Ford's Carlos Mazzorin: 'Prices come down as the technology improves'

Q - The auto industry has pretty much gone to sharing warranty work with suppliers to push those costs down. But what about the dealers? They love warranty work.

A - That's very relative because the higher your warranty cost, the more unsatisfied the customer is. For the dealer, the No.1 objective is a satisfied customer that will come in and buy a car. You will only go so many times to fix your car before you buy another one. So, warranty down, customer satisfaction up.

Q - And how does it affect Ford's PPM (defective parts per million) rates?

A - PPMs for suppliers in the last two years have been reduced by 89%. Now, we have an on-line system so suppliers can know their PPM anytime. The moment that a quality issue is identified, it pops on the screen at his company. He can know his PPMs by ship point, by commodity. He can know where he stands on delivery, he knows where he stands on cost. That has given suppliers the tool to focus and to do continuous improvement, then we provide them a benchmark, meaning are you No.1, No.2, No.3 in your commodity.

Q - A number of suppliers say Ford is asking for 8% price cuts. Is that true?

A - If you say, "Do you have a plan to get a supplier to 8%?" I'll tell you I don't have any plans. It depends on the commodity. Did someone come up with breakthrough technology that maybe made your price obsolete? Look at the consumer industry, where prices come down as the technology improves. It shouldn't be different in our industry. So if you're talking about the ABS (antilock brake system) guy, maybe he was at 12%, not at 8%. If you're talking about air bags, maybe it was at 15%, not at 8%. If someone tells you it's 8% across the board, that is incorrect.

Q - But some are telling us, "It's really killing us."

A - Trust me, if I was asking for 8% and getting 8%, I'd get so many smiles and Jac (Nasser, President and CEO) would be so happy with me I wouldn't know what to do. Now, will you ask the guy with a fastener to change the stupid thing for 8%, he would say you are absolutely nuts.

Q - Why is Ford asking suppliers to assume more tooling costs?

A - It was actually to try to get a standard decision across the industry. We want the supplier to be in charge so he can, for instance, use a seat recliner from GM or use a part from Chrysler. So he can do that and reduce the tooling cost because he's in full control.

Q - Regarding modules, the state government in Brazil has taken away your incentives for the Amazon modular plant. Can you give us an update?

A - We have made our intentions clear. The Amazon program was originally established with the state of Rio Grande do Sul. The question is, will we have Amazon anyplace else? That question has not been answered.

Q - What happens to suppliers who were lining up for Amazon? Had any of them built plants yet?

A - We have kept them completely informed at every step, and nothing (supplier plants) was built yet. Let's suppose that tomorrow another state (in Brazil) comes up with some incentives. Will we move there, put up a plant, do the same concept? Yes, the idea will be to take all of the work that was done and put it in another spot.

Q - In the U.S., does Ford intend to give suppliers any additional responsibilities in modules beyond what they already have, similar to what you are doing with Amazon?

A - On modules, the jury is out. Everybody is testing them. For me, the biggest test is if you can engineer as a module, then all we are concerned with is the function. Now you can combine parts, you can combine function. If it is a trick to cut labor, it won't cut it because it's not that much.

Q - Goodyear recently shut down a plant in Ohio because some work was moved in-house at Ford. Is this the start of a trend of "in-sourcing?"

A - No. That decision was made many years back. Goodyear was getting out of the business. It was not for sourcing or labor issues, it was for quality. Our Visteon is extremely competitive. It has competed for all of its business.

Q - We hear that Visteon is significantly under-cutting price as it seeks outside business. Are you finding that Visteon, as well as Delphi, are making some component markets much more competitive?

A - Absolutely. Nothing better than competition, I always say. Delphi and definitely Visteon are two new forces in the market, actively engaged. We have sourced to Delphi the power sliding door for the Windstar. Everybody is trying to be aggressive. It's no different than what we are doing in the market. This is a dog-eat-dog market.

Q - Is it easier to source from Delphi now that it's spun off from GM?

A - In certain critical areas, because of the nature of sourcing, you want to make sure you are not giving out knowledge to the competitor. Now, we have overcome that. It's not a matter of months, but it's a matter of years that we can work things out with Delphi.

Q - Volvo suppliers in Sweden are concerned about their future after Ford's acquisition. Is Ford making any assurances that it will keep some of Volvo's more regional suppliers?

A - Volvo has a strong supply base, and we share many of the same suppliers. They also have some unique suppliers as we do. We think this acquisition offers opportunities for all suppliers. Larger suppliers are taking on greater roles and responsibilities, but there is always a need for some regional players.

Q - GM made some big waves in sourcing materials - steel, aluminum, recycled aluminum. Are you looking at similar long-term agreements?

A - We do have agreements with a steel mill, but we don't have any 10-year agreement, for instance, in aluminum. Will we do it in the future? I never said I won't do that. But at this stage it's not something that we as a company have decided to pursue.