Dykema Gossett Attorney Teams with Original Equipment Suppliers Association in Study of Automotive OEM Purchase Order Terms; Goal is to Strengthen Supplier Relations
DETROIT & TROY, Mich.--July 8, 2002--Dykema Gossett attorney and Automotive Team leader David B. Liner assisted the Original Equipment Suppliers Association (OESA) in conducting an analysis of production purchase order contract terms and considerations among seven global OEMs. The goal of the study, which included DCX, Ford, GM, Honda, Nissan, Toyota and VW/Audi, is ultimately to help suppliers form more cooperative and collaborative relationships with the OEMs.
The 15-month study identifies where OEMs should consider clarifying or modifying how they explain contract terms in 45 areas that challenge suppliers including intellectual property; ownership of tooling; warranty, indemnity and recall remedies; termination and recovery of costs; and acceptance/modification.
Liner played a key role in integrating the work of a six-person legal team of the OESA Legal Issues Council which sponsored the study along with the OESA Sales & Marketing Council. The results were recently presented at an OESA Workshop to more than 240 automotive supplier representatives.
"Study results indicate major differences in how purchasing terms and considerations are stated," said Liner. "In general, we found that there were no optimal approaches, however many of the New Domestic OEMs are making progress to address suppliers' issues and concerns."
Findings include:
| -- | Intellectual property (patents and trademarks) - Domestic OEMs want unlimited rights to a supplier's intellectual property without compensation. Toyota's terms and considerations have unique provisions including indemnification provisions that are reciprocal plus mutual agreement on the control or use of the other's goods. |
| -- | Ownership of tooling - Most OEMs require suppliers to maintain tooling at the supplier's expense. Toyota's terms are unique in that during negotiations, the company will consider comparable tooling and reasonable variations from a supplier's original quotations, subject to good faith negotiations. |
| -- | Warranty, indemnity, recall remedies - All OEMs require the warranty on parts to run in tandem with the consumer warranty. If an OEM decides to extend a warranty to 100,000 miles, the supplier must comply even though the part may not have been designed to last that long. Selling a $2 part could subject a supplier to millions of dollars in recall costs even if the part was only a portion of the problem. |
| -- | Acceptance/modification - Terms and considerations imposed by the OEMs govern the relationship. Nissan's terms and conditions offer suppliers the greatest opportunity to propose modification. |
"We hope this analysis will be the first step in reducing the extensive language used by many of the OEMs," said OESA Managing Director Neil De Koker. "Greater understanding and collaboration are key factors in contributing to lower systems costs and higher vehicle quality."
A possible outcome of the study may be development of a template of standard contract terms and conditions for use in the automotive industry.
The study is detailed in an 80-page analysis titled OEM N.A. Production P.O. Terms and Conditions Analysis available for purchase from OESA by emailing kmiotke@oesa.org.
Dykema Gossett's recently formed Automotive Team works with automotive tier one, two and three suppliers to reduce risk and maximize opportunities. It has adopted a five-part model for increasing supplier competitiveness that includes business strategies, business operations, workplace management, proprietary rights protection and troubled suppliers. The firm has offices in Detroit, Bloomfield Hills, Ann Arbor, Grand Rapids and Lansing, Michigan; Washington, D.C. and Chicago.
OESA is an association of 280 automotive original equipment suppliers established to advance the business interests of companies supplying manufacturers of car and trucks. It is an affiliate of the Motor & Equipment Manufacturers Association. Its offices are in Troy, Michigan.