By on January 28, 2009

Bailout fatigue? Not me. Every day I wake up wondering what new absurdity I’ll encounter in my quest to tell the truth about cars and those who make them. And just when I think it can’t get any more ridiculous—a Chrysler Fiat tie up, “strategic reviews” of dead brands, a back room bailout for an ex-Treasury Secretary’s new boss, viability plans spun out of thin air, product plans cut from the same cloth—it does. Here’s today’s hit of alternate reality: Chrysler wants—no, demands—that its suppliers cut their prices. WTF? Remind me again. Chrysler’s suppliers are making how much profit these days? I’m thinking… none. And how many cars can Chrysler build if its suppliers—make that one key supplier—can’t deliver parts? I’m thinking… none. Not that anyone’s buying Chrysler products, but blood from a stone? Aintgonnahappen.org. 

And yet, there it is [via Automotive News]: “Chrysler LLC’s purchasing chief is demanding a new round of price cuts from suppliers as the automaker faces a Feb. 17 deadline to justify its federal bailout money. Scott Garberding has ordered price cuts from all suppliers effective April 1. Those would be in addition to annual price decreases required contractually of suppliers, according to a Jan. 26 Chrysler letter obtained by Automotive News.”

So Chrysler’s going to sacrifice its suppliers to get tax money to pay its suppliers to build cars no one’s buying. Fabulous! Literally.

“In his letter, Garberding offered suppliers a carrot in the form of a 90 percent share of any cost-reduction ideas they initiate. But such efforts require a long-term process of testing and evaluation.

The supplier executive said Chrysler’s mass layoffs have stripped much of the staff needed to run that program.”

You can’t make this shit up.

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42 Comments on “Bailout Watch 364: Chrysler Is Insane...”


  • avatar
    Bancho

    They need cheaper parts for vehicles they aren’t building?

  • avatar
    Raingler

    Yeah that’s weird alright. I wish I lived in their reality, it must be a magical, wonderful, happy place. Where anything you desire happens if you just ask and decisions have no consequence.

    If you need drugs to get there though, count me out.

  • avatar
    GoHuskers

    Why isn’t Cerebus ponying up any money for it’s ailing child? This stinks more than the Nixon and Bush (43) administrations combined. Hang all of the incompetent thieves, I say.

  • avatar
    PeteMoran

    Where is the Car Czar for some triage type planning and at least the smallest chance that money isn’t completely wasted in short order?

    The stupidity quotient is trending toward infinity.

  • avatar
    golf4me

    As a former supplier to Chrysler, we had to finally tell them to shove off when they initiated their “first” 5% per year price reduction program.

    They were shocked! I sat down with a senior purchasing exec, and asked “would you take a 5% pay cut every year as your health insurance keeps going up, gas is going up, electricity is going up, food is going up?” After almost choking on his coffee, he finally said “I guess not” so I said, “then how can you expect me to do the same?”

    They also had things in their contracts that precluded me from even having the ability to cut my expenses, like employee retention, ISO9000 requirements, and technology requirements. He knew he really had no other options for my services, and we were exempted, but it cost my company $2k to fly me out for that meeting…just about the net amount we would have made on our next little project…

  • avatar
    Luther

    Obama is coming!…Quick!…Act busy!

    Chrysler has to act like they are “doing something” so that the Parasites-on-the-Potomac as well as the taxpayer-chumps will be pleased.

  • avatar
    cwallace

    That’s the saddest picture I think I’ve ever seen.

  • avatar
    tedward

    Luther…I think you’re right on this one, but I think it probably has more to do with the Cerebrus investors than it does the federal government. These guys need to do something, anything really, at a furious pace or they face a certain (and probably inevitable anyway) litigation challenge for losing so much damn money. One stone left unturned, one opportunity wasted is just that much more fodder for the lawyers.

    All the President can do is accelerate the date on the strip and flip operation by denying loans, which is probably fine by Cerebus at this point so long as they can avoid the appearance that they helped this along in any way.

  • avatar
    akear

    I know this must sound insane, but Chrysler needs a visionary CEO. The person for this job is Danny Bonaduce, former child star of the partridge family. Unlike, other CEOs from the motor city, Danny is not corrupted by the standard operating procedures. Bonaduce will thus be able to think outside the box. He will be a fresh thinker in an industry rampant with mediocrity.

