SHANGHAI -- Although production costs in China have jumped in the past few years, American Axle & Manufacturing Holdings Inc. wants to source more parts here.
"From the standpoint of driveline products, the Chinese are still very good at producing at low cost," says Steven Proctor, president of the company's Asia operations.
About 8 percent of the components that American Axle uses in North America are made in China, Proctor says.
The Detroit company is developing new Chinese suppliers, he says. Proctor declines to give a target for how much the proportion would increase.
Over the past few years, rising costs have cut the advantage of shipping auto components from China to North America.
Since the practice of linking the yuan to the U.S. dollar ended in 2005, the yuan has strengthened about 20 percent. This means more dollars are required to buy Chinese-made parts.
Last year, China slashed sales-tax rebates on thousands of kinds of exported goods. In January, a new national labor law guaranteed workers employment contracts, social security contributions and overtime pay.
China also has experienced wage inflation. Independently of the new labor law, workers' pay in coastal provinces has increased about 8 percent in each of the past three years.
Yet at American Axle, Proctor says the country's manufacturing still
is competitive. The biggest attraction of China continues to be low labor costs, he says.
"Given the global downturn, it's not certain how much the trends of wage inflation and currency appreciation will continue," Proctor says.
Take the example of the operator of a machine that cuts gear wheels. In Mexico, this job would pay $4 to $5 (27 to 34 yuan) per hour, including benefits, Proctor says.
In Anhui province, where American Axle has a new joint venture with Anhui Jianghuai Automobile Co., with benefits the same worker would get $1.50 to $1.70 (10 to 12 yuan) per hour.
Even after recent concessions made by organized labor, the rate in Michigan would be $35 to $40 (240 to 274 yuan) for a unionized job, Proctor says.
American Axle specializes in drivetrain parts and systems of metal gears, shafts and axles. These components are produced with labor-intensive casting and machining.
"For the stuff we make, Chinese manufacturing's cost structure is a very good fit," Proctor says.
Significantly, American Axle has no plans to export more from any of its own plants in China.
For the United States, components sourced from China will most likely be made by American Axle subcontractors here.
