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Letter to the Editor

Short-Sighted U.S. Automakers Cause of Deteriorating Relationships with Their Suppliers, Says Automotive Industries

DETROIT -- Automotive Industries (AI) magazine's March issue focuses on the deteriorating relationships of vehicle manufacturers and their suppliers in a tough-worded story called "Supplier Squeeze." If domestic automakers are to survive and prosper in today's global market, they have yet another lesson to learn from the Japanese -- they must have good partnerships with suppliers. That's the message from a supplier roundtable recently hosted by AI. A supplier roundtable discussion was the basis of the research of the article.

"The message from our supplier roundtable is clear," writes executive editor Gerry Kobe. "It all comes down to copying Toyota. It's been showing the auto industry the way for 20 years." He notes that automakers are writing their own death warrant if they look at short-term gains in cost but fail to see the long-term gains of giving a supplier enough margin to buy the tools necessary to stay on the cutting edge. Automakers' continual demand for price reductions will compromise vehicle quality, say industry executives. Further, supplier executives ask why domestic automakers' contracts with their suppliers are 30 pages long, while the Japanese OEMs use a contract that is only one page? Is it a question of trust?

Kobe's story was sparked by DaimlerChrysler's demand late last year for all of the company's suppliers to reduce contract costs by five percent, sending the supplier community into a state of shock. In turn suppliers, already running on thin margins and lower projected sales, sent back a shock wave of their own. Nearly 70 percent of them gave Chrysler a one-word answer: "NO!"

To encourage frank and honest discussion, AI's roundtable comprised senior-level management from Tier 2 and Tier 3 suppliers. Everything discussed was on the record. Based on this roundtable, AI's article reports the true feelings of suppliers as expressed in their own words.

"If suppliers cut cost just because an automaker tells them they have to do it, quality is going to take a huge hit," says Dennis Pawley, former executive VP of manufacturing for DaimlerChrysler. "The current crisis mentality at DC means they don't have time to be a partner. They just send out a fax and dictate a price decrease. The suppliers can't take that out of their margins, so they will try to trim it themselves. Somebody is going to pay for it in warranty costs."

Tom Stallkamp, vice chairman and CEO of MSX International and founder of Chrysler's Extended Enterprise, agrees. He says mandated cuts will hurt DC long term. "It really doesn't matter if an OE needs cost cuts immediately," he asserts. "Because the arbitrary approach is a gaming approach and suppliers will learn to play faster than the OE. There are more suppliers to gang up on automakers and the program will become adversarial. Then everybody loses."

"This scares me to death because the people who are sitting back and rubbing their hands with glee about all this are Toyota and Honda," laments Pawley. "We are putting demands on suppliers that can't take it on. Our cost structure will get worse while the Japanese's structure will get better."

AI's roundtable executives agreed that there are both costly legal wrangling and money lost in partnership with domestic OEMs compared to Japan's. In contrast, by one supplier's account, his relationship with Honda is rewarding and based on mutual trust. While Honda may be difficult to land as an account, he notes that once you are partners, the company will help you with any delivery, quality, or pricing problems that come up.

"They are great to work with and so is Toyota," confirms another vice president. "They believe in you and they work with you. They are crystal clear on their financial objectives; they are clear on how you score in their rating system. They are methodical, consistent and, most important, they are honest. You can set up a game plan that will exist for years."

Automotive Industries is a leading automotive trade magazine headquartered in Detroit with a circulation of over 100,000. It covers the domestic and international original equipment vehicle industry with management, production, engineering and technological features.

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