Short-Sighted U.S. Automakers Signing Own Death Warrant With Suppliers

    DETROIT, March 5 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?

    Those are two of the tough issues discussed by auto suppliers in a
penetrating article on OEM - supplier relationships that is the cover story of
a leading auto industry magazine to be published this week.

    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.

    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.  One
day they will come in and wipe us all out of business."

    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."

    "We have the least money to give, some of the leanest plants going, and
the OEs and Tier 1s think we are the problem," says a Tier 2 executive.
"These guys got waste all over their own system, but they don't want to hear
that from us.  They just want us to cut our price."

    "It's true," adds another vice president.  "There is zero partnership,
zero trust.  They just don't believe what we tell them.  But isn't it ironic
that it's only true for GM, Ford and DaimlerChrysler?  Look at a contract with
Toyota or Honda.  It's just one sheet with an addendum page.  Here's a Ford
contract -- look at it, it's 30 pages.  The GM contract is 26 pages, and DC's
is 24.  Most of it is legal-speak, but it translates to why they don't trust
you.  When you are spending dollars to put engineers and systems and tooling
in place, who do you want to work with?  It's not the domestics."