In an unprecedented show of courage, the supply side of the auto industry has discovered its collective strength.
A line in the sand has been drawn - a line between corporate willpower and acquiescence, between survival and failure. On one side stands a two-year-old automaker that woke up one day in a world of hurt. On the other, beleaguered suppliers who say they can only go so far for their customers.
The path of least resistance for DaimlerChrysler AG was through its loyal suppliers - the same companies that for years cherished Chrysler as their favorite customer, one that valued supplier contributions.
DCC's announcement on Dec. 7 that it was cutting the price it pays for parts by 5%, effective Jan. 1, came as a shock to the supplier community, as if partsmakers were largely to blame for the automaker's troubles.
Even more shocking was the response. In a risky stand of unity, DCC's largest suppliers said they could not accept the price cut. To demonstrate their resolve, at least a few stopped shipping parts at the non-negotiable prices. Some ignored the cut-rate purchase orders and intended to charge DCC full price.
Some even said that DCC could transfer the business to another supplier if necessary. Wolfgang Bernhard, the DCC executive leading the cost-cutting campaign, said in early January that his company is prepared to do so.
The list of refusing suppliers grew to include ArvinMeritor Inc., Robert Bosch GmbH, Continental-Teves Inc., Dana Corp., Eaton Corp., Federal-Mogul Corp., Siemens Automotive, TRW Inc., Valeo SA and many more.
When asked if DCC is willing to transfer business from refusing suppliers, Vice President Steve Walukas says his company is "prepared to work through those issues. At the end of the day we've got to do what's right for both companies. That doesn't mean we'll come and take the tools. Our intention is to reward those working with us in the future. We have a proven track record as a good customer to deal with."
That record, however, is under assault. Suppliers' fondness for DC could be shifting to - of all companies - General Motors Corp. Ronald Zarrella, president of GM North America, answering a question at the recent Automotive News World Congress, says he doubted GM would demand a similar 5% price reduction because he didn't think suppliers could cut another 5%.
"That was the greatest statement anyone could make in support of suppliers. I was so impressed I had to go shake his hand," says Neil DeKoker, managing director of the Original Equipment Suppliers Assn.
Mr. DeKoker, speaking for suppliers, was the first to publicly challenge the cuts in a December letter to DCC, saying marginally profitable suppliers might not survive the cuts.
At the Detroit auto show, Mr. DeKoker was encouraged by his dinner discussion with DCC's Mr. Bernhard, who asks Mr. DeKoker to urge the suppliers to keep shipping parts and to keep communicating with DCC.
Mr. DeKoker tells Mr. Bernhard that suppliers are eager to talk, but that DCC purchasing agents are under strict order not to negotiate over the 5%. One top supplier executive flew in from Europe to meet with DCC about the price cut, only to learn upon arrival that the meeting was canceled.
The message from Mr. Bernhard was more strident only a few days earlier, at the introduction of the Jeep Liberty. "We will take our business elsewhere," he says. "We need help from our suppliers. They made a profit with us. They've grown with us. If they don't stand with us and help us get turned around, then we'll have to find other suppliers."
Suppliers are standing firm. "They (DCC) should honor the contracts we agreed to originally," Federal-Mogul Executive Chairman Robert Miller tells journalists. "They have alienated suppliers."
A 5% price cut is not outrageous, but it is with only a few weeks to plan for it, suppliers argue. Instead of a flat price cut, supplier executives argue that savings could be more palatable, and perhaps larger than 5%, if DCC sticks to its SCORE (Supplier Cost Reduction Effort) program to target design, engineering and manufacturing waste.
Over the next two years, DCC says it will work with suppliers to achieve another 10% in SCORE-type savings. In 2000, DCC's Mr. Walukas says SCORE generated $2.4 billion in cost savings. Although the 5% cut casts a doubtful shadow over SCORE, Mr. Walukas says the "spirit" of the program lives on.
