Winning future business in the automotive industry will take new products, low prices, top quality, timely delivery - and possibly permitting your customers to review your firm's finances.
The risk to the entire auto production chain is just too high for some suppliers to fail, industry leaders said during a Jan. 15 discussion at the Automotive News World Congress in Dearborn.
``The reality is that there are some suppliers who are large, who are over-leveraged, who are not making money and who don't have the cash and credit to survive,'' said Jay Alix, a turnaround specialist who also oversees 10 companies through Questor Partners Funds.
``It's not a question of whether they disrupt your supply line, it's about whether they can bring everybody down.''
There are suppliers of all sizes that are in trouble, said Alix, the founder of Alix Partners LLC of Southfield, Mich., and New York-based Questor, whose holdings include composite specialist ASC Inc. of Southgate, Mich.
He noted one undisclosed, $1.2 billion company that called its automaker customer on a Thursday, informing it that the business needed $300 million in a cash outlay by the following Monday or it would shut down all of its North American operations.
``Most suppliers aren't going to disable the industry, but because of the consolidation of the supply base over the past five or 10 years, we have megasuppliers out there, and if one of them goes down, they would probably shut down a significant portion of their customer base due to the disruption in supply,'' he said.
James Vandenberghe, vice chairman of interior integrator Lear Corp. of Southfield, Mich., noted his company currently has 30 of its suppliers on a listing of troubled companies. Decoma International Inc., the Concord, Ontario-based exterior plastics specialist, has had to send its own people into its suppliers' shops to help straighten out their operations, said President and Chief Executive Officer Alan Power.
A problem at one supplier affects a bigger supplier, which affects its customer, which in turn affects the rest of the supplier base - regardless of whether that firm's original parts chain was in trouble.
Since those problems are popping up during record sales years for the North American auto industry, consider what could happen if sales drop. Some expect sales to fall from about 17 million vehicles in 2002 to 16.5 million this year and possibly 16 million in 2004.
Even a 6-7 percent drop from those projections would have a drastic impact, said Stephen D'Arcy, global automotive practice leader for PricewaterhouseCoopers.
``If you look at the historical fluctuations, that's not that much, but a 6 percent decline [in sales] would not result in a 6 percent increase in business failures - more like a 200 percent increase in business failures,'' he said.
With that kind of potential lurking in the wings, it is no surprise that customers are anxious to know more about their suppliers - and ensure that their supply lines are solid.
``We're not that great a distance from when we're going to have to say - from the [automakers] to the Tier 1s, to the Tier 2s and the Tier 3s - `What are your quality levels, what's your machinery, what's your manufacturing footprint, and, by the way, show me your balance sheet,' '' Alix said.
Customers are going to want to know as much information before buying from the company as they would if they were launching a research program to buy the entire company.
``You need to understand the risk, not just hear from them when they call up and say that they have no more cash, no more credit,'' D'Arcy added.
But to come up with that level of transparency, firms will have to become true partners, and reach a level of trust the industry simply does not now have, he said.
Third parties and consultants may end up taking on some of that review and rating work in the future, but the simple fact is that even privately owned companies had better be prepared to share more information in the future.
``There is not an open line of communication within the supplier community at this point, because there's a lot of distrust,'' D'Arcy said. ``This is going to take a lot of attention.''