Grin and Bear It Despite strike, suppliers still need GM

The 54-day strike against General Motors Corp. is over, and suppliers want to forget it as quickly as Jack Smith does.

But it's not so easy when the ugly confrontation left an indelible mark on supplier profits. Of course, there is potential for more unrest in next year's contract talks with the United Auto Workers union.

At some point, will all this aggravation force suppliers to reconsider how much work they want to do with GM? Could this strike force suppliers heavily dependent on GM to strive for a more diverse customer base?

We posed these questions to supplier executives and found few who were willing to sever ties to GM just yet. Many seem like boxers who have been bruised and knocked down but bounce right back.

"We want all the GM business we can get," says one executive with a supplier severely impacted by the strike. "This strike was hurtful, but all the suppliers are trying to make up as much production as possible. I think reconsidering the strategy with GM is not in the cards at all."

To sacrifice work with GM for a little peace of mind is the same as handing market share over to a competitor. "And nobody wants to do that," the same executive says.

It's hard for any supplier to say no to GM. The world's largest automaker pays its bills and promises huge volumes. After the departure of embattled purchasing chief Jose Ignacio Lopez, suppliers say GM is learning the meaning of partnership.

And many suppliers anticipate that the spirit of partnership will expand now that GM has announced the spin-off of its Delphi Automotive Systems parts subsidiary. That move could translate into more GM outsourcing to other suppliers.

But it also should make Delphi more competitive. The company will aggressively pursue its goal of 50% of sales outside GM in North America by 2002.

For now, suppliers are just glad the strike is over. GM has alerted suppliers to prepare for a quick ramp-up to make up the lost production.

"The expectation was that we could basically get back up to speed in a matter of days," a supplier executive says. "There are serious efforts made by GM to make up lost production, which means overtime."

Suppliers have confirmed more than $100 million in losses in second-quarter earnings. Because the settlement didn't come until the end of July, some of the damage will extend into the third quarter. That's excluding the GM summer shutdown when the automaker was already scheduled to be idle.

The Supplier Index tallied by WAW's sister publication, Ward's Automotive Reports, shows that 30 suppliers included in the index placed 22,440 employees on layoff during the strike.

Many suppliers were reluctant to place employees on temporary layoff during the strike for fear they would find new jobs elsewhere, says David Andrea, automotive analyst with Roney & Co. of Detroit. Replacing those employees in this tight labor market would be difficult.

Mr. Andrea says despite the brave faces on display at the early August University of Michigan conference in Traverse City, MI, many suppliers will be more cautious in dealing with GM in the future.

"I think the labor environment at GM certainly would behoove any supplier to balance its customer mix," Mr. Andrea says. "But GM is still the largest vehicle manufacturer in the world, and it's so difficult to turn your back on those kinds of volume opportunities. It's a balancing act."

GE Plastics, for instance, already has a diverse non-automotive customer base, so layoffs during the strike were unnecessary, even though the company produces resins for 50 lbs. of plastics in the new GMT800 pickup.

At Johnson Controls Inc., the strike forced the layoff of 1,775 employees, most of them at four dedicated GM seating plants. "Has it jeopardized our relationship with GM? I don't think so," says company spokesman Jeffrey Steiner.

Again, the Delphi spinoff creates major opportunities for suppliers to grow their GM business. Moreover, making GM less dependent on Delphi eventually should reduce the risks of crippling strikes.

"I think around 2003 or 2004, there will be an awful lot of supplier contracts that will open up for more free market bidding that had been locked away within Delphi," Mr. Andrea says.