Relations between General Motors Corp. and its suppliers are at their lowest point, while Japanese transplants continue to gain in stature with U.S. parts makers, according to a recent study by Planning Perspectives Inc.

“This year’s study shows that suppliers are continuing to shift capital investment and research and development funds to their Japanese customers and decreasing somewhat their investment in the U.S. Big Three,” says PPI President John W. Henke Jr.

The 2005 study is based on responses from 259 suppliers between March and April.

PPI President John W. Henke Jr.

Those surveyed were asked to rate how they interact with U.S. auto makers in terms of 17 business variables that comprise PPI’s Working Relations Index (WRI). Those variables include trust, communication, timeliness of payments and information, assistance in cost and quality issues, late engineering changes, early involvement in the development process, cost recovery from canceled/delayed programs and long-term return from OEM business, among others.

Toyota Motor Mfg. North America Inc.’s score of 415 (a 4% increase from 2004) is well above the industry average of 259 and comes in stark contrast to GM’s lowly last-place ranking of 114, which is down more than 20% from year-ago.

Honda of America Mfg. Inc. and Nissan North America Inc. both scored above average at 375 and 298, respectively, while the Chrysler Group and Ford Motor Co. came in near the bottom at 196 and 157, respectively. However, Chrysler, up 7%, was alone among the Big Three in improving its score from year-ago.

“Our studies show that the further up the index an OEM moves, the more suppliers are willing to help the OEM,” says Henke. “The Japanese OEMs clearly understand this, and it’s helping them gain competitive advantage and market share.”

According to the study, 85% of GM suppliers feel their relationship with the auto maker is poor and about 53% would “prefer not to do business” with GM, while 63% of Honda’s and 73% of Toyota’s suppliers consider the auto makers as their most valued customers.

“The study shows, again this year, that the U.S. auto maker’s primary orientation is toward cost reduction; they have little regard for their suppliers; they communicate poorly; and they generally treat suppliers as adversaries rather than as trusted partners,” says Henke.

Ford and GM are four and five times more focused on cost than quality, respectively, whereas Toyota is only 1.5 times more concerned about cost, the study says.

This cost-driven focus by U.S. auto makers, which several bankrupt suppliers cite as main reasons for their demise, has prompted many suppliers to work to improve the quality of products for the Japanese, while merely maintaining quality levels for U.S. auto makers, Birmingham, MI-based PPI says.

“Each year, we study companies from around the world in a variety of industries, and no one treats their suppliers as poorly as the U.S. auto makers do – especially GM,” Henke says. “GM fell off the chart this year and their ‘trust’ rating by suppliers is at an all-time low.”

Conversely, PPI considers Toyota and Honda to have some of the best relationships with suppliers.

Planned Perspective Supplier Relation Study: Five Key Areas


U.S. Big Three

Japanese Big Three

Protect confidential information Little regard for supplier's proprietary information or intellectual property. High regard
Open, honest communication Indifference; incomplete and late information. High level, timely
Importance of cost vs. quality and technology By far, primary focus is on cost Also seek low cost, but balance it with quality improvements and technology.
Supplier survival Little regard Concern for long-term success and stability.
Relationship orientation Adversarial; focus is on cost and OEM's short-term gain. Strategically integrate suppliers into partnership-like relations.

Noting gains made by Japanese auto makers boosted the WRI average 16% over the past four years, Henke says, “The Japanese OEMs keep raising the bar in the area of supplier working relations and are increasing the gap between themselves and the domestic Big Three.”