Before cell phones and MP3 players, it made sense to answer the phone and listen when General Motors Corp.
When it came to working with a player like GM, suppliers with an entrepreneurial bent routinely put all their eggs in one basket. That's until this strategy no longer ensured survival.
In 2008, suppliers that at one time were so dependent on GM that they surely would have perished without its business - like the Jervis B. Webb Co.
of Farmington Hills, or the one-time GM-owned Electronic Data Systems
- have diversified.
EDS is thriving, as is DirecTV
, an El Segundo, Calif., HDTV provider that has become a $14.7 billion satellite television company since its 2003 spin-off. Others, most notably Delphi Corp.
, are struggling and are attempting to infuse cash and diversify product offerings.EDS
EDS of Plano, Texas, is a GM supplier success story. Best known for its maverick founder and former chief executive, H. Ross Perot, EDS has morphed into one of Fortune's
“America's Most Admired Companies.”
EDS was bought by GM in 1984 and became an independent company in 1996.
EDS still thanks its one-time parent.
“It was truly a catalyst for EDS' growth around the world,” said Dave Ellis, communications manager for EDS in Detroit.
EDS also can credit entrepreneurial spirit and ingenuity for its own upward mobility. Through aggressive expansion into new industries and markets, EDS has transformed itself from the $700 million data-processing company it was under GM's aegis in 1984 to a highly diversified, $22 billion company today that provides services in 60 countries.
EDS now gets just 10 percent of its revenue from GM. Five years ago, GM made up half of EDS' sales.
Today, EDS' clients range from Xerox
to the U.S. Marines
beer to a telephone company in Poland and the California Department of Motor Vehicles
. Services, provided in 47 languages, include running and maintaining human resources software serving 33 million client employees, Web hosting, Internet order-taking, desktop management and supervising call centers.
The growth at EDS is fueled by people like Detroit-based Patrice Poynter, EDS' director of global quality. She was hired 19 years ago to work on the Saturn help desk and has been promoted 10 times since then on the GM account.
“It's about continuous improvement. It's about fixing and improving the technology and making the people more skilled,” she said.
EDS employs 7,800 in Michigan, mostly in Auburn Hills, Pontiac, Warren, Romulus, Redford Township and Lansing, and 48,500 nationwide. The rest are scattered all over the world.
“EDS became global because GM became global,” Ellis said.
The client portfolio has diversified to other transportation industries and to medical applications. In Israel, EDS developed a biometric hand-scanning system for the Ben Gurion Airport that routes passengers through to their flights three times faster than the old system. In Australia, EDS is running a pilot program for the Port of Melbourne that tracks cargo movement. And back at the ranch in America, where it all began, EDS manages Medicaid accounts in several states, processing in excess of 1 billion medical claims per year.Delphi Corp.
And then there's Delphi Corp., a 1999 GM spin-off based in Troy that is so wounded today that company communications officers can't answer when the corporation will emerge from the Chapter 11 bankruptcy it has been in for almost three years, despite lowering wage-and-benefits compensation for unionized production workers.
“We're operating under a number of hurdles (that are) complicated,” said Linsey Williams, senior manager of corporate affairs for Delphi.
But a financial turnaround is still plausible for the company that reported a net loss for 2007 of $3.1 billion compared with a net loss for 2006 of $5.5 billion. Delphi has been aided by 12,000 workers who have retired, accepted pre-retirement packages or taken buyouts.
The company had expected to exit bankruptcy in April with $6.1 billion in financing. That included $2.8 billion in loans provided by GM.
But other funding sources, like $2.55 billion in financing from Appaloosa Management L.P.
, have fallen through, and there is a battle among creditors and attorneys for Delphi cash. Delphi has until the end of August to file a reorganization plan without outside interference.
While Delphi fights its demons, it has diversified to attract new customers overseas. Of its $22.3 billion in sales last year, 63 percent of those revenues consisted of non-GM business. Its Thermal Division in Oakland County is an attempt to break out of the automotive genre. The division markets a cool-down application for computers as well as other heating and ventilation products.
Survival has a price. As Delphi has steadily downsized these past nine years - whittling to eight U.S. GM plants from a peak of 32, Williams said - its Michigan workforce has gotten smaller. About 6,000 people work in Michigan: in Auburn Hills, Troy, Adrian, Saginaw and Wyoming, Mich. Many are engineers and administrative staff.American Axle
Among suppliers, the one that recently has had the most deleterious effect on GM's everyday operations is American Axle & Manufacturing Holdings Inc.
