Detroit Redux: Big 3 to re-integrate supply chain?

Implications: As automotive Tier suppliers struggle to survive in today's brutal cost environment the OEMs are threatened with supply disruptions due to bankruptcies and volatile price negotiations.  With new contract terms that cut new UAW hires' wages  in half and reduce oppressive retiree legacy costs, Detroit is looking at insourcing more component production.  After decades of outsourcing the tide may turn and see a reintegration of the automotive manufacturing supply chain.

Analysis: In the first half of the 20th century Henry Ford built one of the great wonders of the industrial age on the banks of the Rouge River near Detroit:  a manufacturing complex that brought in iron ore, lumber, and gum rubber and shipped out finished cars.  Thousands of men labored in hundreds of integrated operations to produce every component required:  from steel foundry to sheet metal rolls to stamping presses the ore never left the grounds until the car rolled through the gates.

This plant was the site of one of the darkest days of the UAW labor movement at Ford when company security men savagely beat union organizers in front of newspaper cameras.  Ford was shamed into signing its first collective bargaining agreement with the UAW leading to decades of prosperity for workers who made parts and assembled vehicles.  By the 1970s wage and benefit packages had grown so lucrative that Detroit could not compete with the wave of inexpensive Japanese imports that hit the market.  Over the next 30 years the Big 3 gradually outsourced more and more of their integrated component production including the spinoffs of Delphi and Visteon from GM and Ford respectively.  As of 2007 parts production in a Big 3 UAW plant was a rarity - everything from seats and bumpers to axles and exhaust pipes was purchased from third party component suppliers.

As market share has dropped many assembly plants are idle or at a fraction of capacity; this capital infrastructure could be easily converted to parts production if desired.  In what many see as a harbinger of doom for Tier suppliers Ford announced that they will once again make instrument panels for the Taurus in their Chicago plant.  Now that structural and labor costs have been reduced via downsizing and contract concessions with the UAW, Detroit finds itself reevaluating the make vs. buy decisions for more key components.  With the uncertainty of key suppliers' financial health, a weak dollar, and cheaper in-house labor the Big 3 may repeat history and begin making more of their own components in the US again.