HOLDING BACK

It seems inconceivable that an automotive supplier — whose sheer survival hinges on its ability to create something useful and continue to improve on it — would decline the opportunity to shop its most advanced, far-out, game-changing technology to North America's Big Three auto makers.

Yet, with alarming frequency, suppliers are growing so disenchanted with the daily bruising associated with selling to General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group that some are fighting back with one of the few weapons at their disposal: selectively withholding their best technologies.

Without access to the foremost supplier innovations, the Big Three could be at a disadvantage in developing competitive vehicles at a time when those auto makers are rapidly losing market share to foreign-based producers.

The strategy is risky, but suppliers say it is the unfortunate result of years of intensive pressure from the Big Three to chop piece prices. Despite pronouncements from Big Three purchasing executives about their improving supplier relationships, the word from the other side of the aisle suggests a disconnect between top management and heavy-handed OEM purchasing agents who deal directly with the parts producers.

During a recent interview, Bernd Habersack, president of North American Operations for transmission producer ZF Friedrichshafen AG, agrees some suppliers don't want to do business with the Big Three any longer and are reluctant to share their latest innovations with them.

“People say, ‘Why should I give that (technology) to the Big Three under that pressure?’” Habersack tells Ward's “‘I'd rather give it to the company that pays the real fair value for my technology.’”

And what companies are willing to pay “fair” value? “I would say especially the Germans — BMW (AG), Mercedes, Audi (AG), VW (AG), in a certain way,” says Habersack, whose company also is based in Germany and has long been associated with that country's luxury marques. “With the Japanese, they have a clear understanding in every part of the world that they would like to have the same parts that they have in Japan.”

Habersack is not alone. Tower Automotive Inc. opted out of the bidding to supply frames for the next-generation Ford Explorer, the highest-volume SUV on the planet. Tower already supplies frames for the current Explorer, but publicly bowed out of the running because the “expected returns at targeted pricing levels did not meet our requirements,” Tower President and CEO Dug Campbell said in a highly unusual press release late last year. If Tower had any whiz-bang ideas for the next Explorer frame, it won't be sharing them with Ford.

The Big Three purchasing departments, in a series of interviews in early June, tell Ward's they are confident in the level of technology they are getting from suppliers.

Tony Brown, Ford vice president-global purchasing, admits his company is a long way from its goal of becoming the “customer of choice” for its suppliers. Still, he doesn't believe suppliers would jeopardize their sizable Big Three contracts by depriving those customers of the latest and greatest gadgets.

“They might tell you that, but they serve their economic self-interests,” Brown says. “If you have the option of selling 10 widgets or 10 million widgets, which one are you going to do? You're going to sell 10 million widgets.”

Brown questions, however, the notion suppliers don't offer Ford their best technology as quickly as they could. “At the same time, if you look at our vehicles, I wouldn't declare our vehicles at a technological disadvantage.” he says. “So I don't think that's occurring in a way that it's impacting the quality of our offering in the marketplace.”

With regard to Tower bowing out of the Explorer frame bidding, Brown declines comment. Magna International Inc. has won the business.

Despite Brown's comments, research is confirming that some suppliers are holding back.

Planning Perspectives Inc., a Birmingham, MI, research and consulting company that has studied the supplier-OEM relationship for more than a decade, recently asked North American suppliers how willing they are to share new technology with all North American auto makers.

The study found suppliers are more willing to share it with Nissan Motor Mfg. Corp., Toyota Motor Mfg. USA and Honda America Mfg. Inc. than with the Big Three. In each of the past three years, the scores have dropped for Ford and Chrysler, while GM showed a slight improvement in this year's survey. At the same time, scores have risen in each of the past three years for the Japanese “new domestics,” as Planning Perspectives President John Henke refers to them.

Henke says the study illustrates the lack of trust between the Big Three and its suppliers and the strengthening bond between parts makers and the Japanese auto makers — even Nissan, which has rebounded from a lack of trust three years ago stemming from the company's dire financial straits. “They (suppliers) have told us they can't trust showing new technology to the Big Three OEMs when the possibility exists in their mind that it will be shown to a competitor,” he says.

It wasn't always like this. Henke says his research in the mid 1990s showed suppliers were very willing to share innovations with Ford and Chrysler, although GM still lagged behind because of the scars that remained from the combative reign of former purchasing boss Jose Ignacio Lopez.

