General Motors Corp.'s new full-size trucks and sport-utility vehicles are coming with something extra for its most-favored suppliers: higher profit margins.
The GMT900 program, deemed crucial to GM's future, could yield profit margins of 5 percent to more than 10 percent for the top 20 suppliers on that program, according to GM officials, supplier executives and documents reviewed by Automotive News, a sister publication of Plastics News.
But here's the rub: GM suppliers invested heavily in the program and are counting on the sheer volume of North America's largest platform. If the volume falls short, suppliers will be hurt.
``Any supplier that cannot make a 5 percent [net after-tax] profit should get out of the business,'' said a GM executive involved in the program.
Rewarding suppliers is a departure for Big Three automakers, whose recent history of leaning on their suppliers has sparked a growing wave of falling profit and Chapter 11 reorganizations.
But not all suppliers think they'll make the profit GM said they can expect. Craig Fitzgerald, a consultant to auto suppliers, said the average GM supplier won't earn double-digit profit.
``GM's purchasing practices are simply too good to allow that to happen. Besides, GM is counting on those profits,'' said the partner with Plante & Moran PLLC of Southfield, Mich.
Suppliers rarely discuss profit expected from any one contact.
But one supplier chief looking at profit from the GMT900 is Chain Sandhu, chief executive officer of interior trim supplier NYX Inc.
``We will make a 5 percent profit,'' Sandhu, founder of the Livonia, Mich., plastic parts maker, said in a recent interview granted with GM's blessing.
Bo Andersson, GM vice president for global purchasing, sets supplier profit margins based on assumed volumes, which vary from supplier to supplier. Sandhu has a lot riding on that calculation because he supplies $75 worth of parts on each vehicle - $70 million annually at peak production. If volume falters, so do Sandhu's margins.
Supplier executive Phillip Fioravante is one of those budgeting for big volumes. The executive vice president of Automotive Lighting Corp. of North America in Farmington Hills, Mich., expects to supply 870,000 headlamps annually on the trucks and SUVs.