HUNTSVILLE, Ala. -- Standing at a product display table inside his newly acquired factory here, Siemens VDO Automotive Corp.'s Helmut Matschi envisions the change coming to the U.S. auto industry.
The German CEO of Siemens VDO's global body and chassis electronics unit picks up a plastic power module that the Regensburg, Germany-based Siemens makes in Toulouse, France, for Italy 's Fiat Auto.
A moment later, he picks up a second module, this one slated for production in Huntsville for an undisclosed Chrysler group vehicle. The parts look almost identical.
"I think if someone were to look at the similarities, they would grasp the sort of opportunity we have in product development and manufacturing," Matschi says.
The throw-away comment is full of implication.
Matschi's point is that a European supplier can set up a manufacturing operation in North America and use global economies of scale to wrest bigger sales out of the U.S. market.
It is a four-point belief that global suppliers are embracing today.
1. The old relationships between the Big 3 and their large American supply chains are coming unglued as automakers seek lower content costs.
2. Foreign-based suppliers have a chance of cutting themselves into the picture.
3. The only serious way to do that is through competitive North American manufacturing plants.
4. Once foreign-based suppliers establish North American production operations, the sky is the limit on where the opportunities might take them.
A piece of America
Siemens VDO's strategy is to anchor its U.S. market with Big 3 sales and use the position to strengthen its business worldwide.
It also is the game plan for other suppliers from Japan, Germany, France and Korea as they continue to dot the North American landscape in search of business. Last month, Denso Corp. said it would employ 800 workers at a new fuel system plant in Guadalupe, Mexico, that will receive new business from the Big 3 as well as Denso's traditional Japanese customers.
French exhaust and interiors supplier Faurecia has seen North American sales grow by nearly one-third to $1.32 billion in the past two years, thanks in part to plants serving General Motors and DaimlerChrysler AG.
GM also helped Japan's Aisin World Corp. of America rack up a 60 percent increase in business last year, reaching $1.59 billion in North American sales.
For Siemens VDO, Huntsville was a strategic coup. The supplier bought the electronics plant, with 2,300 employees, from DaimlerChrysler last year. The operation is the Chrysler group's former Huntsville Electronics operation, a dedicated parts plant that supplies Chrysler vehicle electronics.
|Before and after|
|Acquiring the Chrysler group's Huntsville Electronics operation gave Siemens VDO a boost in market share in several North American segments.|
|SEGMENT||SHARE BEFORE||SHARE NOW||MARKET POSITION|
|Audio systems||0%||25%||No. 3|
|Body controller||8%||17%||No. 1|
|Powertrain controller||2%||18%||No. 2|
With the stroke of a pen, Siemens became the primary supplier of vehicle electronics to DaimlerChrysler in America, a business worth about $1.3 billion last year. But the buyout also set in motion a transition for Siemens and the plant.
"We have gone from being an OEM plant to becoming a supplier plant," Matschi says. "We were created to serve a single customer. Now we have the chance to serve many."
Last month, Matschi boarded a plane for Seoul to meet with Hyundai Motor Corp. The Korean automaker is Siemens VDO's oldest Asian automotive customer, buying Asia-made electronics for use in its Korea-built vehicles. But that scenario will change in the next nine to 10 months. Hyundai's first U.S. assembly plant is nearing completion in Montgomery, Ala., 200 miles south of Huntsville. The $1 billion plant will be operational next spring, with plans to produce 300,000 vehicles a year.
"Very convenient," Matschi says.
Siemens hopes to supply Hyundai with electronics from the Huntsville plant. The supplier thinks its Huntsville location gives it a market advantage because it is near not only Hyundai but also other auto plants in the growing southern U.S. corridor. In Alabama alone, Honda Motor Co. is ramping up production of a 300,000-unit-a-year assembly plant near Birmingham, while Mercedes-Benz U.S. International Inc. is doubling its factory capacity in Vance. One hour north, Saturn Corp. produces vehicles in Spring Hill, Tenn., while Nissan North America Inc. will produce up to 500,000 vehicles next year in nearby Smyrna, Tenn. Ford Motor Co. and GM both make vehicles three hours east in Atlanta.
Arguably, Huntsville as a Chrysler group-owned operation could have tried to solicit the same business Siemens VDO wants. But the German supplier can claim three competitive advantages over the Chrysler group.
First, Siemens will have lower labor costs. The sale of the plant was contingent on wage concessions from its UAW-represented workers. In the next eight years, Siemens VDO will evolve to a wage structure that pays about half of the approximately $30 an hour the work force was making as Big 3 employees.
Employees had the option of remaining with DaimlerChrysler. Siemens VDO will not specify how many of the 2,300 local workers stayed with the automaker. It does confirm that it is leasing a large number of its workers from DaimlerChrysler.
Regardless of how many employees choose to stay or leave, Siemens VDO will have lower overhead costs at the plant than Chrysler, making it more viable for pitching business elsewhere.
Second, Siemens VDO believes it can rationalize global product design and engineering for North American customers in ways that the Chrysler group couldn't.
The supplier serves customers worldwide. What it engineers in Huntsville, with a dedicated plant engineering group, will benefit from ideas and efficiencies elsewhere. Cost savings are possible across the product development spectrum, Matschi says.
Finally, Siemens VDO wants to put its broader global electronics resources to use in the United States, and Alabama gives it the factory capacity to do so.
Parent company Siemens AG posted sales of about $77.8 billion last year, making it nearly as large as IBM and larger than Sony Corp. Original equipment automotive sales accounted for about $9.5 billion of that. But Siemens argues that electronics work in its other world business units - sensors, robotics and communication equipment - will play into its expansion here.
Matschi picks up another black plastic module from the display table, this one a new design developed for the France-built Renault Megane.
He points out that the module has multiple integrated functions, including tire pressure sensing, body con-trol electronics and power modulation.
"This is what is possible," he says, handing over the component, "this sort of integration of technologies. But it wouldn't have been possible if we were not in these different product areas.
"By being strong in different areas, we can serve our customers in new ways - whoever they are."