GM to Open Stamping Plant in Texas

Large Cost Savings Expected as It Cuts Down on Transporting Parts

GM on Monday will open a $250 million metal-stamping plant adjacent to its Arlington, Texas, factory. By locating parts near the assembly plant, GM hopes to save about $40 million a year in shipping costs.

By Jeff Bennett

For years, General Motors Co. pounded out hoods, fenders and doors for its Tahoe and Yukon sport-utility vehicles at plants in Ohio and Michigan and shipped them to its assembly plant in Arlington, Texas.
On Monday, the auto maker opens a $250 million metal-stamping plant adjacent to the Arlington factory that reduces that travel to about 20 feet from machine to welder. Estimated savings: about $40 million a year in shipping costs.
The new plant, is part of a broader rethinking of logistics by GM Chief Executive Dan Akerson, who is anxious to close the company’s profit margin gap with rival Ford Motor Co. His aim is to lift GM’s North American margins to 10% from about 8% now, a feat that would generate hundreds of million of dollars in new profit.
We spend billions a year on logistics, Mr. Akerson said. Think about that, billions. Any savings I can by cutting my logistics bill goes right to my bottom line and makes us more competitive. I’ve told our teams that we need to make this a priority to look across the organization and take the steps to cut the costs.”
Having cut labor costs and closed unprofitable plants during the 2008/2009 recession, GM now sees logistics as representing the biggest potential opportunity to squeeze new profit from operations.
For its second quarter ended June 30, crosstown rival Ford earned $2,830 for each car it shipped in North America—$387 more per vehicle than GM did during the same period. Ford’s 10.4% operating margin overshadowed GM’s 8.4% operating margin in the region.
Co-locating parts-making and auto assembly promise higher quality and greater profit. GM and other auto makers say they can no longer put up with parts that arrive scratched or dented and have to be repaired. Workers at the Arlington plant had to waste time trying to buff out imperfections caused by travel, GM said.
“We as an industry chased labor costs for years because that was the only thing we thought we could control,” said Tim Leuliette, CEO of parts maker Visteon Corp. “Now, with the reset of labor costs, especially in the U.S., more efficiency in the plants and the importance of quality, we can finally evolve.”
Mr. Leuliette points to his own company’s plans which include building more production facilities in Russia to supply car makers there. Last month the company’s Halla Visteon Climate Control unit opened its first plant in Togliatti, Russia, to build cooling, heating and air conditioning units for local producers such as OAO AvtoVAZ.
“They have finally all wised up,” said John Henke, chief executive of consultants Planning Perspective Inc., which conducts an annual survey of auto maker and supplier relationships. “But unless all of them stick with it, the savings won’t amount to peanuts. I can’t tell you how many times we see new people on the executive level come in and change things.”
Mr. Henke said the drive to co-locate factories intensifies the cost pressures on the parts suppliers. “Those auto makers who are just trying to cut costs and not working with the parts makers will lose,” Mr. Henke said. “They will lose out on the latest advancements and financial savings. Then all the logistic changes in the world won’t mean much.”
Other suppliers are expanding their facilities to cut shipping costs. Japanese auto parts maker Denso Corp. is investing $1 billion in the U.S. over the next four years to expand its North American operations. It is the largest maker of products such as automobile radiators and air-conditioning systems in the world.
Chrysler Group LLC encouraged suppliers to locate near its isolated Belvidere, Ill., plant where it expanded production for the Dodge Dart while Volkswagen AG in 2011 created a supplier park next to its Chattanooga, Tenn., factory.
“The best way to describe logistics is waste,” said GM manufacturing chief Tim Lee. “It is moving productive materials from point A to point B. It has no value and guess what; it doesn’t mean anything to the customer. If you can squeeze that waste of the system then you can tactically improve your profit margins.”
Mr. Lee, like Mr. Leuliette, said U.S. labor contracts that set lower wages for new auto industry workers allows GM and parts makers to restructure production in ways that were impossible before.
“When you blend the cost rates today, manufacturing, especially in the U.S. is more variable than fixed,” Mr. Lee said. “You can now make businesses cases to put production in plants you couldn’t before.
The new plant is staffed by union workers who transferred from other plants or the nearby assembly factory, at a variety of wage levels.
In addition to moving its own production, GM purchasing chief Grace Lieblein is encouraging parts makers to move or build new facilities closer to GM assembly plants. For example, interior trim pieces in the 2013 Chevrolet Malibu comes from three suppliers—with some pieces traveling from 700 miles away—to the car’s production lines in Kansas City, Kan.
Ms. Lieblein is negotiating to have one of the suppliers, which she declined to identify, build a plant closer to the Fairfax location. In exchange, the supplier will get a larger share of production.
Meanwhile, the company is looking for ways to cut those costs that become institutionalized. Parts of the tire jack in the Chevrolet PM7 subcompact car are shipped to the vehicle’s home plant in Brazil where it is assembled.
This year, production of the Chevrolet PM7 was expanded to a plant in Indonesia. However, instead of suppliers shipping jack parts to the Indonesia plant, they were still being sent to Brazil to be assembled and then shipped again—this time by GM—to the Indonesia plant.
“We want to be ruthless about waste. Whether it is a part design, packaging or shipping, we don’t want it.” Ms. Lieblein said. “It may be a few thousand save here or few million saved there but it adds up.”
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