TTAC Called It: Chrysler Stiffs Their Suppliers
The Detroit Free Press confirms what we've been reporting: Chrysler is forcing a five percent price cut and change from Net 45 to Net 60 on their indirect suppliers. A "company document obtained by the Free Press" states Chrysler predicts they'll save $100m over the next 12 months by doing this. Chrysler wouldn't comment on the document, saying somewhat redundantly "The type of information described would be considered confidential. … We do not discuss confidential information on a public basis." The document acknowledges they'll piss off their suppliers: "It seems that this action is in direct conflict with Chrysler's desire to rebuild relations with suppliers… [but] Chrysler is committed to improving its relationships with suppliers through open, honest communication — no matter how difficult the subject." I don't know which school of management teaches this kind of logic, but common sense says the way to improve your relationship with someone you're buying stuff from is to pay them on time and at the agreed price, not name your own price and pay when you're jolly well ready. Just sayin'.
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"Why is this an issue? Isn’t the mantra on this site to drive cost down?" I have yet to see a TTAC editorial which advocates getting costs down by any means possible. There are good ways to reduce costs, bad ways to do it and debatable ways. Good way - Figuring out a smarter way of engineering the product which gives an equal or better result to the prior method whilst costing less to manufacture. Bad way - Being a thug and simply paying your suppliers less than you originally agreed to. Debatable way - Moving production to Mexico. Check out this excerpt from one of many published articles on how Toyota & Honda deal with suppliers as compared to the 2.8: http://findarticles.com/p/articles/mi_m0UDO/is_20_15/ai_89273708 "Other important findings included: Suppliers rank Honda and Toyota as the best OEMs with whom to conduct business; Honda and Toyota balance quality with price when working with their suppliers while the domestic OEMs stress price significantly more than quality; Detroit's Big Three have practices that hinder the suppliers from doing their best job in meeting the OEMs' price reduction and quality improvement expectations; Domestic OEMs go about demanding price concessions from their suppliers in a manner that shows little concern for the suppliers' economic viability or supplier working relationships, while Honda and Toyota price reduction demands are conducted in a manner that demonstrates concern for both."
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What do we always hear from the investment gurus? Diversification! Manufacturers' suppliers would do well to be diversified, too. That way, breach of contract could be dealt with in a severance sort of way. And other suppliers would know that they should avoid that manufacturer, too. If suddenly, nobody sells MAP sensors to Chrysler, then they will have to begin making their own. Or stop making cars.