Partsmaker Paranoia?---Independent suppliers can't help but be skittish

Who would blame executives at independent partsmakers if they were to pay more attention than usual to this year's round of labor talks?

Like never before, the independents find themselves caught in the middle between the Big Three automakers and their U.S. and Canadian unions, a bargaining chip to be tossed on the table in the debate over modular assembly.

Automakers - particularly General Motors Corp. with its ill-fated Yellow-stone project - want to put more work with outside suppliers, taking jobs out of the assembly plant. That's OK with the unions, as long as the suppliers putting those modules together do it with union labor.

But that's not OK for many independent, non-unionized suppliers, some of which say they would turn away business if somehow, some way automakers were to require them to open their doors to the United Auto Workers or Canadian Auto Workers unions.

"I know we and other suppliers will turn down business if (having UAW representation) is part of the condition," says an executive at one major supplier. "It's not just about wage rates. The real issue is what it does with the plant's flexibility and cost structure."

Says one analyst, "The fear would be that the automaker decides the cost of the module is too high and you lose the contract for the next generation of the vehicle. Then you're stuck with an entrenched union that's unwilling to adjust to changing market conditions."

Other suppliers say with or without the union, modularization is no slam-dunk for partsmakers. In many cases, the higher wages will be factored into the costs, making it just one more in a string of issues for suppliers to consider before making the commitment to modular. Among those hurdles will be how to finance product development, warranty costs and new plants while finding ways to work more effectively with Tier 2 suppliers.

"Modularity is not some great windfall of opportunity and reward for the supply base, because it creates other (investment) issues the supply base hasn't addressed before," says one partsmaker. "But the idea behind modularization isn't so much a labor issue. The cost of labor can't be the major advantage. You have to find ways to eliminate costs through design."

Other suppliers already with unionized plants also are keeping close watch on what happens with Delphi Automotive Systems. Some fear that as Delphi's wages begin to come down, theirs will rise to meet them. That would make U.S. suppliers less competitive globally, some say, closing off markets for U.S. exports and opening up America to more offshore competition.

A similar situation has suppliers riled in Germany, where IG Metall secured a 4.2% wage hike for its members. "Germany for many years was able to pay by (higher) productivity for their higher (wage) levels," says one industry executive. "Today, the productivity in the rest of the world has caught up, and Germany can't pay for that anymore. So, Germany has a problem right now, and the problem was just aggravated by the IG Metall settlement."

But partsmakers probably can relax. Delphi likely will accept the pattern contract, putting off the big battle for lower tier wages for at least another three or four years. And automakers, chiefly GM, aren't expected to push as aggressively on modularity as once thought, making organization of suppliers something the unions may have to contend with all on their own.

Still, many suppliers can't help feeling a little paranoid. "We're watchful, concerned," says one executive.