Globalism and shifting costs:

In the 1980s and early 1990s GM was in almost as bad a plight as it is now. At one point, they brought in Spanish executive Jose Ignacio Lopez from their European operations to run their purchasing operations. What Lopez did is revive the company’s fortunes by driving ever harder deals with GM’s suppliers.

What’s interesting to us is how his actions were part of a bigger movement, one we see in as a major part principle of the new oligopoly, namely squeezing the suppliers. As Lynn points out: “Up to 90 percent of the value of any product is created before the final assembly process, and the manufacture of small parts and components is often scattered among hundreds of small plants.” (p. 22)


Much of the work at the big auto companies in the 1980s, according to Lynn, was in improving the assembly line. Robotics, ergonomics, computers were integrated and quality control was improved. Yet that wasn’t enough. The real efficiencies were to be gained in the 90% of the work that happened before it reached the final plant.

As Lynn points out, the automotive industry had at that point a very cozy relation to its suppliers, who had their little plants clustered around big GM plants and who could expect fair treatment as long as their deliveries were on time and according to specs delivered by GM engineers. GM gave the marching orders and handled all the coordination.

Lopez changed all that. He heaped far more responsibility on the suppliers, centralized more purchasing requirements on fewer firms, and made these bigger supplier firms coordinate the design, manufacturer, and supply chain for subsystems. The end job of the suppliers was to minimize the cost of the components they delivered and to lower the cost of final assembly. “Lopez was calling on his suppliers not merely to cut their prices but to assume much more of the responsibility for the overall manufacturing process….This, he believed, would allow a complete redesign of the final assembly system, as suppliers would now be called on to deliver a few very large clusters of components, or subassemblies, to the lead manufacturer, where a greatly stripped-down continent of workers would quickly bolt the pieces together.”(p. 42)

Soon enough, the suppliers started moving offshore in order to meet the demands of the manufacturer. The assembly lien was made simpler, requiring fewer workers and minimizing variability. GM more than ever became a marketing and design company, with more and more of the manufacturing outsourced.

The benefit to GM was a cut in costs, both for components and for its own unionized payroll. GM once was the US’s biggest employer and one its most generous. By the end of the decade, its workforce shrunk, and its payroll has been surpassed by the much lower-cost ones of Manpower and Wal-Mart.

This change, along with the SUV boom, gave GM over a decade of renewed life. More particularly, it serves as model for other companies, in defense, in electronics, in appliances, in aeronautics, and in most other areas, that have followed GM’s lead. While the old brand names still remain and some assembly is done in the US, but the big factories are increasingly empty.

Lopez, by the way, was a victim of bitter internal strife at GM, according to Lynn. The streamlining he envisioned upset too many execs whose jobs were threatened. But the overall landscape was changed, as Lopez showed other product firms how to cut costs to the bone and to reduce their labor overhead.