Study shows strained relations supplier-OEM relations

Klaus-Dieter Floerecke  |   |  Automobilwoche / September 11, 2006 - 2:23 pm

Munich, Germany - Sales people for auto suppliers should have a "certain tolerance for suffering" when they enter into price negotiations with automakers, a recent German study shows.

Wolfgang Meinig, head of FAW, an automotive research group in Bamberg, Germany, has recently compiled a "catalogue of cruelties" used by mostly German auto companies in their dealings with their suppliers.

A large share of purchasing managers displayed deliberately "loutish behavior toward supplier representatives," Meinig said.

Meinig discovered that purchasing bosses leave their negotiating partners waiting for hours, ignore a meeting's agenda and engender feelings of guilt.

One of the newest methods, according to a supplier from southern Germany, is for an automaker to invite a supplier to a pricing meeting in a low-wage country, such as China. The supplier is first put in a room that, for the most part, is too small and badly air conditioned. After hours of waiting, without being offered anything to drink, the participant is asked to submit a bid.

This humiliating scenario is repeated a number of times, until the first participants either take flight or try to shorten the process with a low bid.

The manufacturers even put long-time suppliers with exemplary records under pressure. In this way, a company's irreproachable quality is used as a reason to wring an expansion of the warranty out of the supplier.

If the supplier gives in, the automaker demands that it not only cover the costs of the replacement part for the customer's vehicle, in the case of a repair, but also the customer's rental car.

If the supplier refuses, it is accused of mistrusting the quality of its own products.

"This systematic discrimination against the supplier by the automaker tends to lead to opportunistic behaviour by the supplier," Meinig said.

To stay in business with the automaker, the humiliated party tends to resort to measures like bribery.

Meinig charges that the VDA, the Germany auto industry association, hasn't done enough to address the weakness of the suppliers' position that is being exploited.

"The equal treatment of the partners proclaimed by the VDA doesn't exist in real life," he said.

Meanwhile, the association seems to have reacted to the most recent corruption cases and has reworked the code of conduct between suppliers and auto manufacturers.

From Automobilewoche (A Crain publication)