Suppliers sceptical of new Ford, VW plans

By Bradford Wernle & Tony Lewin, Automotive News / December 12, 2005

Ford, Volkswagen and other automakers will have to work hard to convince a skeptical partsmaking industry that carmakers really want to begin a kinder, gentler era of cooperation with their suppliers.

Relations between manufacturers and suppliers have been damaged by nearly a decade of relentless pressure from carmakers for lower parts prices. This pressure has played a role in the bankruptcy of several major suppliers.

Ford, General Motors and VW group have finished near the bottom of recent surveys measuring suppliers' attitudes toward their automaker customers.

In September, Tony Brown, head of Ford global purchasing, announced the US carmaker will cut in half the number of global suppliers it uses and reward those that remain with long-term deals, giving them early access to product programs. The Ford plan is called the Aligned Business Framework.

We have a problem with the business model in this industry,” Brown said at the time. It is not working effectively for our suppliers. It is not working effectively for us.”

Two weeks later, Volkswagen group brought together 38 selected suppliers to identify ways to cut costs.

We now have an open-book relationship with all suppliers from Tier 1 through to 'Tier N',” said Francisco Javier Garcia Sanz, VW's board member for procurement, in an interview with SupplierBusiness, a UK-based consultancy.

Renault and PSA/Peugeot-Citroen quietly have been working to bridge the gap with suppliers with new cooperative programs during the past few years.

Valeo CEO Thierry Morin told Automotive News Europe: Ford is realizing the limit of their system, which consisted of always awarding the contract to the cheapest supplier. They now want to be more like Toyota.”

Renault and Nissan CEO Carlos Ghosn, speaking at a supplier show, said he believes the relationship between carmakers and suppliers is getting closer.”

Morin rated Renault-Nissan and PSA in the middle, with US carmakers among the most difficult to work with and Toyota and BMW among the best.

Particularly useful, said Morin, are the regular monthly meetings Renault holds with its top 10 suppliers, and PSA's willingness to consult with suppliers in their areas of expertise.

Industry observers say automakers such as Ford and VW face two major challenges if they want to be more like Toyota and BMW.

1. They must convince suppliers they won't slide back into old bad habits at the first sign of pressure.

2. They must instill a new attitude in their own corporate cultures from the bottom up.

Suppliers say certain manufacturers still treat them poorly.

It's shameless what some manufacturers want to force on suppliers via terms and conditions,” Wolfgang Vogel, a management board member at ZF Friedrichshafen, told an industry conference in Mainz, Germany, in November.

Lars Holmqvist, CEO of Brussels-based CLEPA, the European supplier association, said Ford, GM and VW have to do much more than announce their intentions to change their ways. They will have to work as true partners with suppliers.

There is no partnership left,” said Holmqvist, who has been a vocal critic of several manufacturers, especially Ford. Those guys - GM and Ford primarily - have to prove they mean business. So far we haven't seen it. Partnership takes a lot of guts from the manufacturers and the suppliers. Partnership means long term.”

Said Eric Wallbank, an analyst with Ernst & Young in London: The jury is still out on how successful they'll be in implementing these new policies. These companies are some extremely large and complex organizations. They may find it difficult to join these things up internally among different functions: engineering purchasing, manufacturing, commercial and logistics. One of the challenges will be to get all their functions to align around the new policies.”

No technology sharing

Wallbank said some suppliers have stopped sharing their latest technology with certain manufacturers because they no longer trust them.

Some suppliers have stopped taking innovations to the manufacturers because the manufacturer is saying: 'Just because you bring us the innovation doesn't mean you'll get all the business. We're going to take your innovation and share it with your competitors in the production phase'.”

Some carmakers also fail to pay sufficient attention to their suppliers' financial health. Said Steve Blackman, head of Ernst & Young's European automotive practice: There's not enough reviewing of financial robustness during the course of the contract lifetime, which can be as much as seven years.”

It is too early to say whether the Ford and VW moves mark the beginning of a sea change. But some important players believe a real change is underway.

Speaking at the Automotive News Europe Congress in Barcelona last May, Franz Franz Fehrenbach, chairman of Robert Bosch, the world's largest supplier, called for an end to finger-pointing” between manufacturers and suppliers.

There is no alternative,” he said, to a trustful relationship.”

Ford and VW have said they want more trust. Suppliers are waiting to see whether they really mean what they say.

- Sylviane de Saint-Seine contributed

Different techniques

How automakers are dealing with their suppliers

Ford

New program called Aligned Business Framework that rewards key suppliers with long-term deals and gives them early access to product programs.

VW group

New long-term strategic partnerships with 38 suppliers. These premium partners” will work with 38 VW group cross-departmental teams to identify cost-cutting ideas.

Renault-Nissan

Renault Nissan Purchasing Organization will reduce its supplier base by one-fifth in the next five years. To cut costs, it is placing bigger orders with fewer partsmakers. Renault holds regular monthly meetings with its top 10 suppliers.

PSA

PSA has signed long-term innovation contracts with key suppliers such as Valeo, Bosch, Delphi and Siemens VDO in the past few years. PSA consults key suppliers in their areas of expertise.

From Automotive News (A Crain publication)