Low-cost latitude

Contrary to popular belief, “low cost” does not automatically mean “Chinese.”

With two of the domestic car makers' balance sheets stained red, the suppliers that provide the components those manufacturers use to assemble their cars and trucks are under even greater pressure to cut costs or face replacement. The weapon threatened in these negotiations is the “China cost,” the presumably low price offered by emerging contract manufacturers in China that exploit that country's low wages and absence of enforced labor and environmental laws.

The pressure is felt most keenly at the Tier 1 suppliers that were created when General Motors and Ford spun off their in-house supply operations in the 1990s (Delphi and Visteon). There was a reason the car makers cut these companies loose, and it was not to capture their market value as might occur if GM sells its profitable GMAC finance arm.