GM's own parts operations look more competitive. Outside suppliers say `safe' contracts are being canceled or not renewed

Robert Stempel, the president of General Motors Corporation, was threatening last year to sell off or close a big chunk of the automaker's huge component parts operations and transfer the work to outside suppliers. Today, GM appears to be reversing that strategy, as its long-moribund parts divisions demonstrate a newfound competitiveness. The shift not only reflects management changes but also a more cooperative stand on the part of both GM and the United Automobile Workers union as reflected in their year-old contract. The changes, which involve billions of dollars in business, could affect thousands of jobs and possibly the fate of some automotive suppliers.

General Motors is the most vertically integrated of the Big Three automakers - that is, it produces more than half the parts for its cars, far more than Chrysler Corporation or Ford Motor Company. For years, that underlaid GM's dominance of the United States auto industry: By producing its own parts, it could not only hold down costs but also keep a proprietary seal on new developments.

But over the past decade, that tenet has been put to the test. Not only was GM paying some of the highest wages of any auto supplier, it had failed to take steps needed to improve productivity and quality. Nonunion competitors in the US and abroad were offering parts of equal or better quality, often for a substantially lower price.

In an internal memo in the summer of 1987, GM officials estimated that their component operations would lose ``in excess of a billion dollars'' between April and November of last year alone. An in-house study was charged with seeing which operations could be made profitable and which ``are going to fall by the wayside,'' Mr. Stempel said last year.

Indeed, several plants were closed or sold and the automaker increased its ``outsourcing,'' the transfer of work to outside suppliers who were delighted with the potential windfall the giant automaker was offering.

Suddenly, however, GM appears to be making an about-face. ``The pendulum is swinging back towards in-house production,'' says Joseph Phillippi, an auto analyst with Shearson Lehman Hutton Inc.

Though he acknowledges that some component work is being ``in-sourced,'' Stempel insists there is no change in strategy.

``Our policy is right down the middle where it's been. ... The outside supply community is critically important to our success,'' he said at a recent news conference, though his subsequent comments and those by key suppliers portray a very different picture.

In recent weeks, a laundry list of major component manufacturers have reported that seemingly ``safe'' contracts with GM are being canceled or are not being renewed. For example, Robert Bosch, a West German parts manufacturer, was told that GM was going to provide its own fuel injectors, costing Bosch about $40 million in business. The Dana Corporation was told it would no longer be the supplier of axles for GM's heavy-duty, full-size pickups.

``We're seeing some signals that business is being taken away,'' says Ralph Reins, president of ITT Automotive. GM is responsible for 70 percent of the business at an ITT stamping facility in Canada, Mr. Reins notes, and about 80 percent of that business is being transferred back to a GM component facility.

Why is GM reversing course?

``Internally ... our people have gotten competitive and they've brought business [back] in,'' says Stempel.

For years, GM's component divisions seemed almost oblivious to outside competition, expecting a permanent monopoly on their parent's business. Today, however, they have been divided up into strategic business units which must essentially play by the same rules of business as the competition. That means trimming work forces, upgrading quality levels, honing costs.

The program is in the hands of William Hoglund, recently named executive vice-president in charge of GM's component operations.

The UAW must play a role if Mr. Hoglund and his divisional managers are to succeed. Workers at any Big Three-owned component operation typically earn about $28 an hour in wages in benefits, compared with $8 to $15 an hour for domestic nonunion suppliers, and even lower labor rates abroad.

Some of that gap can be made up by productivity measures and work rule changes that the UAW seems willing to accept as part of the three-year contract negotiated last fall.

Still, Shearson's Mr. Phillippi says, ``I find it hard to swallow ... [that] these guys got competitive in nine months.''

Indeed, even in situations where GM component divisions are still playing ``catch-up,'' the automaker is finding it must increase in-house production, because in return for the productivity improvements gained from the UAW, GM has granted auto workers broad job guarantees. Under that contract, workers either keep busy or GM pays them to do nothing.

``If you're going to ask people to improve productivity, you have to make sure they're not the victims of it,'' says UAW vice-president Don Ephlin. ``That's where the job provisions come in.''

GM's apparent switch in strategies does not reach entirely across the board. One key supplier - who asked to remain anonymous - noted that his company recently won a contract worth hundreds of millions of dollars, enough to require him to have a new plant built.

Suppliers like that will be able to keep or win new business from GM in areas where they hold key technological advances, Phillippi says, or where they are producing parts that it makes no sense for the automaker to produce in-house, like soft trim.