Spend Taxpayer Money Wisely on Controls

Jan. 28, 2009
A Machine Automation Supplier Wants Congress to Hold Automakers Accountable for Bailout Financing
By Mike Bacidore, Managing Editor

As Congress begins the next round of discussions with Detroit automakers for additional federal short-term loans, one controls and automation supplier is attempting to rally the industry behind a call for open protocol and competitive bidding on automation control devices as a precondition to bailout money for the Big Three.

Shalli Kumar, chairman, CEO and sole director of AVG, says his best estimate of what Chrysler, General Motors and Ford spend annually on controls and automation is $1.2 billion. “At least 50% of that may be in PLCs, touchpanels and drives,” he says. “We have written to members of Congress in Illinois and Iowa, and we’re beginning a public campaign,” says Kumar, whose facilities operate largely in those states. He is encouraging other automation suppliers to join him. “We have been a supplier to the automotive industry from the days when 1 K of memory used to be the size of a file cabinet.” That was more than 40 years ago, for those of you keeping score at home. “I would like Congress to listen to our concerns about a bailout,” he says. “Let there be a public discourse on this. We are a global economy, but if there are products that are more innovative that are a better solution for the same or less money, then they should buy in America. Congressional hearings will take place regarding the union labor costs and conditions, but I don’t think there is an understanding in the public of where else they will be spending the money wisely.”

Chrysler already has received $4 billion in federal short-term loans. GM has received $9.4 billion. Both companies hope to receive additional financing in mid-February. Ford rethought its request for help from the federal government and so far has declined any funding.

At General Motors, automation and controls technology is purchased by a procurement division with input from engineers who help the group to understand the best components with the best value, explains Lynda Messina, communications manager, GM Manufacturing & Labor Relations, Warren, Mich. She also declined to give any further details because of the information’s proprietary nature, which begs Kumar’s point—if the automaker wants to operate on taxpayer money, then the public should have access to that proprietary information.

Chrysler, on the other hand, was much more forthcoming. Mary Beth Halprin, spokesperson for Chrysler in Auburn Hills, Mich., explains that standardization of components in a large organization makes financial sense, and Chrysler is open to new directions for its controls and automation plans. But a component’s true cost must be calculated in a larger equation.

“There’s a negative cost side to make a switch on controls—to jump from vendor to vendor—especially if you’re only targeting certain parts,” explains Halprin. “Plus, there’s a cost for bringing in non-standardized parts for the plants. We standardize our buys for what’s running in the plants. We do not have many new plants in our system. Most of our plants were built in the 1950s, and we’ve retooled them as we’ve changed our product lineups. For purely technical capabilities, we’ve made some moves with different strategies in our power-train areas. It’s easier to break an entire production process into groupings in a power-train process than it is in assembly, so it doesn’t disrupt the entire process for what we build and the quality of what we build. The assembly plant is much more complex and has more rigorous standards. For a body shop in the assembly process, 10% of that could be the automation and controls because they’re heavily automated with robotics. We work with Rockwell Automation, GE Fanuc, Fanuc Robotics and Siemens.”

As much as three-quarters of the cost, when sourcing controls, are based on design and integration—the engineering cost—so labor is a significant part of control cost, contends Halprin. “The hardware isn’t significant across the board; it’s really ensuring that the software is coded correctly and enables parts of the line to build to spec,” she says. “We also work with outside support in addition to internal engineers for that integration process.”

When her organization was part of DaimlerChrylser, it went through a benchmarking process and had a standardized controls strategy, explains Halprin. “We benchmarked what the Daimler facilities used and included the commercial trucks and created a standardization because our purchase was based on this,” she says. “Since there have been changes in the past two years, we have been able to make some modifications to that because there’s no more Daimler standardization.” Chrysler was sold to Cerebrus Capital Management in August 2007. In January, Chrysler announced a partnership with Fiat, giving the Italian automaker a 35% stake in exchange for access to Fiat's fuel-efficient car platforms and other assets, which could create a new shift in standardized products at the automaker.

“We are continuing to study new opportunities to improve our controls strategy while not compromising the specifications needed in our plants,” says Halprin. “If any supplier has ideas, we welcome them and encourage them to contact us about these ideas. There’s more willingness in our organization in manufacturing and in sourcing to look at new opportunities.”