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News and Reviews

Big 3's ties to suppliers are eroding

Parts makers trust Japanese firms more

By GREG KEENAN
AUTO INDUSTRY REPORTER
Monday, August 2, 2004 - Page B1

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Relations between North American auto parts makers and the traditional Big Three car companies are so poor that suppliers increasingly see the Japan-based companies as their ticket to a profitable future and are willing to work harder for them, says an annual survey.

Better relationships with Honda Motor Co. Ltd., Nissan Motor Co. Ltd., and Toyota Motor Corp. mean parts makers are offering them first crack at new technologies and working harder to meet those firms' quality goals, says consulting firm Planning Perspectives Inc., which conducts the survey.

The Japan-based companies' drive to maintain strong relationships with their suppliers gives them a competitive advantage and is helping them gain market share against Ford Motor Co., General Motors Corp. and the Chrysler division of DaimlerChrysler AG, the consulting firm said.

"The study shows, again this year, that the U.S. auto makers' primary orientation is toward cost reduction, they have little regard for their suppliers, they communicate very poorly and they generally treat suppliers as adversaries rather than trusted partners," John Henke, president of Planning Perspectives, said in a statement accompanying the survey results.

"In all the other industries we've studied such as aerospace, electronics and computers, no one treats their suppliers as poorly as the U.S. auto makers do."

The study asked 223 suppliers -- 36 of them ranked among the top 50 in sales in North America -- to rate the auto makers' purchasing departments and purchasing policies in several areas.

"Supplier trust of Ford and General Motors has never been lower; conversely, trust for the Japanese [auto makers] has never been higher," Planning Perspectives said.

Honda, Nissan and Toyota outranked the Big Three in all key areas -- the overall relationship; trust; communication; the opportunity to make an acceptable return over the long term; and the degree to which a certain company is a preferred customer.

Asked, for example, why they agree to price reductions, more than 40 per cent of suppliers cited a fear of reduced business or retaliation when they ranked Chrysler, Ford and GM. When they answered this question in regard to Honda, Nissan and Toyota, more than 40 per cent pointed to a desire to maintain or increase market share with the Japan-based companies.

"Nissan, Honda and Toyota are getting better and better and better in the eyes of the suppliers," Dr. Henke, who is also a professor of marketing at Oakland University in Michigan, said in an interview.

The Big Three's constant pressure to reduce costs is not the reason for the poor relationship, he said, it's more the method by which the cuts are carried out.

The three Japan-based firms are also relentless in cutting costs, but they work in collaboration with suppliers, industry sources say.

"The manner in which the pressure is carried out makes all the difference in the world," Dr. Henke said.

The Big Three have tended to demand that suppliers cut costs without consultation for years, he said. The exception was Chrysler in the 1990s, when, after two brushes with financial disaster, that auto maker had to ask suppliers for help.

At the time, under purchasing czar Thomas Stallkamp, Chrysler enjoyed a relationship with its suppliers that was similar to what Honda and Toyota have now.

During its overhaul in 2000-01, however, it angered suppliers with a demand for an instant 5-per-cent price cut, followed by other reductions.

It won't be easy for the Big Three to reverse the trend, Dr. Henke said.

"It takes a real effort to [build a good relationship], and also the payback isn't right away," he said.

But he has advice for Chrysler, Ford and GM on how to start: "Segment out the most important suppliers they have and start working on building good relationships."








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