GM prepares new supplier price program

Detroit, Michigan - General Motors' top purchasing executive says he is buttressing GM's cost-cutting efforts with a new plan to cut the cost of components.

While GM has not named the new two-year program for 2006-2007 or indicated how much money it plans to recover, it is expected to be comparable with the current so-called "20/3" program.

The plan will be introduced after discussions with a group of 10 supplier executives who make up GM's Purchasing Supplier Council.

Bo Andersson, GM's vice president of global purchasing and supply chain, says the success of the "20/3" program - three-year, 20 percent cost reduction plan - prompted the new effort.

The current program yielded savings of about $10 billion (E 8.1 billion), estimates Automotive News, Automotive News Europe's sister publication.

The "20/3" program was for GM's top 250 global suppliers. All 250 were required to participate and given individual cost-cutting targets.

"We have a much better understanding of which suppliers are doing the right things," Andersson said in an interview.

GM badly needs to cut its $86 billion global purchasing bill. Last month, the company posted a $286 million loss in the second quarter, dragged down by a $1 billion-plus loss at its North American automotive operations.

Cuts on cuts

Andersson's strategy also signals GM's intention to maintain its aggressive cost cutting despite widespread hardship among many of its parts makers that are facing falling volumes.

An element in the new program will be GM's requirement that its top 250 suppliers have offshore manufacturing capability for the parts they sell to the carmaker. Previously, GM required only that suppliers be able to supply parts at the lowest price.

The new requirement is expected not only to result in lower costs to GM but also give the automaker added global manufacturing flexibility.

Andersson is optimistic about GM's cost cuts. Of the top 250 parts makers in the current program, 45 suppliers have exceeded their goals. Some of the 45 have been rewarded with a doubling of business with GM over the three years, Andersson said.

He said 100 suppliers met their goals, and 100 fell short. Targets included a 15 percent cost reduction for steel makers and 50 percent for radio suppliers, both over three years.

Some suppliers that fell short of targets were at risk of being dropped next year, Andersson said.

Suppliers are concerned that any new GM program will be followed by additional cost-cutting demands from Ford Motor Co. and the Chrysler group, said two supplier executives who asked not to be identified.

Andersson declined to identify the exact savings from the expiring program. While GM seeks the average 20 percent reduction by Dec. 31, supplier executives say Andersson has told them that GM already has "15 percent in the bag."

Even a 15 percent recovery could produce a staggering return for GM. Those 250 suppliers are expected to sell GM 80 percent of its $86 billion parts purchase this year, or $69 billion. A back-of-the-envelope Automotive News analysis suggests that a 15 percent return over the three-year program could yield GM more than $10 billion.

From Automotive News Europe