Remember the problems that Aston Martin experienced in 2013? When the luxury British sports car manufacturer blamed suppliers in China for using counterfeit DuPont resin to mold a faulty brake pedal arm, resulting in an embarrassing global recall?
Now another European company has been stung by an automotive supplier relationship in China gone bad. The news has the auto industry buzzing, and I'm sure that processors in other sectors also are aware of the implications and opportunities posed by the latest headlines.
Are there lessons to learn from these companies' mistakes? Definitely. But plastics processors — and their customers — should be careful about jumping to the conclusion that these are just stories about the perils of doing business in China. Because, as we all know, companies can get into problems with their supply chains anywhere in the world, including North America.
This latest issue involves German automotive lighting maker Hella KGA Hueck & Co. — itself a major plastics processor — which recently took the unusual step of publicly disclosing that it would take a significant hit to its earnings because one of its Chinese injection molding suppliers had abruptly stopped shipping parts.
Hella, based in Lippstadt, Germany, estimated that the problem would result in an earnings drop of about 30 million euros ($33.4 million) in the first quarter, and a total of 50 million euros ($55.7 million) over the full fiscal year. Hella said it had to fly parts from Europe and the Americas to meet demand from a customer in China, which it did not identify. Now Hella is faced with finding a new supplier in China, and possibly having to build duplicate tools.
We know about this story because Hella is publicly traded, so its top officials had to explain the awkward situation to stock analysts.
I imagine that was a difficult conversation — both admitting to the problem, and trying to disclose as much information as was necessary.
The folks at Hella should be glad that Volkswagen commanded the lion's share of media attention for massive mistakes made in the global auto industry last month. Looking at the big picture, Hella's supply chain problem in China was dwarfed by VW's admission of cheating on diesel emissions.
Hella CEO Rolf Breidenbach would not identify the Chinese supplier, and he was very sketchy in his explanation of why the molder stopped shipping parts. Breidenbach blamed a financial dispute, and he called it “very strange behavior,” but we don't know the details.
I don't expect Hella to give the supplier's side of the story, but I do expect that side to eventually become public. Western companies can't broadly blame Chinese companies for problems and assume that no one is going to follow up and get the other side of the story.
Maybe Hella learned some lessons from Aston Martin's 2013 troubles. In that case, the British carmaker blamed a specific company in China for making the counterfeit part, but that company denied having a business relationship with Aston Martin. What's more, the alleged supplier of the counterfeit resin couldn't be found anywhere. Reporters looking into the issue ended up with a tangled mess of Tier 1 and Tier 2 companies, everyone passing the buck, and Aston Martin looking like it had no control of its supply chain.
Hella and Aston Martin both learned that sourcing products from China carries risk, but that's not a big revelation. Surely they knew that before, and they got stung anyway.
The bigger issue is lack of transparency and control of their supply chains. OEMs that take chances with lower-cost materials, molds and components run into issues everywhere in the world, not just in China. If any company can benefit from the opportunities presented by these issues, it's going to be firms that have strong reputations for integrity.
Unfortunately, not everyone will take away that point.
Loepp is editor of Plastics News and author of “The Plastics Blog.” Follow him on Twitter @donloepp.