Supplier-Relationship Scores Suggest Automakers Unprepared for U.S. Downturn

Boom times in the U.S. market, where light-vehicle sales hit a record 17.4 million units last year, haven’t done much to bring automakers and suppliers closer together, results from consultancy Planning Perspectives’ annual survey indicate.

Of the six automakers studied, only General Motors generated a significant gain in the 16^th Annual North American Automotive OEM-Supplier Working Relations Index released today, with scores for all three Japanese manufacturers tracked dropping – including a stunning 19-point swoon for Nissan.

With auto sales beginning to plateau – WardsAuto is forecasting a decline of about 3% for next year – the WRI scores indicate a rough road ahead for some automakers, because profitability correlates directly to good supplier relations, Planning Perspectives President John Henke says.

“Going forward, automakers will have to invest heavily in new resources and training programs to improve their working relations with suppliers,” he says. “Currently this investment isn’t happening.”

Toyota and Honda remain the top two automakers on the WRI, with scores of 332 and 323, respectively. Ford follows (267), but Henke calls its tiny 6-point improvement disappointing compared with the 26-point jump for rival GM.

“The message is getting down to the general managers and to the buyers, and it’s working,” Henke says of GM. “It’s fun to see General Motors move up; it’s good for them and it’s good for the industry.”

Maybe that will put some pressure on Ford, he adds. “(CEO) Mark Fields sees these reports…and we know they are having an impact at that level.”

GM’s spike to a score of 250 and Nissan’s plunge to 225 resulted in those two swapping the No.4 and No.5 spots on the index, but left both automakers still well behind the leaders. FCA US (222) essentially was flat and remains at the bottom of the ranking.

Performance is tied directly to the top of the purchasing chain, Henke points out. Part of the survey asks suppliers to rate the purchasing vice presidents at each of the companies. The results are strikingly similar to the overall ratings: GM’s top purchaser gained 21 points on the index, while Ford and FCA execs gained slightly, signs the three automakers at least are trending in the right direction, Henke says.

Nissan’s top purchaser’s score plunged 26 points, while Toyota’s rating was flat and Honda’s slid slightly.

Of less concern than Nissan’s scores are the lackluster results at relationship leaders Toyota and Honda. Henke blames their much smaller declines on some shuffling of responsibilities at Honda and relocation challenges Toyota is facing as it moves its purchasing center from Erlanger, KY, to York Township, MI.

“They’re growing,” he says of the two top-rated automakers, adding they tend to recruit inexperienced people – with no bad habits learned elsewhere – to fill open positions. “They’re adding staff. That’s why I think they’ve flattened out.”

A downturn in the market usually brings more pricing pressure on suppliers, but Henke says it is the OEMs with the worst relationship scores that will be under the gun. Automakers applying the most pressure on price actually get the least when it comes to cost givebacks, the data shows.

With its improved performance, GM drew better price concessions from suppliers than it did a year ago, according to the study. Nissan, which Henke says threatened to pull business back if a supplier didn’t agree to its demands, actually saw price concessions erode year over year.

“Nissan became adversarial…and suppliers…gave them less,” Henke says.

Parts makers want assurance that as long as they provide world-class components and “continue to play ball,” the automaker will work with them “if a glitch comes along,” he adds. “That’s the way Honda and Toyota have been doing it for decades. GM is starting to do that with certain suppliers.”

Because the Tier 1s have cut operational fat to the bone since the 2009 recession, they have more negotiating clout.

“All suppliers have more leverage,” Henke tells WardsAuto. “They’re willing to say, ‛We don’t want your business.’ The OEMs are definitely not in control anymore. The resources are going to go to the OEMs where (suppliers) have the best relations.

“At a time when the automakers should be investing in building more collaborative relations with their suppliers, the major indicators of this year’s study suggest this isn’t happening,” he says. A market downturn “is going to make it tougher for OEMs who don’t have suppliers on their side.”

Henke suggests automakers make their supplier-relations scores a part of how they evaluate and compensate purchasers, a practice he says is lacking at all six of the companies in the study.

“If they put in performance metrics (for purchasing managers) that say you’re going to reduce prices and improve products, but I want at least a 5% improvement in relations (too), then it’s a whole new dynamic and (the gains) will be sustainable,” he says. “It’s to the industry’s benefit.

“The reality is if they don’t give sufficient motivation to the people who are on the front lines, it just won’t happen.”

Planning Perspectives surveyed 647 salespeople from 492 Tier 1 suppliers representing 38 of the top 50 North American suppliers and 59 of the top 100 in compiling the report.

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