    Is anything I said here any more ridiculous than what Chrysler has been doing in the last year?

  • avatar
    esg

    RF, thank you so much for supplying these absurd but true articles. I almost peed in my pants when I read it. I don’t know why I almost peed, but I did. In fact, I am going to the bathroom to check all of my functions for accidents. How do these top level people in the American auto industry look in the mirror and like what they see? How do they go to work and feel good about their contribution to society? These questions are rhetorical.

  • avatar
    magoo

    Farago,
    Please explain why Chrysler should NOT be chiseling the best deals it can from its suppliers. Isn’t that in the best interests of Chrysler, Cerberus, and the taxpayers?

  • avatar
    dougjp

    This has become like running fingernails over a chalkboard.

    Obama et al. Please PLEASE decline any further funding and DEAL with the situation. Meaning, go immediately to Chapter 7/11, do not pass Go, do not…..

  • avatar
    Rod Panhard

    It would be one thing if all Chrysler products were known for having a lot of top-notch materials in their interiors, and a bit of breathing room when it comes to reliability.

    Chrysler has none of that. So to make parts cheaper to the point of “no profit?” That’s the story I’ve heard from Home Depot vendors.

    You can only shoot yourself in the foot so many times until your foot is gone. Then you hobble on stumps. And that’s where Crisisler will never make it all the way to Dodgiat.

  • avatar
    TexN

    best – picture – EVER!

  • avatar
    Jared

    Put a fork in Chrysler — it is done.

  • avatar
    magoo

    I am having a hard time following this line of reasoning. If I understand the TTAC collective mindset (as it were — no offense meant) correctly, Chrysler wringing concessions from its own employees would be a GOOD thing. However, Chrysler wringing concessions from its suppliers would be a BAD thing.

    I am a noob here so I really don’t know the TTAC ideology. I am just some dumb guy who has worked in the auto industry all his life, where the manufacturers do their best to chisel their suppliers right down to the bone. Always have, always will. For example, American Honda is Legend for it (har) while Jose Ignacio Lopez made a career of making vendor reps cry themselves to sleep. And as far as I know all manufacturing pretty much works this way, not just autos.

    And I would expect that with the automakers in trouble and accepting govt. loan gaurantees, the practice would become even more aggressive. Yet TTAC finds it surprising, even “insane.” For the life of me I can’t understand what you people are talking about or how you got there. Could you please explain it to me if you don’t mind?

  • avatar
    Bancho

    magoo :

    The parts and materials Chrysler uses are already seriously substandard when compared to just about any other brand of vehicle.

    How will squeezing suppliers and the inevitable decrease in quality help improve Chrysler’s situation? The suppliers are hurting but it will probably cost them more to acquiesce to Chrysler’s demands rather than just saying no and possibly providing no more parts in a worst case scenario.

  • avatar
    PeteMoran

    @ magoo

    I think the point is if you can’t manufacture for a profit, you don’t have a viable business.

    At current volumes many suppliers would be non-viable too. If you put further pressure on them to cut margins, that just increases the likelihood they will go out of business sooner.

    Preventing suppliers failing was supposedly the raison d’être for the non-Chapter 11 bailout to begin with… (and why Ford were an “interested” supporter of GM/Chrysler).

  • avatar
    crackers

    At what point does a supplier throw in the towel and let someone else have the business instead of losing even more money?

    Surely lots of companies are lining up for an opportunity to be a supplier to Chrysler!

    As my old boss used to say, no business is better than bad business.

  • avatar
    PeteMoran

    @ crackers

    When the previous business owners are loosing their shirts, they’ll pack up shop. When “new capital” arrives that hole will be filled. That hasn’t been happening in Bigish3 autos for the last 5 years (or more).

    No business, is indeed better than bad business and then that capital will be deployed elsewhere. So well said that man.

  • avatar
    nayrb5

    I’m still confused by the required price reduction. The annual contractually obligated price reduction.

    If materials costs (and energy costs, labor costs, et al.) are constantly rising, how does any supplier agree to cut the price of the finished product by 5% every year? Wouldn’t this eventually lead to products that cost so far below the market value of materials alone as to be no longer worth selling?

