Retiring auto exec reflects on supplier/auto maker relationship

AUTOMOTIVE NEWS

Published: December 10, 2013 2:45 pm ET
Updated: December 10, 2013 2:48 pm ET

Image By: Automotive News Neil De Koker, retiring CEO of the Original Equipment Suppliers Association.

Related to this story

Topics Automotive

Tougher federal fuel economy and emission standards have forced the Detroit 3 to embrace suppliers that have developed cutting-edge technology, and Neil De Koker is delighted about it.

This fall, De Koker is in the process of stepping down as CEO of the Original Equipment Suppliers Association, the trade group he founded 15 years ago. With 450 member companies representing $300 billion in annual sales, OESA arguably has become the voice of North America’s automotive suppliers.

Yet De Koker, 70, ruefully notes that he is still wrestling with some of the same issues—such as one-sided purchasing contracts—that he did when he launched OESA in 1998.

In a recent interview with David Sedgwick of Automotive News, De Koker looked back on his 50 years in the auto industry.

Q: What were the big issues when you launched OESA?

Relations between suppliers and auto makers were always a challenge. At our second meeting in 2000, we started discussing contractual terms and conditions (standard contract language that sets terms for warranty liability, intellectual property, etc.) One supplier said, “Yeah, I negotiate my own terms, and we write side agreements.” And other executives in the audience looked up and said, “What?”

Q: So most suppliers didn’t know that some vendors were negotiating a better deal with auto makers?

It made us aware that some suppliers stand up to their customers to demand reasonable treat-ment. It was a serious epiphany—it really was.

Q: Do you believe that some auto makers’ purchasing contracts are one-sided?

Yes. Bankers would say to suppliers: “We don’t want to loan you money because your customer could cancel the contract at any time and shut you down. You look like a high-risk investment.”

Q: What did you do about it?

We developed a model contract. We asked ourselves: If the relationship between buyers and sellers were equal, what would a standard contract look like? We had a team of 47 people that worked on a model contract for 18 months.

Q: How did the auto makers react?

In 2010, we finally had a meeting with seven auto makers and 15 suppliers. After 2 1/2 hours, one lawyer from an auto maker stood up and said, “I don’t think this is going to work, and I don’t feel like participating.”

Q: That must have been a tough blow.

At the end, three OEMs said they’d come to the next meeting, but I was devastated that there wasn’t enough interest in the industry to save us all kinds of money. We had concluded that there was $10 billion wasted every year just because we couldn’t agree (on contract terms).

Q: With that in mind, have relations between suppliers and auto makers gotten any better?

There is more cooperation. I’ve seen some really, really good things recently. At Chrysler, they put the chief of engineering (Scott Kunselman) in charge of purchasing. Integration (of engineering and purchasing) at Chrysler has improved dramatically.

Q: So is it a good sign that the Detroit 3 are putting engineers in charge of purchasing?

Absolutely. You’ve got Hau Thai-Tang at Ford, so they’re doing pretty good. And it’s the same thing with Grace Lieblein at General Motors. And in September, she started reporting to Mary Barra (GM’s chief of product development and newly named CEO).

Q: How would you compare Toyota and Honda to the Detroit 3?

I think those companies perceive purchasing as a service to help suppliers, whereas GM, Ford and Chrysler were fiefdoms in the old days. Their purchasing chiefs were called czars—and not affectionately, I might add. I think that’s changing, now.

Q: Why are the Detroit 3 changing now?

I think it’s because of the federal mandates for better fuel economy and emissions. The challenge is so great that it’s more important than ever to coordinate purchasing and engineering.

Q: You told me about your failure to win support for a model contract. But what was OESA’s greatest success?

We’ve made progress in a number of areas. We developed these town hall meetings, (when OESA would sponsor annual meetings between an auto maker’s purchasing chief and its suppliers). The first town halls were in 2002 with Ford and GM. Their purchasing staffs have participated in meetings where we had 300, 400 and even 500 supplier executives in the audience.

Q: Clearly your biggest crisis was the crash of 2008 brought on by the collapse of Lehman Bros.

Suppliers were on the edge. Sales volumes were so low. They were barely surviving. They were cutting costs like mad, and the banks weren’t lending them money for working capital.

Q: How did you respond?

The biggest thing was to convince the government that if one auto maker were allowed to go bankrupt, then hundreds of suppliers would go bankrupt, and up to 2 million jobs would be lost.

Q: So you educated the government. But suppliers needed financial aid, too.

It was the ultimate cash-flow crisis. We needed loans that we could apply against receivables. (The accelerated bankruptcies of GM and Chrysler) saved the industry, but we still had 61 suppliers go through bankruptcy.

Q: How does the industry look now?

We’re getting more and more global. The number of suppliers with a presence in China is amazing. And suppliers have a presence in places like eastern Europe, India, Russia. You can’t just say: “I’m happy in North America; I’ll just stay here.” Because you won’t be able to meet your customers’ expectations.


Comments

Retiring auto exec reflects on supplier/auto maker relationship

AUTOMOTIVE NEWS

Published: December 10, 2013 2:45 pm ET
Updated: December 10, 2013 2:48 pm ET

Post Your Comments


Back to story


More stories

Image

China's biggest fuel tank maker getting a US foothold

April 23, 2014 4:41 pm ET

The majority owner of China's biggest fuel tank maker is expanding its global automotive footprint with the acquisition of the fuel tank unit of...    More

Image

How CEO Santi is changing ITW

April 23, 2014 2:48 pm ET

Scott Santi is showing he can do more than just cut costs at Illinois Tool Works Inc.    More

Auto supplier adds production space, jobs at plant in central Hungary

April 22, 2014 9:50 am ET

Automotive parts manufacturer Ábrahám Kft. has expanded its factory in Túrkéve, in central Hungary, with the launch of a new production hall as part...    More

Image

Ascend targets nylon for auto applications, opening propylene monomer unit in Texas

April 18, 2014 10:57 am ET

Materials firm Ascend Performance Materials Inc. is in full operation at its new nylon 6/6 compounding line in Florida and will break ground by the...    More

Image

German auto supplier Dr. Schneider opens second US plant

April 17, 2014 12:57 pm ET

Dr. Schneider Kunststoffwerke GmbH, a German supplier of plastic interior auto parts, has opened a $29 million manufacturing plant in Russell Springs,...    More

Market Reports

Market Data Book - Rankings & Lists

A one-stop download of Plastic News' exclusive annual lists and processor rankings containing essential data including sales, employees, end markets, materials and more.
EXCLUSIVE EXCEL FEATURE: full mailing address details for available plant locations.

Learn more

Thermoformed Packaging 2014 Market Review & Outlook – North America

This in-depth report provides analysis and discussions of economic and political conditions, market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as strategies being implemented by thermoformed packaging companies. In addition, there are reviews of 25 leading thermoformers in the packaging segment, assessing their growth initiatives and performance metrics over 10 years.

Learn more

Mold Making and Tooling Review and Outlook 2014 – North America

This report provides in-depth analysis of the mold and toolmaking market for North America, including discussions of trends, opportunities, threats, the latest developments in production and labor and equipment trends impacting moldmakers.

Learn more

Upcoming Plastics News Events

May 6, 2014 - May 8, 2014Plastics in Medical Devices 2014

May 12, 2014 - May 12, 2014Plastics News Brazil Pharma Summit

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

February 3, 2015 - February 7, 2015Plastics News Executive Forum 2015

More Events