Bo Andersson, GM vice president-worldwide purchasing, says he does not believe GM's biggest suppliers are withholding technology.

“We even see a trend that some of the most important Toyota suppliers are showing us and giving us technology,” Andersson says, referring to a contract awarded Toyota's largest seat supplier, Araco, partially because of new technology offered.

But Henke's research does not stand alone. Ward's AutoWorld will release the results of its 25th annual Supplier Survey next month, and a third of vendor respondents say their companies no longer offer Detroit auto makers their best innovations because price-cut demands have become so aggressive.

Stephen Walukas, vice president-supplier quality for Chrysler, says most North American parts makers ship 90% of their products to the Big Three, so it's hard to imagine suppliers hesitating to bring forth innovation.

“We offer the good volume, and I think we've been fair with a lot of things with the supply base,” he says. By the same token, Chrysler is less reliant on suppliers for advanced technology because its corporate sibling, Mercedes-Benz, has contributed significant componentry to the Chrysler product portfolio.

“New technology doesn't always mean better quality,” Walukas says. “From what we know and understand with Toyota, they're not always introducing the latest and greatest feature. They've got a lot of good proven technology that they keep using in vehicle after vehicle, and they basically pull those parts off the shelf and make a car out of it.”

Ford's Brown says he is concerned by the “stratified” nature of supply agreements, and that occasionally one auto maker gets a supplier's top-flight “A” team for a product-development project, while another gets the “C” team.

“Who's going to have the better launch? Who's going to have the better sustained quality over time? The likelihood is the organization that has the ‘A’ team assigned to it,” Brown says. “So whenever there is a choice that a supplier CEO has to make about the deployment of their resources, I don't make any bones about it. I want their best resources allocated to Ford Motor Co. business. Period — end of discussion.”

BO ANDERSSON

Q — GM is producing in China and building a supplier base there. You mentioned you were impressed with the supply base set up for Daewoo, that a lot of those suppliers were in China?

A — What we were surprised with is a lot of Daewoo suppliers had their Tier 2s in China. You take an interior supplier for Daewoo, they were buying a lot of their components from Chinese suppliers.

Q — The vision you laid out a few years ago for GM coordinating the global purchasing for all the alliance partners — Subaru, Isuzu, Fiat, Suzuki, now Daewoo?

A — I think the last year has gone extremely well. What we did was focused 1-1/2 years ago on certain areas. Two weeks ago, we were buying batteries together. Not only buying batteries but standardizing the batteries we use. We have been very successful on starters, alternators, wiper systems, infotainment, radio, antennae, speakers. For the consumer, it really doesn't mean anything.

Q — What happened with Intier recently, with GM and Magna people losing their jobs?

A — I think it was a bad story, but it's behind us. After that, we increased our checks and balances, and I think Intier did the same. It's all about leadership, and checking that what actually should happen, happened. For me, it's history. We did a very sincere thing internally. We got all the buyers and managers and directors together and showed the case, refocused what we expect. We asked the buyers and managers, as well, to check if they had any other cases like this. They came back three days later…to my knowledge there is no other case. We audited all the interior suppliers because we didn't want to single out anyone.

Q — These employees found a way to charge more to GM than was originally agreed to?

A — It's a complicated thing, but in our view GM was disadvantaged at the cost of the supplier. How it happened and what motives, I don't really know. But in reality, it's rather simple. We paid higher prices, and the worst thing is the way it was done. It was systematic marking up of engineering changes.

Q — Are you rethinking any of the supply agreements in light of this?

A — I think in this case Magna has done everything we've asked them to do. It's a large company, sh — happens.

Q — In a recent supplier survey conducted by John Henke of Planning Perspectives Inc., the Big Three fared poorly. Do you know why?

A — We are doing our own survey with our 50 most important suppliers. And we do it face to face or on the phone, really dragging out everything we need to know. My view based on the statistics is that there are very few people answering the (Henke) surveys. Second, the level of people answering the survey is typically lower level people at the organization. The biggest issues we are getting back on our own survey is that we can do better on technology process, getting new technology. We can also do better on how we compensate people for being fast movers with new technology. In some cases, they pointed out we want them to take too much risk, so that's something we're fixing. I'd rather do the findings myself and correct it. Two years ago, we had issues that suppliers were not paid in time. I said, ‘Give me all the facts.’ I dug into it myself, and we fixed it.

