Soaring raw material costs and an unprecedented number of supplier bankruptcies are challenging the automotive supply chain like never before. Auto maker purchasing departments have become pivotal to the success, and survival of both suppliers and the customers they serve.
Ward’s 7-part series stems from interviews with the purchasing chiefs of GM,, , Nissan, and Toyota. This is Part 7.
Much of Detroit viewsMotor Corp. with an envious eye for its consistent ability to efficiently produce high-quality products and cultivate successful suppliers, while posting healthy profits.
Observers may thinkmakes it look easy, but the auto maker’s vice president of North American purchasing, Osamu “Simon” Nagata, says Japan’s No.1 auto maker, like its competitors, struggles with the financial viability of its supply base.
“It’s difficult for any North American supplier to manage these issues,” Nagata tells Ward’s. “And the OEMs, including Toyota, are facing trouble managing these issues. It is a heavy burden for all of us.”
Asked why U.S. suppliers are in such trouble today, with many in bankruptcy and others restructuring, Nagata is reluctant to blame supplier mismanagement.
“Each supplier has unique and common issues,” he says. “I think some suppliers have a very big burden in our business environment: raw-material cost went up; product- development lead times got shorter; and global competition increased. These are common burdens on U.S. suppliers.”
Despite the burden, Nagata speaks highly of the performance of Toyota’s suppliers currently in bankruptcy, includingCorp. and Corp.
Because of their reliability during difficult times, Nagata says he has no concerns about awarding new business to Toyota’s North American suppliers now in Chapter 11.
Toyota currently is awarding supply contracts for a new model that will begin production in the 2009 timeframe, and Nagata says a number of suppliers in Chapter 11 remain in the running for potential work.
“We are not excluding these suppliers as candidates,” he says. “As long as suppliers are committed to work together with us, we are very happy to invite any business opportunity to help these companies overcome their difficult situations. Of course, we assess risk management with these suppliers. But there is no intention to change suppliers.”
Likewise, Toyota continues to purchase climate-control products, wiring harnesses and powertrain controllers from, which filed for bankruptcy Oct. 8.
As part of Delphi’s Chapter 11 court case, however, former parentCorp., which remains Delphi’s No.1 customer, has said it pays a premium of about $2 billion above market value for Delphi parts.
Nagata says he does not think Toyota is paying too much for Delphi parts.
“I don’t know how GM analyzes the cost competitiveness of Delphi parts. Of course, a supplier has different contracts with different OEMs,” he says. “We sourced Delphi in an area where we found some benefits for Toyota. At least I can say there is no significant problem on the competitiveness of Delphi parts.”
Nagata says the source of some supplier troubles can be traced to investments made to increase capacity for production of a particular component, only to find the product lifecycle cut short.
“It is extremely difficult for a supplier if the life of a product is shorter than anticipated,” he says.
Nagata says he cannot recall a time when Toyota fell short on a volume expectation in North America. “I think we are very fortunate to meet our sales targets, our production targets,” he says.
However, if Toyota were to miss a production target, Nagata says, “We may consider some compensation to our suppliers. If volume goes down, Toyota has a big part of the responsibility.”
On the immediate horizon, Nagata focuses much of his attention on San Antonio, where Toyota is completing a new plant to assemble the next-generation Tundra fullsize pickup.
Start of production is set for Nov. 17, and the campus includes a park with 21 co-located suppliers. The vehicle goes on sale early next year.