Mutual Interests

Fledgling OESA supplier group boasts 123 members Some 160 associations are dedicated to the role of supplying, lubricating, recycling, washing, insuring and doing a lot more for the vehicles plying our roads and byways. So, the obvious question is do we need another organization when so many already are involved?

The obvious answer from the Original Equipment Suppliers Assn. (OESA) is positive. And it may have a point. It is the youngest automotive association, formed last August, and in the past eight months membership has gone from zero in October to 123 in June. The 1999 goal was 100.

OESA's strongest supporter has been the highly respected David E. Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan. Annually, at the Cole-headed U of M Management Briefing Seminars in Traverse City, MI, the analyst has been urging the formation of the supplier group. It was there last August that Neil De Koker, OESA's managing director, announced the group's formation.

"We have virtually all of the major producers of original equipment," Mr. De Koker notes. "That includes Delphi, recently spun off from General Motors (Corp.), and Ford Motor Co.'s Visteon." DaimlerChrysler's Mopar has yet to join, but Mr. De Koker says he is working on it. The 123 members totaled global sales last year of $203 billion.

OESA is an affiliate of the 95-year-old Motor and Equipment Manufacturers Assn. (MEMA), primarily a group producing parts for the aftermarket. "So many of MEMA's members that were also in original equipment manufacturing became alarmed at the big trade imbalance with Japan," Mr. De Koker says. "They felt that they had to get involved."

Mr. De Koker predicts that within the next five to 10 years there will be a significant reduction in the difference between aftermarket and original equipment markets. Federal-Mogul Corp., for example, has acquired 10 companies in two years and gone to OE from a large aftermarket business that it still retains.

A major challenge facing OESA is a continual problem - the product pricing controversy between suppliers and automakers. That may have hit its peak during the battle with former GM purchasing czar J. Ignacio Lopez earlier in this decade. Mr. De Koker concedes "there are still ongoing problems of that nature, still an imbalance between the vehicle manufacturers and the supplier community. But, to a lesser degree than in the Lopez era."

OESA members believe that the car and truck makers still feel that they have to make the decisions about how things will go. Comments Mr. De Koker: "Depending on the characteristics of the manufacturer and how it treats its suppliers, there is a concern over how much the suppliers are willing to stretch to do business effectively."

The suppliers, says Mr. DeKoker, have considered their Chrysler relationship especially great. "By sharing cost savings, suppliers to Chrysler probably worked harder to share information and new technology than they might with other vehicle manufacturers," he says. (Perhaps, Chrysler recalls the dark days of the money crunch in the 1970s when suppliers kept faith in shipping products even though payment was indefinitely delayed. Also, DaimlerChrysler's president is Thomas Stallkamp, former purchasing officer for Chrysler, who unmistakably has had a hand in establishing friendlier supplier relations.)

The vehicle producers are adding responsibility for the development of complete modules by the suppliers. This has forced substantial financial investments by the OESA members. Mr. De Koker cites Lear Corp. and Johnson Controls Inc., long-time major seatmakers, as two examples of suppliers that have experienced major growth. They are sending complete interior assemblies to their customers.

"Visteon built an instrument panel as an integrated system instead of a bunch of parts and estimated they could get all of 20% out of the costs," Mr. De Koker reported. The suppliers believe that more savings can be achieved as they continue tofocus on integrated systems. "There are other areas where we can help," Mr. De Koker says. "We are able to demonstrate clearly the advantages of working more closely with the vehicle manufacturer. We have become so interdependent we have to get involved in the early stages of vehicle planning."

OESA is involved in general improvement of the industry's public image and as an affiliate of MEMA, actively lobbies in Washington and the states. In California, OESA is lobbying on Senate Bill 1146 that involves the release of information on parts that affect vehicle emissions.

The suppliers also realize that they have to be where the customers are and that means on a global front. "Investments are made in Thailand because GM has plants there. Ford is in China. Thailand sales have declined suddenly and sharply," Mr. De Koker reports. "Our members have plants there operating at a third of capacity. That affects profitability and has slowed some investments and has been a source of losses for a number of companies."

OESA confers frequently with overseas organizations such as JAPIA, the Japanese Auto Parts Assn.; CLEPA, the European Union Auto Parts Assn. and France's FIEV.

As the auto manufacturers travel the paths of mergers and acquisitions, the suppliers are going through the same motions. Federal Mogul, in its acquisition binge over the past two years, has seen its global sales soar from $1.8 billion annually to $7 billion. Mr. De Koker says there were 320 acquisitions and mergers in the original equipment supplier industry in 1998 with 180 of them in the U.S.

The OESA chief estimates there were 38,000 suppliers of original equipment in 1988 and only 8,000 in 1998. "Those 22,000 basically were acquired by other companies. Very few have gone out of business as sales have soared from $350 billion in 1988 to $700 billion in 1998," Mr. De Koker attests. "Only two years ago, the only companies with over $10 billion in annual sales were Denso and Robert Bosch (GmbH). Today, there are eight."

OESA's forecast calls for a continuing significant reduction - as much as 75% - in the original supplier rolls to leave about 2,000 in 2008.