Special Coverage

Management Briefing Seminars

BIRMINGHAM, MI – The relationship between suppliers and nearly every major North American auto maker is deteriorating, except for one: Ford Motor Co.

The latest study by Planning Perspectives Inc., released today, shows the Working Relations Index falling for Toyota Motor Corp., Honda Motor Co. Ltd., Nissan Motor Co. Ltd., General Motors Corp. and Chrysler LLC.

The study will be released today at the start of the Management Briefing Seminars in Traverse City, MI.

PPI created the index and determines each OEM’s score based on confidential interviews with suppliers. PPI surveyed executives at 284 Tier 1 suppliers, via the Internet, between April and June.

Components factoring into the Working Relations Index include trust, communication, prospects for profitability and OEMs’ willingness to include suppliers in product development and to help a supplier reduce cost and improve quality.

For years, North American suppliers have consistently rated favorably Japanese transplants in the U.S. for their willingness to cultivate a positive relationship driven by product and process improvements, while Detroit auto makers have been slammed for focusing too heavily on price cuts.

In this eighth annual PPI study, Toyota, Honda and Nissan show for the first time significant declines in their index scores.

Toyota, which always has topped the index, scores a 367 out of 500 points, narrowly besting Honda’s 359. Both scores place the two auto makers in the “good” category.

Nissan scores a 253, earning it a rating between “poor” and “adequate.”

Ford’s score of 191 is its highest ranking ever, allowing it to significantly close the gap between Japanese and Detroit auto makers.

Among U.S. OEMs, only GM has scored higher in previous years, with a 218 in 2006 and 199 in 2007. GM’s score this year fell to 163, while Chrysler dipped to 161.

Despite Ford’s gains, its score still earns a rating of “poor,” while GM and Chrysler both rate “very poor.” No Detroit auto maker has ever rated better than poor in the index. Their consistently low scores over the years provide plenty of room to move up the ladder.

Nevertheless, Ford’s rising score suggests Detroit auto makers have the capacity to develop the kind of relationships the Japanese already have.

PPI President and CEO John Henke Jr. attributes Ford’s boosted scores to the arrival of Paul Stokes, who became executive director-global vehicle production purchasing for the Americas on April 1. Stokes came to the U.S. in December after several years with Ford’s European purchasing team.

“He’s a very highly regarded person,” Henke says of Stokes. “In Europe, he got along exceedingly well with the suppliers and built pretty good relations with them.”

Stokes replaced Andrew Hinkly in the Ford purchasing organization, whom Henke describes as “a pretty tough guy with an adversarial approach” toward suppliers.

Ford’s improving score suggests Stokes is persuading his purchasing agents to develop positive, new relationships with parts makers.

In measuring the level of trust that suppliers have for OEM customers, the PPI study again found declining scores for Toyota, Honda, Nissan and Chrysler, while GM remained steady with its 2007 score. Only Ford registered an increase in supplier trust.

“We know trust is associated with behavior that is more consistent with good relations,” Henke says. “When we do surveys like this, there’s a very high correlation between trust and a company honoring its contractual commitments, living up to the spirit of its commitments, treating suppliers fairly and treating them as valued.”

Credit for Ford’s improvement also could extend well beyond Stokes. His boss Tony Brown (senior vice president-purchasing) and CEO Alan Mulally have been meeting with Ford’s top suppliers to share long-range product plans and corporate philosophies.

And Ford’s Aligned Business Framework, designed to reward the best suppliers with longer-term parts contracts, may be bearing fruit as well.

Henke says the best way Ford can prove the results are not a statistical anomaly is to record further gains in 2009.

But he hesitates to give Brown, who has a reputation for hard-nosed dealings with suppliers, too much credit for Ford’s improvement. “Suppliers don’t like meeting with him because nothing ever comes of anything,” he says of Brown.

As surprising as Ford’s ascent are the falling scores of the Japanese OEMs.

In addition to declining levels of trust and the Working Relations Index, the PPI study also finds Nissan and Toyota applying more pricing pressure on suppliers than they did last year.

Meanwhile, suppliers to all three Detroit auto makers say their customers have been reducing pricing pressure for several years.

Likewise, Nissan and Toyota are becoming less inclined to let suppliers recover raw-material cost increases, while Ford has demonstrated over several years an increased willingness to let suppliers recover those costs, according to the study.

Henke says he expects the survey results will prompt the Japanese OEMs to re-evaluate their purchasing operations to fix the problems.

“The keiretsu approach for continuous improvement – it’s not improving here,” Henke says.

Toyota still has strong supplier relations, but weakening economic conditions could be impacting the North American purchasing operations.

“They may be pushing a little harder – and not in the Toyota way – to get money out of suppliers,” he says. “Contrary, their buyers are being a little more adversarial. Maybe Toyota is slightly losing its way at the moment.”

tmurphy@wardsauto.com