When the cost-cutting man comes to call

TOLEDO, OHIO — A redesigned vehicle, a re-sourced part, a new supplier plant — it sounds easy enough.

But when it came to sourcing the instrument panel for the redesigned Jeep Wrangler that launched late last year, the solution wasn't so simple.

The move resulted in the closing of a longtime Jeep supplier's plant, the creation of a competitor plant only a stone's throw away and in the end, another case of downward cost pressure that some say is a repeating industry cycle.

"There are always the mandated cost reductions in every contract, but there are also now demands for more on top of those," one Tier 1 supplier CEO told Automotive News, on condition of anonymity to protect the relationship with the supplier's customers. "I would say that all the OEMs have reverted to their old, bad habits when it comes to cost reductions."

Suppliers say pricing pressure from automakers never goes away, and lately has increased as automakers struggle to boost financial performance as vehicles become more complex and consumers show an unwillingness to pay for that complexity.

For more than 200 workers at Toledo Molding & Die Inc., the Ohio producer of the JK Wrangler's instrument panel for 12 years, the end of their jobs was announced in a notice the company had to file with the state:

"This plant is closing as a result of Fiat Chrysler Automobiles' decision to award the next generation Jeep Wrangler production of the instrument panel assembly to Detroit Manufacturing Systems," it read.

In mid-2016, as FCA prepared to launch the first redesigned Wrangler in a decade, the automaker put the components of its new design out for bid.

For suppliers, the Wrangler represents a rare book of business — a profit-rich, high-volume vehicle with a long life cycle. A long product cycle translates to a high run-rate requiring few investments over the years. That means that once a program is running, a supplier should enjoy a long ride of profitable production.

Officials with Toledo Molding & Die declined to be interviewed for this report. But union officials from the company's now-closed Toledo plant say they knew what was going on and tried to help make the supplier more appealing.

"We built it really well — almost perfect — for 12 years," Jay Dawson, the plant's shop chairman with UAW Local 12, recalled of the instrument panel. Local 12 is a 10,000-member amalgamated local here that also represents workers at FCA's Toledo Assembly Complex and about 2,500 members spread across nearly a dozen local Tier 1 suppliers.

Dawson, the shop's vice chairman at the time, says the supplier's management submitted an initial bid to supply instrument panels on the new JL Wrangler, but FCA rejected the bid. Management told the union what had happened and asked for help.

Dawson and his membership agreed to across-the-board pay cuts to reduce the plant's operating costs and lower the bid. Hourly pay would fall to an average of $16 from $18.50.

But in mid-December 2016, FCA told Toledo Molding that a rival supplier had won the bid. The work would go to Detroit Manufacturing Systems, a relatively new joint venture between French interiors supplier Faurecia and Rush Group, the transportation and manufacturing company started by Michigan entrepreneur Andra Rush.

At the time, workers in the plant still had more than a year of production to go, and the union negotiated what Dawson called a fair severance package. The union placed Toledo Molding & Die employees in other local UAW-represented factories that needed workers, Dawson says. When the factory halted output in late April, as the outgoing Wrangler ended production, employment had fallen to 85.

"Everybody that wanted another job got another job," Dawson says.

For its part, Detroit Manufacturing Systems broke ground in August 2016 on a 102,000-square-foot building. The location meant that the instrument panel work never left Toledo. The new plant — nonunion and operating with a lower hourly pay scale than its predecessor — opened just one half-mile southwest of the Toledo Molding plant.

But the location made it easier for UAW Local 12 to organize workers at the new plant. Detroit Manufacturing's plant has now reached a labor agreement with its workers that Local 12 President Bruce Baumhower says will result in the new workers eventually receiving the same hourly wages that Toledo Molding's workers earned when they lost the bid.

The union called a 12-minute strike at the new Detroit Manufacturing plant to win a contract that eventually will get its 250 workers up to $18 an hour, he says.

It is a cost-cutting pattern that Baumhower says has played out repeatedly over his 25 years as Local 12 president.

"We've had companies like Lear, which had a nice work force and a nice contract with guys making $18 an hour," he says. "Then they lose the work to a nonunion company, which comes in, builds a plant and wants to pay guys $12 an hour."

When the low-cost supplier opens, he says, "maybe we strike them. And we get them a contract that gets them to $17 or $18 an hour after five years. Then that company loses the work, and the whole thing starts all over again."

Baumhower says other Tier 1 suppliers have gone through the cost-cutting effort in the past dozen years.

"It's not about the dues," he says of the UAW's motivation for bringing the new plants into its membership. "It's about the families that are disrupted over and over again by this constant race to the bottom."

Outsiders say such efforts are counterproductive on another level. Pressure on supplier wage rates hurts the relationship between parts maker and customer, says John Henke, author of the North American Automotive OEM-Supplier Working Relations Index Study, an annual survey of supply chain relationships.

The 2018 survey found that five of the six largest automakers earned lower marks from their supply chains than in 2017. Only Toyota fared better.

"Essentially across all of its supply base, FCA has pretty poor supplier relations," Henke says. "FCA isn't in last place. For the last two years, Nissan has been worse. But since 2013, the index for FCA has been worse each year than the year before."