DETROIT -- Tier 1 suppliers are getting the word from General Motors: Look for low-cost parts from South Korea and China.
Suppliers say GM's purchasing staff raises the issue when new work is discussed. In GM's jargon, suppliers are asked if they are moving business to Tier 2 and Tier 3 companies in "low-cost countries."
"Low-cost countries is a huge issue," says one supplier executive, who asked not to be identified. "They're always telling us to move our stuff offshore. They won't say we have to do this, but they'll ask what we're doing about it."
GM officials say they are not mandating offshore sourcing but are pressuring suppliers to get the lowest possible costs from their suppliers. In January, CEO Rick Wagoner told stock analysts that exploiting GM's global "sourcing footprint" would be a key corporate goal this year.
Tier 1 suppliers are large companies that sell parts directly to automakers. Tier 2 companies supply Tier 1s, and Tier 3s supply Tier 2s.
Neil De Koker, president of the Original Equipment Suppliers Association in Troy, Mich., says GM will face some roadblocks.
Wages in South Korea are not as low as those in China, De Koker says. China, meanwhile, is constrained by capacity as vehicle demand soars. And, like other emerging economies, Chinese producers have quality problems with some parts. For example, China imports steel for class-A surfaces such as vehicle exteriors, he says.
"China is the type of developing country where the raw materials are not of a quality to do world-class products," De Koker says. "Steel quality is not good enough for good class-A surfaces."
But GM has found that Chinese suppliers offer good quality in other products, De Koker says.
"They know what suppliers are capable of and what the prices are," he says. "They've got some terrific data on reliability."
Chinese companies exported automotive parts to the United States worth $344 million in 2002, up 33.5 percent from 2001, according to the U.S. Census Bureau. South Korea sold $332 million worth of auto parts in the United States last year, down 10.1 percent.