The practice of automakers squeezing their suppliers on parts pricing appears to be on the rise again, according to results of the 2013 North American Automotive-Tier 1 Supplier Working Relations Index (WRI) Study compiled by Planning Perspectives Inc. (PPI) of Birmingham, MI.
“The worse and most egregious bad habit has been the OEM buyers’ narrow-minded focus on piece price reductions without regard for any implications of the reduction or how they went about getting the reduction from the supplier,” PPI President and CEO Dr. John W. Henke Jr. told AEI.
In the study released May 13, many suppliers indicated that they have been experiencing an uptick in bad habits by their OEM customers. Incidents were “minimal during the 2008-2010 recession when the Detroit 3, in particular, worked more closely with their suppliers to help ensure their survival,” noted Henke, who is also a professor of marketing at Oakland University in Rochester, MI.
The 2013 study focused on Chrysler, Ford, GM, Honda, Nissan, and Toyota. These six automakers comprise 77% of U.S. light vehicle sales. This year’s findings were based on responses from 583 supplier personnel from 441 companies—representing 61% of the annual buy of the OEMs.
Although BMW, Mercedes-Benz, and Volkswagen have been addressed in the study since 2010, the European 3 are not expected to be fully highlighted until the 2014 report. Henke’s firm has been conducting the annual supplier study for 13 years.
Study results show that three of the six OEMs dipped in the rankings. Comparing 2012 to 2013 study rankings of “poor” to “very poor” scores, Chrysler went from 46% to 50%; Honda from 29% to 36%; and Nissan from 44% to 49%.
The overall lack of significant change from the 2012 to 2013 study disappoints Henke. One take-away is that OEMs either do not have in place a long-term plan for improving their supplier working relations, or the plan is not well-focused. But a well-defined plan needs to be implemented and applied consistently.
“As in any relationship, consistency leads to certainty. Certainty leads to trust,” Henke noted.
OEMs that have good working relations with suppliers can net a windfall of benefits.
“The earlier an OEM involves suppliers in its product development process, the greater the likelihood the supplier can impact the final product,” Henke explained. He added that suppliers with new technologies tend to share those innovations with the OEMs whom they have the best working relations.
If the Japanese 3, the Detroit 3, and the European 3 were combined on a consolidated WRI graph, BMW would rank the highest of the nine automakers, followed by Mercedes-Benz in second and Toyota in third. VW would have the lowest ranking.
“Our North American results are consistent with what we have seen in Europe since the early 1990s. BMW has always placed a premium on trusting supplier relations,” Henke said. “We are simply seeing the European behaviors being implemented here. Similarly, VW has always had poor supplier relations in Europe.”