Automaker - supplier relations improve slightly

Jesse Snyder | Automotive News Europe

Vienna, Austria - Automakers are treating suppliers a bit better than a year ago, a survey shows. But there is vast room for improvement, partsmakers say.

Suppliers polled in the second annual OEM-Suppler Relationship Survey said automaker pressure to reduce parts prices is still strong and relentless.

The 84 global suppliers surveyed also harshly criticized most carmakers for purchasing and product development practices that unnecessarily boost partsmakers' costs.

The survey was conducted in May and June by Automotive News Europe - sister paper to European Rubber Journal - and UK-based Supplier-Business.

Automakers improved overall on nearly all the 28 questions in the survey, said Edmund Chew, managing director of SupplierBusiness and chief author of the survey.

"There are fewer negative responses this year," Chew said.

Back to normal

Svenake Berglie, managing director of the Scandinavian Automotive Suppliers association, said suppliers a year ago were upset by automakers' continued strong cost-cutting moves as raw material prices were increasing.

"Last year the feeling was more extreme," Berglie said. "Now it's a normal situation."

General Motors and Ford were still ranked lowest on most issues by suppliers, but their overall scores improved from a year ago.

General Motors' top purchasing executive said the automaker is trying to improve relations with suppliers and urged them to be blunt in discussions with GM.

Bo Andersson, GM vice president for global purchasing, said of the survey results: "I'm surprised how gentle suppliers are. If I was faced with the same problems they describe, I would be more direct."

Other key findings were:

Suppliers generally rank their relationship with premium brands higher than with volume brands. That is logical because luxury brands have higher profit margins than volume brands and spend more on parts so suppliers usually earn more on those contracts, Chew said.

Overall, suppliers rated Toyota and BMW best and GM, Ford, Fiat and Volkswagen worst, but by narrower margins than last year.

Suppliers harshly criticize automaker practices that raise their costs. On hot-button issues - lengthy time-consuming contract negotiations, product-liability guarantees, parts price reductions or redesign work after design freeze - suppliers rated all 19 automakers negatively. On willingness to pay for development costs, 17 carmakers got negative scores and only Toyota and BMW received low positive ratings.

Partsmakers see substantial differences between brands within major auto groups. The survey allowed respondents to give different rankings for parts of three different auto groups, creating 19 auto-manufacturing entities overall.

Wolfgang Dehen, group president of Siemens VDO, disagreed with one survey finding. "Toyota applies as much price pressure as BMW, GM or Ford," he said.

Berglie said suppliers recognize that they have power to fight back against automakers.

In the past decade, automakers have outsourced more key parts to independent suppliers, asked them to design the parts and develop entire technologies.

But as suppliers assume more risk, they assume more power.

Berglie said suppliers have three main weapons. "If suppliers have new technology, they know who they will give it to," he said.

If unhappy with an automaker "then they can say 'you'll never get the new technology.' And they do."

Global production needs suppliers that will move too.

"[Unhappy] suppliers may be reluctant to invest in new markets," Berglie said. "Sometimes they will avoid bidding for any new business."

Arndt Ellinghorst, head of automotive research at Dresdner Kleinwort Wasserstein, said suppliers are more profitable than automakers - and will stay that way.

"If the suppliers hold the technologies that the automakers depend upon, they shouldn't worry too much," Ellinghorst said. "They're safe if they are the people producing the innovation in the value chain."

Survey methodology

The Automotive News Europe-SupplierBusiness OEM-Supplier Relationship Survey was conducted in May and June. The 84 respondents were mostly Tier 1 suppliers, primarily European or North American based. They answered 28 questions about 19 brands and car groups.

On each question, suppliers picked one of five answers, typically very low, low, average, high or very high.

The responses were scored on a scale of minus 2 for very low to plus 2 for very high, with average being scored as 0 (neutral). For each question, each brand scores were totaled, then divided by the number of responses.

This year, more distinctions were made between brands or regions within three auto groups: General Motors, Ford and Volkswagen group.

Respondents were asked to separately rate GM operations in North America and Europe. Ford had four units: Ford North America, Ford Europe, Jaguar/ Land Rover and Volvo. VW also had four units: Seat, Skoda, VW brand and Audi.

From Automotive News Europe (A Crain publication)