General Motors Corp. this year will likely dump as many as 160 suppliers worldwide that it considers poor performers.
The move is part of the automaker's strategy that rewards top suppliers with business.
The program is several years old, but GM is showing ``a new exuberance in executing the strategy,'' industry consultant Craig Fitzgerald says.
The crackdown comes at a key time: In the next year or so, GM is introducing 15 redesigned or re-engineered nameplates. Purchasing chief Bo Andersson has told suppliers that he expects ``zero disruptions at launch,'' according to a GM letter to suppliers dated June 19.
GM groups its suppliers into three color-coded categories. The best - those with a reputation for quality, delivery, technology and lower prices - are ranked green. Average performers are labeled yellow. Poor performers are labeled red.
The estimated 160 vendors represent 30 percent of GM's red suppliers, according to company documents obtained by Automotive News, a sister publication to Plastics News. About 555 companies fall into GM's red category, say suppliers who have been briefed by the automaker.
``GM's goal is to grow the best-performing suppliers and provide assistance to support suppliers that want help,'' GM spokeswoman Renee Rashid-Merem said.
Red? Not quite dead
Some of the 160 red suppliers that GM has targeted this year could improve to the yellow or green category.
``GM [says], `We will fix you, or we will dump you,' '' says the chief executive officer of a supplier that ranks in the red category.
GM may intervene before a supplier can damage a launch, says Fitzgerald, a partner with the consulting firm Plante & Moran LLP of Southfield, Mich. ``They will watch you closely to see if there are any supply [interruption] issues. They can deal aggressively with suppliers.''
Red suppliers are not invited to awards dinners with GM's Andersson. He saves his praise for green suppliers, who are given opportunities to bid on the automaker's most desirable programs.
Andersson has a $130 billion annual purchasing budget.
Industry insiders say 15 percent of GM's supply base fall into the green category.
The automaker is committed to growing these companies, but GM will not detail those plans.
Even they are under intense pricing pressure. Green suppliers must be willing to grant year-end price reductions above and beyond contractual price cuts for the year, says the spokesman for a large GM supplier. In effect, these are retroactive price cuts to help GM meet its latest cost-cutting targets.
A red score on what GM calls ``stretch goals'' for price cuts can deny a company an opportunity to bid on new contracts, the supplier spokesman says.
It also can spell the end of a company. The owners of a Tennessee-based auto supplier earned green scores on price, quality and delivery but got a red score because it was insolvent.
When a company falls into the red category, GM sometimes offers it more money or provides outside consultants. In the case of the Tennessee company, GM sent turnaround firm BBK Ltd. of Southfield, Mich., to the rescue.
Eventually, GM decided to award future business to a competing vendor. That sealed the fate of the Tennessee parts maker, says a knowledgeable source.
The troubled supplier boosted production to stockpile parts until the competitor was ready to produce components to ensure that a production interruption did not occur. Then the supplier turned out the lights. It filed for Chapter 11 bankruptcy protection in 2002.
``A red supplier gets a lot of attention,'' says John Groustra, a workout specialist with the firm Conway MacKenzie & Dunleavy of Birmingham, Mich. ``GM wants to make sure that a bad part does not get into the system or that anything causes a shutdown.''