Chrysler Seeks Supplier Price Cuts

AUBURN HILLS, Mich.--Chrysler is asking its suppliers to cut their prices as the troubled automaker has adopted a two-step approach to reduce material costs over the next two years.

“We are in a difficult business situation and we know the only way to initiate change effectively is by working together,” said President and CEO Dieter Zetsche, who added that this is “the first element of a comprehensive restructuring plan aimed at lowering overall spending and improving efficiencies. The true test of a strong relationship is measured during times such as these.”

In past years, Chrysler has asked suppliers for reductions of 3 percent annually. Instead of using this incremental approach, in Phase 1 of this new initiative, the company is expecting all suppliers to reduce the prices they charge for materials on vehicles and all general services by 5 percent come January. “Under current circumstances, this one-time decrease will cover the period, 2001-2003.”

In keeping with its Extended Enterprise philosophy, in which the company works in cooperation with suppliers from the design stage through the manufacturing and delivery of vehicles, Phase 2 of the new initiative has the company’s engineers, platform teams, manufacturing and procurement managers working closely with suppliers to identify an additional 10 percent cost cut over the two-year period, from 2001 through 2002. These activities are intended to be margin-neutral for the supplier base.

“Our suppliers’ ideas and innovations contributed to our becoming the most efficient vehicle producer some years ago,” said Tom Sidlik, DaimlerChrysler executive vice president of procurement and supply. “Now, in the current business situation, we are counting on our supplier partners to stand with our company in regaining this position in these difficult times. We intend to redouble our own efforts, as well as tap into our suppliers' creativity and core competencies across all aspects of our business, in order to ensure Chrysler’s long-term viability.”

He added: “The overall initiative will be accomplished by working together with suppliers to achieve the optimization of vehicle cost and content through technology, parts commonization and re-design across all platforms--Jeep, Truck, Minivan, Large Car, and Small Car.”

Phase 2 will be facilitated “by a fast-paced and structured process, with multiple teams of Chrysler specialists spending six-to-eight weeks in each instance working with one or more suppliers on improving material costs. Within one year, at least 150 supplier companies--representing over 75 percent of the company’s annual purchases--will have completed Phase 2.”

Richard Schaum, executive vice president of product development and quality, said the company’s product development teams are eager to continue collaborating with the supplier base.

“The pace of change in our industry is extraordinary, and it’s never been more important to work closely with our suppliers from product creation to volume production to the showroom,” said Schaum, who is also general manager of passenger car operations. “We have had excellent supplier relations over the last 10 years. With this relationship, we feel that implementing this new process jointly with our suppliers will continue to provide our customers high quality and innovative products at affordable prices.”