Since General Motors Corp. and Fiat SpA created their powertrain and purchasing alliance in Europe and South America early last year, the companies have reported that they expect at least $2 billion in savings by the fifth year.

But one salient detail has gone largely overlooked: This partnership extends well beyond the No. 1 automakers of the U.S. and Italy to the shores of Asia/Pacific. In advancing its global purchasing strategy, GM has extended some aspects of the Fiat partnership to include GM's other automaking partners — Suzuki Motor Corp., Isuzu Motors Ltd. and Fuji Heavy Industries Ltd. (Subaru).

“This is a full-fledged approach that includes all of our joint venture partners,” Bo Andersson, GM's executive-in-charge of worldwide purchasing, tells WAW. Alone, GM's worldwide purchasing volume is $87 billion. Fold in the four other automakers, and the combined purchasing strength reaches a staggering $123 billion.

“For six months we've been going to our best suppliers and asking: ‘How can you generate value for us and for you for the whole volume?’”

The response from the supply base has been encouraging. “We're working with our suppliers on how we can harmonize our specs when it comes to purchasing commodities,” Mr. Andersson says. “What are the best practices? I am going out of my way to find who is best to maximize the commercial benefits on both sides.”

And, as a self-proclaimed “car guy,” he's enjoying spending time with his company's engineers, who have plenty of good ideas about consolidated purchasing. “I'm spending more time with engineering than any guy who's come before,” he says.

GM has come to the realization that some parts sourcing can be harmonized among different automakers. Mr. Andersson says it's particularly true for commodities such as steel, tires, glass, wiring harnesses and batteries.

“If you're a steel supplier, you will see that we will only do business as one worldwide unit — with the joint venture partners,” he says. “That's how we will do business.”

As another example, GM recently sourced more than $500 million worth of tires for all of the alliance partners from five tire producers — Pirelli SpA, Goodyear Tire & Rubber Co., Michelin Group, Continental AG and Bridgestone/Firestone Inc. Those are the same suppliers that currently produce tires for GM and the alliance partners. But over the next three years, GM and its partners will look for longer term cost reductions.

But isn't it hard to source tires for vehicles of vastly different sizes and for consumer tastes that are equally diverse? “It's true that requirements are different in North America and Europe,” Mr. Andersson says. “But tires are a commodity, like it or not. Sizes may be different, but you can still source as one package.”

He even says it's possible to purchase components for vehicles that ultimately compete with each other in the same market.

For instance, GM and Fiat recently agreed to purchase the same interior mirror and the same clutch for GM's Chevrolet (Opel) Corsa and Celta and the Fiat Uno, which are produced in Brazil.

Also recently, GM “bundled” the worldwide purchase of catalytic converter substrates for all of the partners. The beneficiaries are producers that already dominate the market for ceramic substrates — Corning Inc., NGK Insulators Ltd. and, to a lesser extent, Denso Corp. The fact that all three are global are key for Mr. Andersson. “They can supply on a worldwide basis,” he says.

Mr. Andersson says the ability to purchase parts through GM was a prime motivator for Isuzu, Subaru and Suzuki. In recent years, GM has acquired a 20% stake in Subaru and increased its holdings of Isuzu to 49%, and 20% of Suzuki.

Still, the strategy takes into account the notion that what works for one partner doesn't always work for the other. “We have a key understanding that participation on our joint purchasing varies by partner,” he says.

Critics who haven't forgotten GM's thrashing of the supply base a decade ago under then-purchasing chief J. Ignacio Lopez may view this new strategy as an attempt to whipsaw more suppliers on a worldwide basis. After all, in December GM launched a 12-month global cost-reduction initiative with target savings of $1 billion. On current vehicle programs, if a supplier suggests a cost saving, the partsmaker keeps 35% of the savings, while GM gets 65%.

But Mr. Andersson says GM wants to “take care of our best suppliers and grow their business. This is a way of doing it. Johnson Controls, for instance is winning new business for interiors (see related story, p.72), and they're winning it for past performance.”

It may appear that part of the strategy is to drive further consolidation among suppliers, but that perception is false. Mr. Andersson admits that GM has “maybe too many suppliers,” but he is outspoken in his view of supplier mergers and acquisitions.

“I think we took a passive role in the late 1990s consolidation of the supply base, and I think it was a mistake. There are mergers that happened that didn't make sense, and now you see proof of that. We will take an active part now,” he says.

What this “active” role entails remains a bit murky. “It's better that you talk to us before you buy a company,” Mr. Andersson says of suppliers. His bottom line: “You don't have to own each other.”

Joint Global Sourcing

As automakers consolidate, their suppliers are discovering how difficult it is to emerge unscathed. Partsmakers have felt the pain of DaimlerChrysler AG's three-year 15% price cut, but it's not the only story. The Nissan Revival Plan is aggressively cutting costs and trimming the supplier pool, thereby calling into question the future of the keiretsu, the hallmark of Japan Inc. And General Motors Corp. is beginning to source some parts globally through its new purchasing alliance with Fiat SpA, a partnership that now is being extended to include Japanese producers Isuzu, Suzuki and Subaru.