Outside design firms satisfy Detroit's profit designs

Like mushrooms growing in the fertile soil near a big oak, Detroit's independent automobile design companies are flourishing in the shadow of America's Big Three car manufacturers. High speed, high energy, creative, entrepreneurial, low cost - such adjectives describe the reasons Chrysler, Ford, and General Motors are increasingly turning away from designing cars themselves and letting smaller companies grind out the details.

As global competition increases, automakers in the United States have cut costs by giving more of the design work they used to do themselves to relatively small but thrifty design houses ``outside.''

In-house engineering and design expertise that once was cultivated and jealously guarded by auto companies has ebbed as large numbers of engineers have left or been cut from the Big Three work force, industry analysts say. GM cut 40,000 salaried workers last year and Chrysler, about 3,500. Many of the engineers among this group are gravitating to the design houses.

But some auto design experts worry that US automakers may eventually undercut their own competitiveness in the long run if they hand off too much of the nitty-gritty work.

``All you may have left is brand names, and you end up being a Kmart,'' says John Krafcik, an auto design expert based in Houston. ``You could see them become basically just a big sales organization'' without much engineering know-how.

Yet, ``outsourcing'' springs freely from the lips of auto industry executives when they talk about cutting costs and becoming ``leaner and meaner.'' Analysts say there are now perhaps 40 or 50 major auto design firms in Detroit and abroad, whose size ranges from a few dozen to hundreds of employees. Most of these companies are growing at a quick clip.

One of the brightest stars in the constellation of smaller companies is Entech and its president, Hulki Aldikacti. His Troy, Mich., company has expanded from 475 employees a year ago to 700 now. He expects to have 800 or 900 by year's end.

Mr. Aldikacti, who spent 30 years as an engineer and designer with GM, says the shift in Detroit's automotive industry away from its own engineering and design is both evolutionary and revolutionary.

``The basic process and methods of designing a car have not changed much since World War II,'' says Aldikacti. ``But the roles are changing - and the question now is who will do it?''

Who indeed.

Companies like Entech, Modern Engineering, Efficient Engineering, Creative Industries, are among the Detroit-area designers able to make the transition from being merely job shops, or partsmakers, to becoming specialty designers with sophisticated in-house engineering and project-management capability. Their lower payroll, benefits, and other costs mean lower overhead. In short, they can do it cheaper and faster - and often better - than the big boys.

``We are a small, focused, entrepreneurial organization,'' says Ralph Miller, president of Modern Engineering of Warren, Mich. ``Size has its advantage up to a point, then things start to deteriorate.... The major car companies are just finding it impossible to restructure their decades of tradition and organizational barriers.''

Organizational barriers are not the problem they used to be, Mr. Miller says; instead, they are a much worse barrier to profitability in a more hotly competitive world market. A decade ago, roughly 45 percent of design work was done by outside companies. Today that is probably closer to 60 percent, Miller says.

``We can bring together a team of 100 to 200 people representing all different disciplines of a vehicle to sit in one room and work together to do a car,'' Miller says. ``It's an objective that is difficult for any of the major manufacturers to achieve.''

Simultaneous engineering is the buzzword in Detroit, and the design shops are way ahead of the auto companies. Although hardly a new concept (Henry Ford did it, and the Japanese have apparently nearly perfected it), it involves developing all aspects of a car's design, engineering, and manufacturing at the same time.

Computer-aided design (CAD) and computer-aided manufacturing (CAM) systems have been invaluable. But other management techniques, facilitated by keeping companies small and communal, have helped engineers communicate better and more often with one another. As a result, they can more quickly spot and remedy design flaws that will make the car hard to engineer or manufacture.

To survive, even smaller auto partsmakers in Detroit must have engineering expertise. And the automakers are increasingly willing to hand over more responsibility for designing entire integrated chunks of a car to the outside companies.

Modern Engineering or Entech can - if handed the overall styling in the form of an automaker's life-size clay model - take care of the rest. Or they can do the clay model, figuring out every detail from just how a driver's side window will fit into a radically curved door frame.

As part of simultaneous engineering, these companies often design the manufacturing system down to the machine tool dies needed to make the parts. Then they give it to Ford, Chrysler, or GM to build.

While this is incredibly efficient, there is concern among industry-watchers that unless the automakers are careful, outsourcing could unintentionally but sharply reduce their competitive ability over the long run.

``It's a classic confrontation between making as much money as you can by going wherever you can buy the best - or assembling a working company that can do virtually all things,'' says Arvid Jouppi, an auto industry analyst with Keane Securities in Detroit.

GM, in fact, has all but given up trying to make its own small cars. In the early 1980s, the company decided to make Saturn its small car of the future. In the meantime, it began importing the Chevrolet Spectrum (made by Isuzu), the Chevrolet Sprint (made by Suzuki), and the Chevrolet Nova (made by a joint venture between Toyota and GM in California). GM's European Opel Kadet is built in Korea by the Daewoo Company with an Australian motor.

``If they aren't careful and they continue outsourcing, soon there will be no one left who can build a car from the ground up,'' says Mr. Jouppi. He and other analysts say it is not really how much outsourcing is done, but what is outsourced, that matters.

Engines, power trains, and platforms should continue to be designed and built at home, says Mr. Krafcik, the design expert. These are significant technological and competitive elements that make cars behave distinctly from one another.

Even engineers and officials within the US auto companies are worried about losing the corporate identity of the product, Krafcik says, ``because the same companies that are designing a product for GM, may also be designing for Ford or Chrysler.'' The dark side of outsourcing design, he says, boils down to three points:

Farming out design work leaves the auto companies' in-house team behind far off the cutting edge - and the capability to do certain kinds of design can even be lost.

Automakers must tell their secrets to the design houses in order to get the car they want. But any leading-edge technology, styling, or design is potentially compromised, since contract companies work for many companies. Though ``Chinese walls'' exist between projects, there is still a potential for technology to spill over from one project to another. In the process, the distinctive qualities of a car may be watered down and become similar to a competitor's.

Only a very few design companies really have the expertise and understanding of manufacturing to pull off the complex job of designing a car without the whole project's becoming a disaster.

All of these arguments are concerns, but the auto companies feel they have been pushed to the wall, and therefore have to cut costs - which means outsourcing. Entech's Aldikacti is adamant that he is merely executing the automakers' ideas.

``I don't think that anyone is going to turn to us to conceive the feel and shape of tomorrow,'' he says. ``Nobody is going to turn to us for that marketing sense of what the vehicle should be in the first place, what size, how much performance.''

Jouppi argues, however, that ``when you get to outsourcing too much brainpower, in my view it gets to be dangerous.'' To protect their profit levels, he says, automakers ``have been forced to go outside. If they can get what they want from a supplier less expensively than doing it themselves, the money people in the company say, `Buy it outside!'''

``You have to be careful, because there is the potential to lose the capability of design,'' Aldikacti admits. But it doesn't have to be that way, he adds. ``What's the purpose of a car company,'' he asks - ``to sell cars? If you sell cars, how much of the work - from concept of the vehicle to selling of the car - should be done under one roof?''

Aldikacti contends that the dealership distribution system, and engine and transmission design should and ultimately will remain with the car companies, but that the rest should be built by ``people that are more efficient at building them.''

Modern Engineering's Mr. Miller says car companies recognize that ``in looking to these world-class designers, the disadvantage is that you give up a competitive distinction and an ability to do it in house.''

``A new dimension of competitiveness is arising,'' Miller says, ``which is a selection of those areas where a company choses to differentiate itself. Nobody is going to do everything inside. They can't afford it.''