As North American automakers stumble their way from years of record-setting sales to the reality of recession, they are taking note of where the fallout has left their suppliers and at least considering new relationships with them.
Rather than slashing prices, they say they are willing to share savings to help smaller companies benefit from production improvements. It is more than just public relations, industry watchers say: They have no choice.
J Ferron, automotive partner with PricewaterhouseCoopers' consulting group, described the current business model simply as ``dead man walking.''
Look at the facts, added David Stockman, founding partner of Heartland Industrial Partners of Greenwich, Conn., the investment group that is majority owner of Collins & Aikman Corp. Since 1999, while the North American auto industry has set records for sales of more than 17 million vehicles a year, 13 top suppliers have filed for bankruptcy. Banks and creditors have recorded $8 billion in losses to troubled operations.
``You have to recognize that what went on is a nonviable course,'' Stockman said during the Automotive News World Congress, held Jan. 14-16 in Dearborn. ``Depleting the capital from the supply base will lead to huge problems in quality, in delivery and in cost on down the road. We need longer-term vision.''
Even as Ford Motor Co. on Jan. 11 announced cutbacks that will shed 35,000 jobs, it took note of its need for aid from the supplier base. Ford launched a one-year plan to let suppliers keep 35 percent of the savings from proposals that save it money.
``The idea is to further improve the working relationships with suppliers and, in turn, encourage them to come up with ideas that are beneficial to them and beneficial to Ford,'' said Ford spokesman Frank Sopata.
Detroit-based General Motors Corp. launched its own sharing program in late 2000. Tom Stallkamp, who created the concept during his tenure at Chrysler Corp. - now part of DaimlerChrysler AG - credits suppliers with helping to save that company twice in its history.
``Suppliers really can think for themselves, and it's encouraging to see the [automakers] realize that,'' said Stallkamp, who now is vice president and chief executive officer of auto consulting and personnel supplier MSX International Inc. in Auburn Hills, Mich.
Ford, along with the rest of the industry, has not been shy about price cuts in the past, said supplier consultant Jeff Mengel, a partner with Plante & Moran LLP of Auburn Hills. But now, there are too many suppliers in trouble.
``They have been fairly aggressive over the years, but they simply could not go into it with the same [response] this time,'' he said. ``Whether you think of it as the way the game is played, there are some suppliers who are in a very tough situation.''
Ford's restructuring plan will cut deep within its own ranks, with the closing of three assembly plants. It also will close metal processing operations in Cleveland and Dearborn and drop four models and slow production by nearly 1 million vehicles annually.
But Ford also plans to roll out 20 new or revamped products by mid-decade, and that requires fresh ideas from throughout the industry. That means not only sharing savings, but also providing long-term contracts that allow companies to plan their costs and focus on production and capacity.
Even large suppliers are working more closely with their supplier bases. Visteon Corp. of Dearborn has launched a sharing program called Suppliers and Visteon Excel.
Despite the partnership claims, smaller firms will suffer the most from cutbacks. They do not have the capital access of larger-scale customers. When an automaker delays a product launch, molders are left with the expenditures they put in to meet the expected ramp-up with no product going out nor income coming in, Mengel said. Those costs filter further down the supply chain as the carmakers share design responsibilities through the tier structure. That means more companies will shut down before the business cycle shakes itself out.