Special Coverage

Management Briefing Seminars

TRAVERSE CITY, MI – Automotive manufacturing jobs will be where they need to be around the world, says a top consultant, but that doesn’t mean they all will leave North America.

“I don’t believe in the demise of U.S. manufacturing,” says John Hoffecker, managing director of AlixPartners LLP. “We should not assume that manufacturing is leaving.”

However, the U.S. should have a strong industry policy, which it doesn’t have now.

“Globalization changes all the rules, whether in textiles, shipbuilding, or automotive,” Hoffecker says. “The best companies in the world move from one continent to another. As a nation, we need to know where we want to play.”

Policy is important, because wages and the strength of a currency have an important effect on costs in a global market. A recent AlixPartners study found Mexico is a more competitive manufacturing market today than China, in part because the yuan has strengthened more than the peso.

Wages for professionals in India, once about 20% of the rate for comparable jobs in the U.S., now are almost at parity.

“A decision made a year ago can be wrong this year because factors can change rapidly,” Hoffecker says at the 2009 CAR Management Briefing Seminars here.

Global competition has aided consumers. New entrants have helped keep the relative price of a new vehicle the same since 1993, while the cost of country-specific items such as education and health care have doubled.

Other industries have gone through the same transformation. The textile industry is a well-known example. Clothing prices have fallen 20% in 20 years as global competition has increased.

The U.S. auto industry has another 20 to 25 years to go before its restructuring is complete, Hoffecker says, but suppliers with a strong balance sheet and good execution, those in the top 25% of the industry, “will do unbelievably well.”

These successful companies are taking sales from those that are failing. And although suppliers “need to take out more capacity, the best ones are getting more out of existing capacity.”

Hoffecker argues auto makers need to listen closely to customers, and suggests the “gadget generation” of young car buyers is not seduced by driving dynamics as much as by clever devices in the car.

Ford (Motor Co.) has done a good job,” he says. “The Sync (multi-media system) has been critical to sales.”

EcoBoost and the LCD display on the new Ford Fusion that shows leafy vines growing, to indicate green- driving success are other examples of technologies consumers will buy.

“I care about the engine and driving dynamics, but I’m in the 1%. The other 99% will be caring about the interior lifestyle, the look of something. Figuring out what is core to the consumer is critical.”

And because electronics inspire the gadget generation, “there will be a different set of suppliers critical to their buying decisions,” he says.

The other trend for the future is how to make money on inexpensive cars, Hoffecker says.

To exploit the volume growth to come from emerging markets in Brazil, Russia, India and China, auto makers need to develop cars that cost one-tenth as much as an average U.S. car. That means a price tag closer to $3,000 than $30,000.

AlixPartners has worked with 40 auto makers and 140 suppliers, helping them restructure or prepare for change. “In automotive, we are not even half way there yet in the restructuring of a great industry,” Hoffecker says.

U.S. restructuring began in the 1980s, when Japanese auto makers building plants here had a $2,000 cost advantage in a market where companies made $1,000 profit per vehicle, he says.

“Because we had defined benefits, we built up a cost structure that the new entrants didn’t have. We had an industry that needed restructuring. The beauty of the last year is we have taken the field and flattened it out.”