Management Accounting

GM Looks to Spend $1B on Parts in India

Meanwhile, U.S. auto-parts giant Delphi tries to hammer out a restructuring arrangement with General Motors and the United Auto Workers.
Stephen TaubAugust 8, 2005

General Motors announced that by 2008, it will source $1 billion worth of auto parts from India each year, according to Dow Jones. This is more than eight times the $120 million the company currently spends on parts manufactured in that country.

“Auto parts in India cost 25 percent to 30 percent less than in North America or Europe,” P. Balendran, vice president of General Motors India, told the wire service. “They are also around 15 percent cheaper than South Korea and Mexico, but the quality is on a par.” GM now buys parts from about 110 Indian suppliers, Dow Jones added.

Many other auto companies, such as Ford Motor Co., DaimlerChrysler AG, Volvo AB, Volkswagen AB, and Mitsubishi Motors Corp., also buy parts from low-cost countries, noted Dow Jones. The wire service pointed out that India’s Automotive Component Manufacturers’ Association predicts that exports of auto parts from its country will grow to $2.7 billion by 2010 from more than $1 billion currently.

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This partly explains the troubles being suffered by U.S. auto-parts giants Delphi Corp. and Visteon Corp.

In fact, Delphi said it is trying to hammer out a restructuring arrangement with General Motors and the United Auto Workers in an attempt to stave off bankruptcy. GM and the UAW “are both well aware of the general magnitude and the urgency of our situation and are working cooperatively and creatively toward trying to find a solution,” Delphi chairman and chief executive officer Robert S. Miller said Monday in a teleconference with analysts and reporters, according to the Associated Press.

Miller would not be specific about a possible deadline, the AP noted, but he reminded his audience that it will become more difficult to file after the new bankruptcy law takes effect October 17.

Both companies have been hurt by production cuts at GM and Ford. Delphi and Visteon also blamed their financial woes on high labor costs put in place before the companies were spun off from their former parents — GM and Ford.

Miller reportedly said that Delphi is shelling out a total of $130,000 per hourly worker in annual wages and benefits. In the second quarter, Delphi spent more than $100 million to pay hourly workers who were idle but still entitled to some compensation, according to Miller’s conference call.

“We can no longer wait to address this issue,” said Delphi’s acting chief financial officer John Sheehan, according to the AP. “Our business outside of the U.S. is going very well, and non-GM business is growing. This high U.S. legacy cost structure is overtaking the good side of our company.”