From the Detroit News

AURORA, CANADA — Magna Steyr appears to be inching closer to its goal of being the first auto supplier in recent history to build entire vehicles on a contract basis for automakers in North America.

The engineering unit of Canada’s Magna International Inc. still doesn’t have its first North American vehicle-building contract, but the unit’s top executive here said it has had initial talks with several U.S. automakers and could be close to inking a deal.

“I would say there is an opportunity that could become a program this year,” August Hofbauer, president of Magna Steyr North America, said in an interview, declining to provide details.

The company has struggled to convince North American automakers that a supplier can build cars and trucks as well as they can — and that it can be done without drawing fire from the United Auto Workers union, which opposes the shift of work from automakers to suppliers, which generally pay a lower wage.

“In general, I think it’s still something very new to the North American market,” Hofbauer said.

Magna Steyr, which has a long history of performing complete auto assembly on contract in Europe, opened an office in Rochester Hills, MI in 2002 to lay the groundwork for doing the same in North America. The company also provides vehicle design and engineering services.

As U.S. automakers try to wring costs out of operations, they are passing more work to lower-cost auto suppliers. So far, no automaker has gone so far as to entrust a supplier with production of an entire vehicle — a move that would be seen as a paradigm shift in the U.S. auto industry.

But that could change if labor and other manufacturing costs continue to increase and the pressure intensifies to bring more vehicles to market fast.

“Whereas there may have been some reluctance in the past, it’s going to be an option in the future,” said Jim Gillette, a supplier industry analyst with CSM Worldwide in Grand Rapids, MI.

Ford Motor Co. and General Motors Corp. may be particularly open to the idea as they downsize their North American operations, lower costs, and become more competitive, Gillette said.

GM has already tested the waters of contract assembly. The automaker hired Southgate-based ASC Inc. to produce many interior and exterior pieces for the 2003 Chevrolet SSR retro-sport pickup, but opted to do final assembly of the convertible truck at a GM plant in Lansing, MI.

ASC promotes the SSR agreement as a way for unionized automakers to keep jobs in house, while still saving money by devoting less factory space to low-volume vehicle production.

Magna Steyr wants to operate its own manufacturing facility to build such vehicles, a plan that ASC spokesman Tim Yost said does nothing to address overcapacity concerns in North America, where auto plants have the ability to build millions more vehicles every year than consumers are buying.

“The last thing automakers need is more capacity,” Yost said.

Hofbauer said Magna Steyr may be best suited to niche vehicles with annual sales between 15,000 and 50,000, which could include everything from a convertible to gasoline-electric hybrid version of an existing model.

At a complex in Austria, Magna Steyr builds models including the Saab 9-3 Convertible, Mercedes G-Wagon and right-hand drive versions of the Chrysler 300C sedan.

The company would need to follow a similar outline — filling up a plant with multiple vehicle contracts — to make a factory work in North America, Hofbauer said.

Magna Steyr has scouted plant sites in North America, but will not set up manufacturing operations until it has a vehicle-building contract, he said. Once a contract is in hand, Hofbauer estimates the company could have a factory up and running in less than 30 months.

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