Smash'Em Down!

It sounds like a broken record: suppliers are getting hammered on price. So? Tell us something new. For this year's supplier survey, we borrowed from the past — and we tried something new. We asked the same question as in past years: whether there is still room for suppliers to make further price cuts while being profitable.

As in past years, most OEM respondents (53%) say there is room for more price cuts, while most supplier respondents (65%) disagree.

The dispute over pricing is as old as the auto industry itself, and OEMs have always had the upper hand. We wanted to dig deeper, so we offered an open-ended question: How can suppliers swing the balance in their favor in terms of pricing?

From the supplier side of the fence, the responses were less than upbeat. But a number of survey participants seem eager to stir their supplier colleagues to action.

“As long as suppliers quote for market share, they will be waiting for the trap door to swing open on the gallows.”

“Auto makers pay workers $28 per hour to bolt on parts that were made with $7-per-hour labor.”

“Band together in some sort of association.”

“Be willing to accept potential consequences of saying ‘no’ to the OEM.”

“Better processes and cut out union.” That one's sure to make the United Auto Workers cringe.

“By elimination of the weakest, the survivors will be in a stronger negotiating position.”

“Can't. Too many suppliers willing to cut prices.”

“Stop free consulting/designing.”

“Continue to insist that quality, which they say they want, comes with a price.”

“Continue to prove that price is not the same as cost.”

“Full service suppliers must hold firm on price reductions.”

“If OEMs keep it up, they will drive enough of us out of business, and the remainder can hold them hostage.”

“It will swing to the supplier's side when capacity is reduced through plant closing and reduced new investment.”

“Stop selling assemblies to the OEMs at a loss. If the competitor takes your market share, watch how fast he goes to bankruptcy court. Force the OEMs to shop quality, not price.”

OEM participants also were asked how suppliers could swing the balance in their favor when it comes to price. It's a bit like asking a king what's the best way to overthrow him. Likewise, their “can't win” suggestions were less than encouraging.

“By going off shore and exporting jobs to China and India.”

“File for Chapter 11 bankruptcy.”

“Open sweat shops in mid-Africa.”

“The Big 3 are the 800 lb. gorillas. Suppliers are little cockroaches. Smash 'em down!”

“Unionize! They will have to present a united front and not go below what they determine the bottom line to be.”

“You get what you pay for. Cheaper is not better.”

One forward-thinking supplier respondent encourages his colleagues to “ignore the Big 3 — concentrate on transplants,” the foreign-based auto makers that are gaining U.S. share at the expense of the Big 3.

Some 270 supplier employees participated in our survey. Of those, 72% say their companies are doing business with a Japanese or European OEM transplant in the U.S.

We asked if Internet auctions are used within the auto industry to find the best price or the best supplier, and 42% of supplier respondents and 30% of OEM respondents answered “best price.” There's also a lot of uncertainty, as 40% of supplier respondents and 50% of OEM respondents say they're unsure.

Will a proposed increase in CAFE standards be helpful or harmful to suppliers?

Do you personally know anyone in the auto industry who has lost his or her job in the past year?

When you buy your next vehicle, would you like to custom order it and have it ready in 5-10 days?