Q — So how are your suppliers doing?

A — They're doing a fantastic job. Having been building for maybe the last 18 weekends, we've had no supplier issues. We're running 50% better than last year. I got criticized by some of my superiors last year because I spend every Saturday-Sunday in the supply base during summer. Some people said Bo has nothing to do because his wife is in Sweden. I don't think that was really true, but last year we launched the GMT800 (fullsize pickup architecture) mid-cycle enhancement. What I learned being out is there are a lot of issues that typically are not addressed. My plan is not to spend every Saturday-Sunday in the supply base this year, because I don't need to.
— with Brian Corbett

General Motors Purchasing by the numbers

TONY BROWN

Q — Can you give us an update on where Ford is with its supplier relationships?

A — I think last time we talked we may have touched on it. We talked about what's important. It's to become the customer of choice for our suppliers, and that's a journey not yet finished.

Q — Planning Perspectives, a consulting company, has a survey. One of its findings was a disconnect between (high-level executives) and lower-level purchasing people. When will such surveys start to show change?

A — I don't know. What I do know is the things we are looking to do — if we stay the course and we're consistent — that we will see improved performance.

Q — Look at Tower Automotive. They are the frame supplier for the highest-volume SUV in the world (Ford Explorer). And now they've said they aren't interested in that business for the next generation?

A — Well, you'll have to take that up with (Tower CEO) Dug Campbell, not with me.

Q — But the question for you would be, why aren't suppliers getting your message about being their primary customer?

A — I say they are getting it. I can't sit here and tell you that every single supplier I do business with today, that we'll be doing business with (them) tomorrow. Maybe we should be doing business with more. I suspect that more is not the right answer. Different might be the right answer, but certainly not more. It is fewer — and then the question becomes, of those few, which few is it?

Q — What is the relationship with Firestone?

A — That's also a subject I'm not going to get into.

Q — Has Ford had any steel shortages because of higher prices?

A — When you look at our steel buy, it's largely North America. So it's much ado about nothing in terms of our supply line.

Q — But the prices are going up for those who are not locked in to long-term steel purchases the way Ford, the way GM, would be. What is your window right now for steel purchases?

A — (Laughter) You know I'm not going to answer that question.

Q — We just talked to (GM's) Bo Andersson and asked the same question and he answered it.

A — That's GM. What I will tell you is that our steel is North American-based. That being said, we are not going to put our heads in the sand with respect to the global market dynamics.

Q — Is it possible you're going to end up paying more for steel over the next three or four years?

A — Supply and demand will decide that, not me. We'll certainly do everything we can to contain prices. We don't have customers lining up saying they want to pay more for vehicles.

Q — When you're buying steel at one price and reselling it to the suppliers, have the prices the suppliers are paying been affected at all by the fact that the price of the material has gone up?

A — My guess is if you were to talk to them they'd say, ‘You know, we're insulated from it. Life is good.’

Q — Can you quantify how much waste you've removed through TVM — Ford's Team Value Management program?

A — I'm not ready to disclose the total yet. We have identified opportunities in, depending on the commodity, (the) 10% to 30% range. In some instances … you look at what we've specified, you look at it and you say, ‘Why did we do that?’ So, there are actions being undertaken in the design community. We have examples of a part where we specified a very elegant solution to a problem that you can see when we specified the solution, we were thinking we were going to go in one direction. When that direction changed, no one went back and changed that elegant solution.

Q — How soon do you expect to realize that 10% to 30% reduction?

A — '03 (is) really a transition year, we weren't planning to see any impact until we move into '04. At this point I think we're positioned well to see that happen. In terms of approach to how we manage (supplier relationships), TVM is the key enabler. We're sitting down and looking and saying, ‘Let's deploy our joint resources against it to try to figure out how to reduce the cost of this thing in a way that doesn't get into a margin compression discussion.’ If you look at the organization that (Vice President-North American Product Development) Phil (Martens) has done with respect to PD (product development) look at some of the things we're doing in terms of our product launch process. If you couple all those things together, we think that we start to create an environment, if you will, where we start to build much more trust and integrity in the relationship between us and our suppliers.

Q — As part of TVM, Ford has said that it wants to in-source a fair amount of engineering responsibility. How does this strategy benefit the suppliers that have been beefing up their engineering capability over the last several years at your request?

