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Steering Manufacturing Away

I've had a life long interest in cars, even before I could even see over a steering wheel. But there is much to learn from studying the industry and it's fortunes. You can tell a story about the fate of dozens of industries and millions of workers by just focusing on a small part of the auto industry.

Back in 1909, Buick purchased a company that manufactured steering gear for cars, then known as Jackson, Church & Wilcox. When Buick was merged into General Motors by William Durant, the company came with them. In 1919, the firm was christened with the name of Saginaw Gear, and the firm produced equipment exclusively for every division of General Motors. It was, in industry parlance, a "captive supplier." The American car industry was structured this way for decades. Old hands will remember how Delco supplied GM with all of it's electronic needs, including radios. Ford had it's Autolite division, and Fiat-Chrysler is the lone holdout with its MoPar Division, but it just sold off it's OWN "Delco" to a group of private investors. The same logic followed with transmissions, GM with its Turbo HydraMatic, the Chrysler TorqueFlite and the Ford Cruise-O-Matic. Even air conditioning was sometimes an in-house affair, with Frigidaire for GM, and AirTemp for Chrysler. That was the manufacturing style in those days. "Vertical" manufacturing operations that were practically self sufficient, and had little reliance on outside suppliers, at least for major components. Design, engineering, costs and quality could be controlled by senior management from within, right in Detroit's headquarters.

Saginaw was a division of General Motors for 90 years. At one point, it was merged into Delphi Automotive Systems, another captive GM supplier, which was later spun off. Delphi famously filed for bankruptcy, which caught GM flatfooted for a supplier of steering gear, so they took the company back. But that was a temporary tactic. GM renamed the company Nexteer Automotive, and prepared it for sale. In this configuration, the firm was now selling steering equipment to other OEMs.

What happened next is a case study in the course of American manufacturing and it's effect on the workforce. The State of Michigan gave the firm $70 million in tax credits to keep a presence there. After announcing an investment of $400 million, the Township it was located in bequeathed it with a 20 year tax abatement. One year later, the company was acquired by a Chinese firm, which went public on the Hong Kong stock exchange. It is technically domiciled in the Cayman Islands. Today, Nexteer supplies over 60 OEMs around the world. It has plants in India, China and South America.

There's a lot of social and economic history to be drawn from studying this single firm. For one, the course it ended up taking has the effect of forever removing the possibilities many GM employees once had. Years ago, they were part of a giant global manufacturing operation with in-house divisions. They could excel in their end of the business and move up through the ranks. Today, the door leading out of the steering gear firm is bolted shut. There's no avenue forward. Opportunities for professional growth in other parts of the firm vaporized. If you worked on the factory floor and a plant closed, the union might have been able to locate another job for you. But today, the nearest plant that bore any resemblance to your old one might be on the other side of the country. And it may no longer be union represented.

Oh, and the transmissions? Some of these are still built in house, but more and more, the slushbox in your car may come from a Japanese firm called Aisin, which has a plant in Indiana. It's 30% owned by Toyota. And that same transmission unit might be deployed in a Peugeot, a Jeep, or a Ford. Or, it may come from a firm called ZF, German owned, with a plant in South Carolina which supplies the Spartanburg BMW plant, and several other brands across the country.

One could repeat this pattern with dozens of parts and supplies. It can also be repeated with dozens of other industries. The reasons aren't necessarily diabolical. The systems we depend upon have become so complex, farming out the work to outside firms to develop things like anti-lock brakes, air bags, electronic engine management systems, and now batteries, have to be developed and manufactured by firms with specific expertise in those areas. And there's nothing all that new about it. Firms like Borg-Warner, TRW, (now owned by ZF) and others have been supplying OEMs for decades with all kinds of parts. But today, the supply chain has become almost completely atomized, along with the workforce and manufacturing facilities. Small wonder that the announcement of a new auto plant that can produce over 100,000 vehicles a year barely creates 2000 jobs. These firms don't "manufacture" cars anymore. They simply assemble them.

It's a small, untold story in the course manufacturing has taken. Ninety years of steady ownership gets people into a fixed mindset about the way things are "supposed" to be, about their jobs, their communities, and the economy, that's very hard to shake when it eventually changes. And it tells you a lot about the state of those participants who thought the world they knew would be frozen in amber. The changes GM announced last week will further shake the foundations of the industry, and their participants' assumptions. Again.

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