In the Hunt

Siemens VDO Automotive's mammoth electronics plant in Huntsville, AL, shows there is a future for high-volume, high-tech component manufacturing in the U.S. Proving that point, however, has been difficult, expensive and a bit messy.

This proud community, known as “Rocket City” for the pioneering work by scientist Wernher von Braun in launching the nation's space program in the 1950s, has had to adopt a new mindset and make painful concessions.

Siemens VDO purchased two electronics plants in Huntsville from DaimlerChrysler AG, taking control on April 1, 2004.

The facilities were facing a tenuous future, supplying nearly all of their output to Chrysler Group vehicles at a time when North American economics were being stacked heavily against captive suppliers serving few customers.

Chrysler ran the Huntsville complex like a vehicle assembly plant, paying United Auto Workers employees on two shifts about $26 an hour to manufacture commodity electronic components that could be sourced much more cheaply from Asia or Mexico.

Chrysler knew it had to unload the plants and began negotiations with potential suitors in early 2003, but the deal could not be sealed until after the national UAW contract was ratified later that year.

Huntsville associates who wanted to stay at the plants had the option of joining Siemens VDO or remaining DaimlerChrysler employees, with the right to “flow back” to another DC location. More than half opted to flow back to DC, and about 125 hourly employees are waiting for their new Chrysler assignments.

Those who joined Siemens VDO have the same pay and benefits as DC employees until the plant's collective bargaining agreement ends on Sept. 14, 2012.

Although workers who stayed at the plant suffered no pay cuts, new hires start at a much lower rate, about $11 an hour. Of 1,275 hourly workers in Huntsville, 650 hired in after the acquisition. Total headcount is about 2,000, slightly higher than under DC.

Despite the potential for tension in this “2-tier” wage environment, Plant Manager William Fodness says morale is better today than when the deal closed. “We've really changed the plant chemistry here,” he says. “We've hired 700 people who are new, plus you have people who chose to stay in Huntsville.”

Fodness says employees understood the plant would struggle to compete under Chrysler ownership. The plant produced 9 million instrument clusters, engine/powertrain controllers, car-body electronic and audio products in 2006.

With Huntsville, Siemens VDO claims to be No.1 in worldwide market share for each of those components, except for powertrain controllers. Delphi Corp. is No.1 in that sector.

Much has changed at the plant under Siemens VDO ownership.

Instead of running on two shifts for five days and swallowing the cost of starting and stopping production equipment every day, the plant now operates with three shifts over five days.

Production volumes have been steady since Siemens VDO took over in April 2004. If business is really booming, Siemens VDO has the “upside potential” to run weekend production.

Siemens VDO got two facilities in Huntsville from DC, including the 849,000-sq.-ft. (709,800-sq.-m) main plant built in 1988 on 144 acres (58 ha).

A smaller production facility that opened in 1977 manufactures instrument clusters and is slated to close later this year. The business is moving to another Siemens VDO plant in Guadalajara, Mexico, and Fodness is hoping to absorb the 150 employees into the main plant in Huntsville.

Siemens VDO has strong motivation to keep the main Huntsville facility open, with a full book of business: The UAW Jobs Bank protects pay and benefits for employees who are laid off. However, the bank was empty as of mid-February.

Production at the main facility is highly automated, and more than 40 guided vehicles roam the aisles freely, delivering raw materials to 15 production lines and picking up finished circuit boards and other goods for hauling to the loading dock.

Production lines have been reconfigured into compact U-shaped cells, freeing up space for five new assembly lines, some of them supplying customers other than Chrysler, Fodness says.

The plant now is producing 1 million transfer case controllers annually for General Motors Corp., as well as navigation systems for BMW AG. Later this year, Huntsville will begin manufacturing seat module controllers for Ford Motor Co., and in 2008 the plant will launch a contract with an Asian auto maker.

Among the workforce, cultural changes run deep. Employees now must wear special lab coats (containing flecks of carbon fiber) and strips on the bottom on their shoes to prevent electrostatic discharge to a component on the assembly line.

Workers helped write a mission statement, emblazoned on a massive canvas sheet that hangs on a wall of the plant, bearing more than a thousand signatures. Siemens VDO raffled off a new Chrysler 300 as encouragement to sign the pledge, and the winning employee still works at the facility.

By several measures, the plant is doing well under its new owners. In January, Huntsville produced 31 defective parts per million, down from 300 at the time of the purchase.

Employee Alex Richards finds the plant cleaner and brighter since Siemens VDO took over. He says the new starting pay of $11 an hour is competitive with other companies in the region.

“People here see that jobs are going away,” Richards says. “They recognize that this is a good opportunity.”

In Huntsville, Siemens VDO is situated in the cradle of a booming auto industry in the South, surrounded by new vehicle assembly plants for Asian and European auto makers.

“Soon we'll take over Detroit as the center of the auto industry,” Fodness says of Huntsville.