Suppliers oppose Ford's new terms

By Bradford Wernle and Edmund Chew, Automotive News Europe

Brussels-Many auto suppliers are refusing to sign a new Ford agreement that they claim is grossly unfair and possibly violates European law.

Ford's new terms and conditions for suppliers were supposed to go into effect in October, but were delayed until January because so many suppliers refused to sign it.

Lars Holmqvist, who takes over as CEO of the European supplier association CLEPA 1 May, said many suppliers still have not signed the agreement.

Suppliers believe parts of the contract do not conform to European law. That especially includes one provision that bars them from selling spare parts under their own brand as permitted by new EU block exemption regulations, he said.

Ford spokesman Roger Bennett denied there is friction between Ford and its suppliers. "We work with our suppliers while refining our new global terms. An overwhelming majority have not expressed any concern," he said.

A copy of the agreement obtained by Automotive News Europe shows that Ford wants broad access to supplier financial information, facilities and intellectual property.

Holmqvist said Ford has so far not been willing to address suppliers' biggest complaints. He said General Motors also rates poorly among suppliers but has at least shown a willingness to talk.

"Ford is the most unpopular customer, and General Motors No. 2," Holmqvist said.

"But DaimlerChrysler is moving up there very quickly. I think they have joined the club -- something I think that has shocked the German supplier companies especially.¨

A survey conducted by SupplierBusiness.com among 55 suppliers who deal with Ford, Mazda, or Premier Automotive Group confirmed that Ford's relations with suppliers are dismal and that they are unhappy with the new rules.

Stamford, England-based SupplierBusiness.com already has interviewed suppliers about six major European manufacturers and will eventually interview suppliers about every major global OEM.

The consulting company promised suppliers anonymity on the survey to elicit candid responses.

In the survey, suppliers criticized Ford on numerous counts. They claim:

* Ford's purchasing approach is wholly about squeezing suppliers for short-term savings

* Ford asks suppliers to surrender their basic rights on intellectual property and product liability

* Suppliers are not rewarded for quality, innovation or cost-saving suggestions

* Suppliers face unacceptable financial risks in the event of recalls or other unforeseen events.

* Ford's purchasing staff is needlessly confrontational.

* Ford resorts to threats.

Several specific provisions in the new agreement upset suppliers.

For example, Ford is allowed to deduct money directly from accounts-payable to the supplier without consultation, regardless of the impact on the supplier's cash flow.

Another provision allows Ford to charge the supplier for half of Ford's overall costs on a product recall. The document limits the total liability to $10 million per model year involved in the recall, but also allows Ford to charge up to three times the actual price Ford paid for the parts.

"If for example the actual recall costs involving part X installed on three model years of vehicles was $50 million, and the value of all the production purchase orders covering the goods installed in those model year vehicles was $10 million, the maximum total debit would be $30 million," the Ford contract states.

A third provision allows Ford to terminate a contract with a supplier “for any or no reason” with 30 days notice -- unless Ford believes a shorter period would be “commercially reasonable.”

"[Ford] could move orders without compensating for costs that were put into the program,” said a supplier who declined to be identified. "If you have a recall, it can be very dangerous for you and expose your whole balance sheet."

Among supplier comments:

* “The agreement can be summarized in one word, 'draconian.' Suppliers are being stripped of very basic rights and protections related to product liability and intellectual property ownership.”

* “The relationship between purchasing and the technical and quality communities within Ford has become non-functional, and decisions are being made primarily for short-term savings.”

* “Ford is no longer interested in a long-term partnership but runs high risks to change suppliers for short-term savings. Exceptional quality supply levels are not honored with new business.”

* “Cost-sharing initiatives outlined by Ford a couple of years ago have not materialized-100 percent of the savings goes to Ford.”

* “Continuous price pressure, elaborate systems require much higher administration costs compared to other customers.”

Ford's Bennett did not address individual supplier comments.

Suppliers oppose Ford's new terms.

Said CLEPA's Holmqvist: “One of the core values of Ford is 'Act like a partner, be a partner.' It's a nice phrase. If they lived up to it would be great. I hope we can come back to that. But at the moment, we're very far away from it.”