the problem with parts

[MADLT1]

:xIt was an innocent call to my radio show, a decade ago, and though the question was simple it stunned me. The caller asked where he could go to find a less expensive carburetor for his 1988 Chevrolet S-10 pickup; he was being quoted a price around $1,250 for the part — for a 1988 pickup truck that sold new for as low as $6,750. Even I, after spending two decades in the industry, thought that was an outrageous price for that part. Then again, around this same time, articles nationwide were cussing and discussing the exorbitant cost of replacement automobile parts. I can't recall all the high-ticket items listed, but I do remember that the replacement alternator for a mid-nineties Ford Probe was, after the Chevy S-10 carb, the next costliest at $1,200.


Before we continue, this is not a rant about the price of automobile parts. The public may perceive that parts are priced way too high, but in reality most are priced reasonably for what you're getting, particularly since it'll make your vehicle usable for a lot longer. Besides, compared to the tiny medicated stent I had inserted into one of my veins last year, that throttle-body carburetor is an extreme value at $1,250. (Ironically, from what I have studied on the subject, that S-10 with the new carburetor is likely to last longer than my stent.)


The price the gentleman had been quoted on that part was accurate. And even with my industry contacts, I could not find a legitimate replacement part for less money for him.

A Lucrative Spin


At the time I had just returned from Kentucky, reviewing the 1998 remake of the Chevrolet Corvette and meeting with GM officials. One official was honest enough to admit that for over a decade GM had lost money building the Corvette; the only reason that vehicle was still alive was the nearly $100 million that flowed into GM's bank accounts each year from sales of parts to Corvette owners. That's right: For many years GM lost money building 'Vettes, but kept the franchise alive because the replacement parts business was so lucrative.


Now, let's add in another factor, because we aren't talking about keeping just Corvettes or 10-year-old trucks on the road. There are more than 200,000,000 vehicles on the roads in America, all of which will require replacement parts during the course of their lifetime. That is a huge quantity of parts that will be manufactured, used and replaced again, but only because the average lifespan of a new car is much longer than is generally believed.


Knowing that figure brings up the question: How is it that so many American parts companies have gone into bankruptcy, when demand for new parts for automobile manufacturing has been reasonably stable and the replacement parts industry is growing slightly? (While parts are of higher quality today, lasting longer, the average ownership period of most vehicles is growing too.)


The reason this is being discussed is because we're hearing the same refrain again, repeatedly: The high cost of American labor has forced the automakers to either move production of their parts manufacturing overseas, or divest themselves of their parts operations and find cheaper ways to acquire those parts; and the result is that some of America's most respected parts companies have failed. Delphi, formerly GM's in-house parts division and today in bankruptcy, just completed negotiations with the United Auto Workers that will leave just four American factories in place and new hires to the firm getting starting wages of around $14 an hour.


So: First, how does a parts company go bankrupt making carburetors or alternators that a decade ago retailed for $1,200 or more?

More Profits, Less Innovation


Second, why is this move a complete reversal of how the integration of the automobile industry in its early days that led to higher volume production and lower manufacturing costs? Obviously this is the primary reason Americans all became mobile.


A little history is in order.


In the auto industry's early days in America, companies like Ford purchased many parts fully assembled from outside suppliers. In fact, for many years, including the start of production of the Model T in 1908, the Dodge Brothers' parts operations were responsible for many of the major components used in Ford's products. It is fair to say that the Dodge Brothers built more of Ford's cars in the first 13 years than the Ford Motor Company did. Similarly, Albert Champion and his two companies gave the auto industry the first exceptional spark plugs, while James Allison's transmission designs were considered some of the finest in those early days.


Independent engineering firms, such as Delco and its in-house genius, Charles Kettering, gave the industry thousands of inventions, including the electric starter. The Fisher brothers (remember "Body by Fisher"?) were considered the finest coachbuilders in Detroit, supplying chassis and exteriors for GM products including Cadillac and Buick.


And all of these incredible independent parts companies had one thing in common: In the end they were all bought out by the major auto companies, brought inside the corporations to continue performing their engineering magic while lowering the manufacturer's parts expense. The exception was the Dodge Brothers, who reversed the trend; they turned their parts company into a manufacturer of automobiles, but only because Henry Ford wanted to build all of the parts for his products himself.


Yes, for the next 60 years the logic was standard: It was a smart business move to buy up your best parts suppliers. You'd get all of the creative genius inside your car company to give your vehicles a real engineering advantage. Even better, by putting the lessons learned in mass production to use in the manufacturing of parts, a company could easily lower the cost per unit, therefore lowering the net cost of building its automobiles.


The question is, how could this system have worked so well for 60 years, then reverse over the past two decades until the opposite became standard? It's even more confusing because the price of parts got more expensive, not less.


Again, all we are being told is that it is the high cost of labor that has ruined this industry, but of course that's always the excuse. In the case of parts suppliers, the real problem is twofold; Detroit doesn't honor their contracts, for one thing. But just as bad, when these parts divisions were taken in-house their high creativity — the hallmark of these companies when they were independent — was destroyed

[nifty]

good reading and oh so true......thanks for posting it up mad

[69 DIRTY RAT]

A lot of the parts comin from the US are Crap now also...because they are made in China! I imagine a result of the higher cost of the American labour? Most of the chrome parts dont last!

[daniel42au]

I think that the pricing of spare parts is part of the OVERALL  marketing strategy of the car manufacturers.   It is a complete package.  

The economics of Supply and Demand mean that the lower the price; the more goods or services a supplier will sell.  Manufacturers sell new cars at low retail prices in order to maximise the total number of cars sold knowing that they will recoup forgone profits through the sales of model specific spare parts further down the track.    No one buying a new car thinks to themselves, "I wonder what such-in-such a part will cost me when I need to replace it".    Hence the high cost of spare parts are built into the total cost of the car's production and become part of the whole marketing strategy.

Here is another example.  Have you ever noticed how cheap computer printer/scanner/fax machines are selling for?  One of the first things I consider when buying a printer is how much the ink cartridge will cost to replace.  A couple of ink cartridges often cost as much as the printer with the print head built into the ink cartridge to ensure you buy the genuine item ! That is how (and why) they can sell you the printer so cheaply.

Finally, I think it is ironic that the buyer who can afford a new car gets a relatively cheap car, owns it for a few years till the extended warranty runs out and it starts to need spare parts.   At that time, they sell for a newer more reliable model.   Along comes the used car buyer who can't afford the price of a new car, buys the cheap used car, and gets nailed with the high cost of maintaining a vehicle which is wearing out.   A high cost which is in part is due to the unreasonably inflated cost of spare parts.

My wife drives a 1995 Ford Probe valued at $9,000 .  The other day the electric aerial motor stopped winding up the mast... OEM replacement cost from a Ford Dealer was $1,150.   Needless to say, I Super-Glued the aerial permanently up.... cost $2

[MADLT1]

;51well said daniel42au

[daniel42au]

Thanks, i think we were agreeing from different angles ....

In respect to the viability of the Corvette, another gnawing thought in the back of GMs collective mind must be that they currently own the franchise to an American Icon.

To stop production would mean surrendering their icon to History along with the kudos it brings them in today's marketplace noting that being the maker of a Le Mans winning car is preferable to being the manufacturer of yesterday's discontinued failed marque.

When the production of Corvette ceases, a new icon will arise but it may not belong to GM.