A — We're not going to pretend there aren't suppliers out there that have not put significant resources in place. So as we strengthen our internal capability, for each of those suppliers there is a conversation: ‘OK, let's understand what the infrastructure is, if you will, that you have put in place to help to support us. And now let's look at that infrastructure …’ so that when the dust settles, you're not hurt by our decision to shift our strategy.

Q — Do you want to clear the air about this Visteon pricing dispute from last year?

A — Visteon pricing dispute?

Q — They put out a press release saying that there was a dispute over pricing with Ford.

A — Did I comment last year?

Q — No.

A — (Laughing) I told you I don't comment on what suppliers say.
— with Eric Mayne

Ford Purchasing by the numbers

STEPHEN WALUKAS

Q — How does Chrysler purchasing fit into the DaimlerChrysler AG organization? With Mitsubishi, Mercedes and Hyundai, how much cross-pollenization is there?

A — We're making a lot of progress in our volume bundling, in our commonization efforts as a company. We have a lot of volume, a lot of leverage. Maybe nobody other than Toyota can take advantage of it as well as we're trying to do. We come up with one common process or a harmonized process that we agree is equivalent. Like on our world engine, we're all going to use the same piston.

Mercedes has always been very decentralized from a quality and supply standpoint.

Q — But will there still be a need for a Chrysler-specific procurement person, a Hyundai-specific procurement person?

A — Yes. I would think we will continue operating as business groups but try to globalize and commonize and harmonize wherever we can.

Q — How much involvement do you have on a typical day or week with the people at Mercedes?

A — It varies. Mercedes now has a vice president of corporate quality. Martin Karr was over here for a meeting last week, where we reviewed our plans to commonize our supplier quality process with Mercedes, Mitsubishi and Hyundai. We're involved. We have people who work on it.

I'm in the Chrysler Group, and 97% of what we do is right here.

Q — You want to have one supplier quality program that is the same essentially at Chrysler, Mercedes, Mitsubishi, Hyundai?

A — We'd like a common process. That common process would enable us to have common measures. So when we look at a supplier, say Bosch, and we can know whatever Bosch does with Mitsubishi, Hyundai, Mercedes or us, we'll have a common set of measures for advanced quality planning.

Q — When do you expect to have that in place?

A — 2007, end of 2006.

Q — Would you oversee that program then across all the companies?

A — No, we'll do that together.

Q — Does there come a point where you say, ‘Look, we can't cut costs any further without sacrificing quality’?

A — No, I haven't seen it in my 20 years here, and not specifically in the last two. We've ‘re-sourced’ over $5.5 billion worth of materials for cost, quality, delivery and technology reasons. And of that $5.5 billion, $3.5 billion is just for quality. So quite frankly, it's on the contrary. I'm going to them saying, ‘I don't care how cheap it is from this guy, we can't keep living this way.’ Either we fix them or get out of them (re-source the supplier).

Q — Have you had to re-source anything as a result of Chrysler's Authority Definition Plan (ADP)?

A — We're trying to lay down the ground rules of who's going to do what in a product-development program, so there is no confusion. As we move through a product-development program and do our advanced quality planning, we know who will have material selection responsibility, testing responsibility, prototype responsibility, systems responsibility, functionality responsibility. As we're at launch, if there is an issue, we know what to look at to determine what went wrong, who was responsible for what.”

Q — You mentioned at Traverse City last year that Chrysler is assembling an all-star team of suppliers based on quality, innovation. Is the team fully assembled?

A — It's an ongoing process and we're always looking for the right product at the right price with a consistent quality and there's a lot of change that's happened. We're bringing on over 150 new supplier locations — not necessarily new suppliers, new supplier part-producing locations — in the next couple years that we would call non-traditional suppliers. And this isn't third-world, dirt-floor type operations. These are people making parts for all the car companies in the world. We've just basically gone outside of our traditional supply base.

Q — Are all 150 of those suppliers here in North America?

A — All over the world. I don't have the exact split, but a good chunk of them are here. But there are opportunities in other parts of the world. I lived in Korea 15 years ago when Hyundai was just kind of getting rolling. And my job was procurement for Chrysler, and I literally went to hundreds of suppliers. And now when I go back 15 years later, it's unbelievable. Their manufacturing, engineering capabilities are just as good as the Japanese.

Chrysler Group Purchasing by the numbers

Ward's interviewed the Big Three purchasing departments in early June. The complete transcripts are available on wardsauto.com.