U.S. Parts Makers Prefer Honda, Toyota

CHICAGO August 1, 2004; Susan Kelly writing for Reuters reported that U.S. auto parts makers are shifting their loyalties to Japanese automakers and away from the domestic Big Three as relationships with Detroit steadily deteriorate, according to a new study.

The shift could have dire implications for the domestics and their ability to compete as suppliers devote more resources in research and development, technological advances and quality innovations to the Japanese automakers, according to the study by Planning Perspectives, a Birmingham, Michigan-based consulting firm.

U.S. automakers in recent years have grown reliant on profit-eroding consumer incentives to sell cars and slow market share losses to the Japanese. They have also come to expect price cuts from suppliers to help offset the shortfall.

Now, parts makers are increasingly getting squeezed as the cost of steel and other raw materials have skyrocketed.

"U.S. automakers continue hammering their suppliers for price reductions and multimillion-dollar cash givebacks, and suppliers are responding by giving them less support," the study found.

Parts makers participating in the annual survey said they prefer to do business with Toyota Motor Corp. and Honda Motor Co. because in those relationships they are treated as partners rather than adversaries and stand a better chance of making an acceptable financial return.

Suppliers' trust of General Motors Corp. and Ford Motor Co. has never been lower, while trust in the Japanese carmakers has never been higher, the study found.

"In all the other industries we've studied, such as aerospace, electronics and computers, no one treats their suppliers as poorly as the U.S. automakers do," John Henke, author of the annual study, said.

More than 220 suppliers participated in the survey, comparing their relationships with Toyota, Honda, Nissan Motor Co., General Motors, Ford and DaimlerChrysler AG.

The study found that the U.S. Big Three primarily focus on cost, while the Japanese also want low costs, but balance that goal with an emphasis on quality and technology.

Furthermore, the Big Three have "little regard" for suppliers' proprietary information or intellectual property, while the Japanese value and safeguard suppliers' new ideas, according to the study.

With the Japanese carmakers, "suppliers aren't going to have to worry about their intellectual property being given away to other suppliers with the lowest price," Henke said in an interview.

The differing approaches "might well be a major factor in the consistently high quality and competitive gains by the Japanese," the study concluded.