing plants and eliminating staff.” An increasing amount of work is going to places outside the U.S.—and not just factory jobs.

That pretty much adds up to an 11, doesn’t it?
I recently talked with Michael Robinet, vice president of Global Forecast Services for CSM Worldwide (www.csmauto.com). The day in question was the one when GM unveiled three small cars—the Beat, Groove, and Trax—at the New York Auto Show. Three new Chevy concept vehicles. They happen to have been designed, engineered and will likely be produced in Korea. Robinet noted that by and large, the vehicles that are designed, engineered and produced in the U.S. (or North America) tend to be large—big sedans, SUVs, pickups. What’s ultimately troubling about that is that there is little market elsewhere in the world for those vehicles. Meanwhile, if you take a competitor like Nissan, realize that it not only has products that are sold in North America, Europe, and Asia under the Nissan brand, but that with its alliance partner Renault, it is able to amortize the costs of designing, engineering and manufacturing over a greater number of units. Where does that leave the U.S. designers and engineers going forward? And as gas prices rise, big vehicles are doing to have less traction, even here.

Since your day is probably already ruined, there’s more. ARC Advisory Group (www.arcweb.com) has released a five-year analysis and forecast, “Offshore Product Design Services Worldwide Outlook.” It looks at projected spending between 2006 and 2011. In 2006, they peg the market at $1.2 billion. They estimate it growing at a compounded annual growth rate (CAGR) of 28%. Which means $4.1 billion by 2011. Not all of this spending is automotive, as they look at a variety of industries that are looking to take advantage of labor in low-cost regions. But the spending by automotive for offshore product design services isn’t trivial: According to ARC, it was $186 million in 2006 and is projected to grow to more than $563 million by 2011. Note well: This is outsourced spending.

Manufacturing in the U.S. has never had the kind of support that it deserves. It is one of those things that is almost treated like a dirty little secret: “You do what?!?” Even at the national level there is a Department of Agriculture, but not a Department of Manufacturing. (Not that I’m suggesting that we need more bureaucracies—we don’t—but it does make my point.) Competitiveness gets a certain amount of lip service, at best. Manufacturing is not going to go away in the U.S., but the companies that are most capable—and competitive—are going to be the ones who will succeed at it. The others will outsource. Which may be beneficial to people in places like China and India, but not Chicago or Indianapolis. And how long will it be before designers and engineers will find themselves competing with the low-cost labor?
 

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