Chrysler purchasing chief faces tall order

David Sedgwick
AUTOMOTIVE NEWS

Published: August 18, 2014 1:21 pm ET
Updated: August 18, 2014 1:25 pm ET

Finelli

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Topics Automotive

So much for Tom Finelli’s honeymoon phase as Chrysler Group’s new purchasing chief for North America.

In the short run, this protege of Dan Knott, Chrysler’s highly respected supplier relations ace who died in 2012, has to win the trust of wary vendors. That’s because CEO Sergio Marchionne remarked two weeks ago that their hefty profits make “my blood pressure go up.”

With Chrysler’s production rising rapidly this year, Finelli needs the suppliers’ full cooperation to keep parts flowing.

In the longer run, Finelli will try tobuild rapport with suppliers that can help Chrysler improve fuel economy, upgrade infotainment and introduce collision-avoidance systems — technologies that Chrysler cannot develop single-handedly.

Last week, he started with a phone conference with key suppliers.

Aware of their pricing power, several suppliers told Automotive News last week that they feel no need to offer big price cuts.

“We all operate in a competitive environment,” said one CEO of a Tier 1 supplier. If suppliers are making fat profits, “in part it’s because we don’t do stupid things like granting price cuts without cost reductions.”

And if Chrysler’s profits seem low, the CEO added, “that’s not any fault of the suppliers.”

Changing course?

Despite Marchionne’s truculent comments at an Aug. 6 discussion of Chrysler’s earnings, it is unlikely that Chrysler intends to adopt a hard line with suppliers or significantly change its purchasing process, according to Chrysler and supplier sources.

For example, in a conference call Wednesday, Aug. 13, with Chrysler’s advisory council of suppliers — which includes 16 suppliers plus the Original Equipment Suppliers Association — Finelli assured them that he would continue the reforms initiated by his two predecessors, Scott Kunselman and Knott, the sources said.

Kunselman succeeded Knott as purchasing boss in 2012. At the time, Kunselman announced plans to involve key suppliers early on in product development projects and offer them long-term, no-bid contracts.

Chrysler has indeed offered no-bid contracts to some vendors, said one vice president of a major Tier 1 company. “We have found it to be a fruitful process,” the executive said. “They drive a hard bargain, but they are clear about their expectations.”

This spring, Chrysler made another effort to improve relations when it asked its supplier council to study half a dozen problems flagged by vendors. Topics included Chrysler’s glitchy vendor payment software, production schedules, tooling payments, returnable parts packaging and other issues.

The Tier 1 vice president expects Finelli to continue to improve relations. Finelli has an engineering background, the executive noted, and he was a protege of Knott, Chrysler’s purchasing chief from 2009 to 2012, who was highly regarded by suppliers.

Moreover, Finelli is stepping up from a job that gave him a key role — the global standardization of parts — in Chrysler and Fiat’s campaign to generate economies of scale with their $90 billion annual purchasing budget.

It was a newly created job, and it was Finelli’s task to get that program up and running.

Finelli, 44, “clearly was one of the guys that had risen up through the organization,” the executive said. “When they moved him out” to run Chrysler’s global standardization program, “I said he’d be back.”

Finelli was appointed Chrysler Group’s chief of NAFTA purchasing and supplier quality last week in a management shuffle. Kunselman now heads a new office of safety and regulatory compliance.

Finelli declined a request for an interview last week.

Raw deal?

Although some prominent suppliers recently have announced healthy quarterly profits, as Marchionne pointedly noted, it’s not clear that Chrysler is getting a raw deal.

Recent studies by two Michigan consulting firms — IRN Inc. and Planning Perspectives Inc. — offer some evidence that suppliers aren’t gouging Chrysler.

This month, Planning Perspectives, of suburban Detroit, released a study suggesting that price cuts that Chrysler obtained from its suppliers were comparable to those of Toyota, Honda and Ford.

From 2008 through 2013, supplier price concessions to Chrysler averaged $170 per vehicle sold, compared with $144 for Toyota, $173 for Ford and $257 for General Motors.

But price concessions aren’t nearly as important as a supplier’s technology, component quality and engineering resources.

“Suppliers that have cutting-edge technology don’t have to negotiate prices with anybody,” said Planning Perspectives President John Henke. “They can say, ‘Here it is,’ and if the automaker negotiates, they can say ‘no’ and walk away.”

Henke gives Kunselman credit for trying to improve relations with suppliers. But he believes Chrysler’s purchasing bureaucracy hasn’t gotten the full message.

In a May survey of 362 Tier 1 suppliers, Planning Perspectives rated Chrysler’s purchasing department below those of Toyota, Honda, Nissan and Ford, and barely ahead of GM’s department.

“Chrysler buyers are ranked lowest in building trust and ... providing information,” the study noted. “Chrysler significantly trails all automakers in paying invoices on time ... and in resolving issues in a fair and equitable manner.”

Raw materials

Despite Marchionne’s annoyance, suppliers could plausibly argue that Chrysler owes them more money, not less.

According to a May survey of 82 suppliers by IRN Inc., just 12 percent of respondents said Chrysler was likely to offer satisfactory compensation for higher raw material costs.

By contrast, 33 percent said Honda and Ford were likely to do so, while 19 percent said GM was likely to offer adequate compensation.

“It certainly does suggest that Chrysler is among the less generous automakers when it comes to addressing material cost increases,” said IRN Vice President Melissa Anderson, who is based in Grand Rapids, Mich.

That may be true, but Marchionne evidently doesn’t consider Chrysler to be un-generous. Will he launch a reign of terror? Not likely, said the Tier 1 vice president, and Finelli’s promotion is evidence of that.

“Sergio is a colorful guy,” the supplier exec said. “I thought it was typical rhetoric. Do I think he’s really going to change how [Chrysler purchasers] will operate? I’d be shocked if he did.”


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Chrysler purchasing chief faces tall order

David Sedgwick
AUTOMOTIVE NEWS

Published: August 18, 2014 1:21 pm ET
Updated: August 18, 2014 1:25 pm ET

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