Wading Into the Skeptic Tank

The first thing that suffers when the economy takes a turn for the worse is product. This year, however, respondents to Ward's 24^th Annual Supplier Survey say the Big Three auto makers cannot afford to allow that cycle to continue.

There's a fair amount of skepticism among our respondents as to whether the Big Three can remain true to their word when they say that programs won't be canceled or delayed due to the sluggish economy. Nearly 60% of both supplier and OEM respondents say they don't believe those claims.

“Brilliant designs are our industry's only chance. We must assure the future by continuing to develop regardless,” writes one OEM respondent. “Same old, same old will not sell,” writes another.

Despite these universal truths, the respondents say they have seen programs pushed back to 2004 or later at General Motors Corp., Ford Motor Co. and the Chrysler Group, and that some programs have been canceled altogether. “Future product development already is being sacrificed for current cost reductions,” writes a supplier respondent. “That is my major task right now.”

It may be a matter of simple economics, but the impact on quality and engineering cannot be ignored. “R&D and new products are deferrable when profits are tight,” writes one supplier respondent. “We have seen significant reduction in requests for quotes as well as requests for assistance on ‘advance’ programs,” writes another.

Technology, which often drives the market, appears to be taking a back seat. One respondent points to the death of Oldsmobile, which “used to be the innovative division of GM.” A number of supplier respondents say the Big Three will muddle through with “refreshening” of existing models. “But I don't see too many (new) ground-up designs.”

Supplier participants note that auto makers are becoming skilled at handing more development costs to parts producers, minimizing direct investments by the OEMs.

More than 500 WAW readers (247 OEM and 270 supplier) participated in our 24^th Annual Supplier Survey, conducted between March and May by the Marketing Research Dept. of our parent company, Primedia Business Magazines & Media, in Overland Park, KS. A significantly wide range of Tier 1, 2 and 3 suppliers participated.

The OEM sample mirrors the North American vehicle production market share breakdown: GM produces 35% of the cars, so 35% of OEM responses came from GM employees. All North American producers, including the foreign-based transplants, are represented in the same way.

OEM respondents who work for the Big Three say their companies cannot afford to cut back on their product development budgets because Toyota Motor Corp. and Honda Motor Co. Ltd. will seize that opportunity to grab more market share.

“The market is so competitive that you cannot fall behind on your development projects,” writes an OEM respondent. “New products are what consumers want,” writes another.

Still, Big Three respondents cannot deny that programs within their companies have been delayed or canceled. Attempts to gloss over that harsh reality is “piffle and boiler plate from PR guys,” writes one. Another OEM participant even takes a swipe at his company's lackluster sales and marketing department: “If you can't sell it, why build it?” he asks.

One Ford participant is hopeful that his company recognizes the danger of postponing new vehicle programs. “They've neglected the product for so long that to continue (that neglect) would be disastrous,” he writes.

One of our perennial questions turned up something interesting. In 2001, when we asked suppliers which auto maker makes the best use of its suppliers' full capabilities, Ford ranked No. 1. What a difference a year makes, as the embattled auto maker dropped to fifth this year, behind Toyota Motor Corp., DaimlerChrysler, GM and Honda Motor Co. Ltd. Intensifying pressure on suppliers for simultaneous price cuts and quality improvements surely is a factor.

One OEM respondent writes with regard to Ford and its former CEO: “(Jacques) Nasser ought to be shot for what he did to Ford, and the board of directors should have been terminated for not keeping a rein on him.”

With regard to technology, OEM respondents see some auto makers attempting to reduce vehicle prices by stripping out certain standard features. As part of this “decontenting” trend, GM is scaling back the availability of antilock brakes on more vehicles by making ABS optional, rather than standard.

More than 50% of OEM respondents say decontenting is occurring due to the sluggish economy. Supplier participants are less aware of the trend, as 41% of them say they are not sure if decontenting is occurring.

Watch the August issue of Ward's AutoWorld for full results of the 24^th Annual Supplier Survey, as well as analysis of the findings. Results also will appear on our website, www.WardsAuto.com.