European suppliers don't 'pay-to-play'

By Sylviane de Saint-Seine, Automotive News Europe

Supplier associations say US-style “pay-to-play” schemes have failed in Europe because partsmakers refuse requests for cash advances to land long-term contracts.

In a typical pay-to-play scheme, a Tier 1 supplier or automaker asks a partsmaker to make an immediate cash payment equal to future savings from productivity gains anticipated over the life of a multi-year contract.

General Motors, Visteon and Delphi are among US companies that have in the past done this.

“I am not aware it's a European practice,” says Lars Holmqvist, CEO of CLEPA, the European suppliers association. “We in Europe consider these kinds of practices unethical, unfair - the rawest form of capitalism.”

Holmqvist said he personally encountered two requests akin to pay-to-play a few years ago when he was a Tier 2 supplier executive. Both times, he refused.

The CLEPA chief said he is aware of some attempts to get suppliers to pay in advance for future cost-reduction savings. But he said that, to his knowledge, European suppliers successfully resisted. Supplier executives, who declined to be identified, confirmed this.

European suppliers simply cannot afford pay-to-play schemes because they are less profitable than their US counterparts, said Armand Batteux, chairman of FIEV, the French auto suppliers association. “It would put their financial survival at risk,” he said.

From Automotive News Europe