Some 3,650 UAW workers at American Axle have created parts shortages since February at 30 GM factories by going on strike over proposed cuts in compensation. American Axle had hoped to negotiate wage concessions, following the labor pacts the Detroit Three struck last year with the United Auto Workers.
American Axle produces axles, driveshafts, brake parts and stabilizer bars, among other components. American Axle was spun off from GM in 1994. General Motors is its largest customer. Strikers, who walked off the job Feb. 26, have bristled at the notion of lower wages. American Axle's Renee Rogers has told reporters American Axle has “always been ready to negotiate.”
The UAW is negotiating worker buyouts as high as $140,000 each. It also is looking at “buy-downs'” that would pay $90,000 each to workers to accept wage cuts from $28 an hour to as little as $14 an hour. More than 30 GM assembly and parts operations, along with numerous supplier plants, have been slowed or idled by the walkout, which began at five U.S. American Axle plants.
General Motors has told its dealers it has suspended production of some 2008 full-size trucks and SUVs because of the strike.Jervis B. Webb Co.
It used to be that when GM sneezed, the Jervis B. Webb Co. caught a cold.
GM is still entrenched as the SmartCart and conveyor-maker's No. 1 customer in terms of revenue, averaging $60 million a year. That's about 20 percent of Webb's total sales - down quite a lot from the days when GM made up half the company's business
The supplier opted to diversify with greater vigor after GM spent only $30 million with the company in 2001, 2002 and 2003.
“We wanted to diversify more in the "70s, "80s and "90s, but automotive was still 95 percent of our business. When auto was way down, (airports) are what saved us. Now auto is just about half” of the company's sales, said Noel Dehne, Webb's vice president of automotive systems, a fixture on the GM account for more than 30 years.
Now $118 million of Webb's business comes from airports that need new conveyors and carts and high-speed luggage sorting and tracking. The work helped raise Webb's overall sales from $190 million in 2001 to $298 million last year.
Webb is angling to win contracts in the food-handling, beer and wine and heavy-truck industries and with the U.S. Postal Service
“The post office has a need for sortation equipment, and for us that is a potential $30 million in new revenue,” Dehne said.
Back in the salad days with GM, Webb made a name for itself by creating a historic conveyor system at a plant in Pontiac. It was 1983 and the conveyor system, which was several miles long, was used to build the Pontiac Fiero from 1984 to 1988. The line took the car from start to finish.
The subsidiary of Daifuku Co. Ltd.
of Osaka, Japan, manufactures its conveyor components and other products for GM and other clients such as John Deere
and Ethan Allen
, at plants 20 minutes apart, in Boyne City and Harbor Springs.
There are a total of 1,000 Webb employees worldwide, including 325 in Farmington Hills, and the company hires often, said Lon McAllister, vice president of manufacturing for Webb
Webb also has manufacturing plants in Carlisle, S.C., and in India and China.Eagle Ottawa L.L.C.Eagle Ottawa L.L.C
. is an Auburn Hills-based supplier of premium leather to Cadillac, Audi, BMW, Lexus, Mercedes-Benz, Land Rover and other automotive brands.
Statistically, 25 percent of vehicles on U.S. roads have Eagle Ottawa leather in them, said Annabel Cohen of Eagle Ottawa. Eagle Ottawa is special to General Motors in that it has been a supplier for all of its 100 years in business.
Eagle Ottawa has gone from a modest plant in Whitehall, where it fashioned leather for railroad cars and horse-drawn carriages, to a 27-site global operation that mostly serves the auto industry. The operation includes eight test laboratories and seven sales offices. Locations are sprawled from Waterloo, Iowa, to Buenos Aires to Tokyo.
The company has been around since 1865. It employs 4,400 and reported $550 million in 2007 revenue. It was ahead of the globalization curve when it began operations in England and Mexico in 1992. Services range from seat testing, sewing and perforation to door trim wrapping to logo embossing and embroidery.
“Due to global competition, we've had to differentiate and diversify and to find ways to add value for our customers,” said Eagle Ottawa President Craig Tonti. “Today we're adding” service such as lamination, custom embroidery, embossing and surface effects like metallic and pearlescent leathers to thrive.
Pat Catlin, vice president of sales, said the company has raised industry standards for quality performance by delivering fewer than 100 defects per million parts
“We have a proven record, and when things aren't perfect (we're dealing with a natural product here, not an artificial material that looks the same for millions of yards), we make sure we fix it and as fast as possible,” Catlin said.Automotive News contributed to this report.