Suppliers Seek Solutions to Profitless Prosperity

Officials from Major Tier 1 suppliers came together at SAE to find solutions to the current business climate: Auto sales are unprecedented in strength, but profits, for the Big Three and suppliers down the chain, are hurting.

It's easy for supplier chiefs in hindsight to find cause for the current condition of “profitless prosperity.”

“Fundamentally, we got very fat, we got very arrogant in the ‘90s,” says James C. Orchard, Visteon Corp. president-North America and Asia. “Few companies navigated the '90s well.”

American Axle and Manufacturing Inc.'s Alan L. Shaffer, senior vice president-sales, marketing and strategic planning, lists a host of potential culprits for the current profit drought. Among them: a decrease in time to market; increased global sourcing to low-cost regions; market fragmentation and mismanaged modular sourcing.

Suppliers also lament changes in OEM purchasing tactics, including across-the-board price cuts. Suppliers make up 70% of OEM costs, and Tier 1 suppliers passed the cuts down the chain.

That problem, along with an increasing glut of North American capacity, is not going away. A good start, suppliers agree, would be to simply start getting along with the OEMs.

“Interactions must have mutual trust,” says Mike Laisure, president-engine and fluid management group, Dana Corp. “The objective can't be a healthy OEM at the expense of the supplier base.”

Visteon says its base of 2,500 suppliers will be “dramatically” reduced, and Delphi Corp. has a similar plan, says Don Runkle, vice chairman and chief technology officer. Delphi has about 9,000 suppliers, “and no question, that's way too many,” he says.

Orchards remains optimistic: “There is room for profits for all.”