Rift Harming Auto Industry - aftermarketNews

Rift Harming Auto Industry

The tense relationship between Detroit's automakers and their suppliers was on display Wednesday as executives from both camps spoke about cooperating and collaborating while taking subtle or direct swipes at each other.

From Detroit Free Press

TRAVERSE CITY, MI — The tense relationship between Detroit’s automakers and their suppliers was on display Wednesday as executives from both camps spoke about cooperating and collaborating while taking subtle or direct swipes at each other.

In various speeches, executives talked about the need for auto suppliers and automakers to work together — especially as escalating steel prices, rising interest rates and higher profit-eating incentives mix with other concerns to threaten the U.S. auto industry and manufacturers in general.

But in those same speeches, automaker executives would question whether their suppliers had the technology to keep up — or supplier executives would point a finger at automakers for their own inefficiencies they say drag down the whole industry.

Insiders said they sensed relations between the two economically powerful groups are getting worse. The speeches were part of the Management Briefing Seminars, an annual event in Traverse City that brings together many of the industry’s top executives. The theme of the event, hosted by the Center for Auto Research, is the “Perfect Storm,” to capture the idea that a number of global events are creating threatening times for the auto industry.

One of the concerns could be the state of automaker-supplier relations. For example, the chairman and CEO of Troy-based Delphi Corp., the world’s largest auto-parts maker, said automakers need to address the fact they have too many assembly plants and can build far more new cars and trucks than consumers want.

By his count, in North America there is room to build 2.5 million more automobiles than can hope to be sold. This means plants sit underused, which wastes money.

“We know we have too much overcapacity,” said Delphi’s J.T. Battenberg III. “As a result, we’re adding cost — all the way down the value chain . . . and nearly always at an increased cost burden borne partially by the supply community.”

When Battenberg did compliment an automaker for efficiency, it was Toyota Motor Co.

The chilly relations between automakers and suppliers was evident this week in a study by Birmingham-based Planning Perspectives that found suppliers’ trust of Ford Motor Co. and General Motors Corp. has never been lower, while trust for Japanese manufacturers like Toyota has never been higher.

Suppliers, in general, feel Detroit’s automakers are fixated on cutting prices over everything else and don’t trust suppliers enough. Automakers counter that suppliers aren’t competitive and don’t understand that new vehicles now come with thousands of dollars in profit-eating cash rebates or incentives.

“There’s a lot of pressure on the whole system. Automakers are trying to figure out how to pay for all these incentives and there’s a lot of pressure on suppliers to offshore and get costs down however they can,” said Paul Wilbur, CEO of ASC Inc., the Southgate-based auto supplier formerly known as American Sunroof.

In a fitting exchange during an executive question-and-answer session, the CEO of a top supplier, Larry Denton at Rochester Hills-based Dura Automotive, chided automakers for not improving their fuel-efficiency standards. Average fuel-efficiency of vehicles is about 24.6 miles per gallon, compared to about 26.2 in 1987.

In a bold remark, Denton said automakers should improve their Corporate Average Fuel Economy (CAFE) standards by 1 percent a year every year. That would be approximately 2 1/2 miles per gallon in a decade.

“I advocate continuous improvement and quite frankly we haven’t had that for awhile,” said Denton. “If we don’t do this on our own, then someone in the government will pick a random (CAFE) number and set it on us.”

Denton was then rebuffed by the Chrysler Group’s No. 2 executive, Chief Operating Officer Tom LaSorda.

“It’s nice that suppliers would like to now set CAFE standards for the automakers,” he said.

In his speech, LaSorda emphasized ways Chrysler was becoming more innovative and flexible. He then questioned if suppliers were ready to meet Chrysler’s expectations.

“Now I ask our suppliers: As we become faster and more innovative, as we become more flexible, will you be fast enough to out-innovate us? If not, then you’ve got work to do,” LaSorda said.

The coolness between automakers and suppliers is not new, but show attendees said relations appear to be getting worse.

“There is a lot of tension here, to the point where people are taking cheap shots and no one is really listening to each other anymore,” said Kim Korth, president of IRN Inc., a Grand Rapids auto-consulting firm.

“It’s gotten more contentious and dictatorial with each side just squeezing the guy below them.”

Copyright 2004 Detroit Free Press. All Rights Reserved.

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