    Perhaps someone can shed some light on why suppliers willingly accepted this practice — and how they failed to go bankrupt while accepting it.

  • avatar
    PeteMoran

    @ nayrb5

    In some industries they call it an “efficiency dividend”. It is expected that a supplier will be constantly refining their process and passing on some of that to their prime customer.

    Mostly, it’s a particularly US-management style attitude to what should be a mutually viable relationship. Usually we find it written into the purchasing manager’s bonus conditions. “Thou shalt extract discounts, and then you can claim your bonus”.

  • avatar
    Seth L

    Nooo! Robert is turning into Sweet Peet!

    fuggedaboutit.net?

  • avatar
    Jared

    Magoo:

    Chrysler’s suppliers are already in deep financial trouble. This is simply going to push them into bankruptcy, which won’t help Chrysler. Chrysler is committing slow-motion suicide.

  • avatar
    rodster205

    This should have been a Chrysler Suicide Watch post. That is clearly what they are doing.

  • avatar
    Lokki

    Magoo –

    Parts:
    The costs have already been cut out of the parts that Chrysler is using. Look at reviews of their interiors – Look at their reliability. If you keep cutting after you cut out all the fat, you start killing the body.

    Labor Costs:

    We know that the transplants have lower labor costs, use less employees per car and run successfully, without labor problems. This suggests that not all the fat has been cut out of the labor costs.

  • avatar
    FrustratedConsumer

    You guys are nuts.

    Chrysler is doing the SMART thing.

    Step1: Suppliers go begging (in fact, today) for $10B.
    Step2: Chrysler demands cheaper parts.
    Step3: Suppliers now flush with taxpayer money, relent.

    Result: Chrysler essentially benefits from another bailout they didn’t have to beg for.

    Score 1 for Chrysler!

  • avatar
    charleywhiskey

    Damn, that picture just nails it!

  • avatar
    magoo

    Gentlemen,
    Thanks for your helpful replies. However, none of the explanations wash for me. I remain absolutely convinced that Chrysler should continue to pressure its suppliers for all the price breaks it can.

  • avatar
    shaker

    Photo Caption: “Curious George Tries Some Beer.”

  • avatar
    Mike Stevens

    Here’s another likely scenario: suppliers say “no, we have already given you plenty of give backs over the past ten years and you still haven’t gotten your house in order” and then say “if you don’t like it, go get your widget someplace else”. Frankly, there aren’t a lot of suppliers left in Motown who honestly feel that future Chrysler volume represents more promise than risk, and because of their heavy-handed “see you in court” negotiation tactics over the past year, there are even fewer left that have a good relationship with Chrysler. My guess is, they can ask all they want. Suppliers with well diversified product portfolios aren’t foolish enough to listen. Only those with the majority of their business tied to Chrysler volume would bend an ear, but since Chrysler’s sales were down by the largest margin of any OEM in 2008, they are going to be the least able to offer any concessions.

  • avatar
    SherbornSean

    You know, every Sunday when I pack my family into the Caravan I say to myself “Gee, I wish Chrysler would source its parts cheaper. I really want to trust my children’s lives to a firm that puts so much pressure on its steering and brakes suppliers that they provide the very lowest quality parts possible.”

    Because this was Chrysler’s problem all along. The Sebring, the Caliber, Compass, Commander, Aspen, etc. — they would all be world class if only the parts in them weren’t so damned high cost, so over-loaded with useless quality.

  • avatar
    magoo

    Mike Stevens :
    “Here’s another likely scenario: suppliers say “no, we have already given you plenty of give backs over the past ten years and you still haven’t gotten your house in order” and then say “if you don’t like it, go get your widget someplace else”. Frankly, there aren’t a lot of suppliers left in Motown who honestly feel that future Chrysler volume represents more promise than risk, and because of their heavy-handed “see you in court” negotiation tactics over the past year, there are even fewer left that have a good relationship with Chrysler.”

    That’s not what is happening in Detroit and all the way along the I75 corridor. All the OEs are way, way, down, including Honda, Toyota, and Nissan, and the suppliers are scrambling for any work they can get. They do not have the luxury of picking and choosing. If the job is right-side up they will take it.

    As a taxpayer I want Chrysler to play hardball with its suppliers. Personally, I would think that any rational person would demand it. If Chrysler’s current situation qualifies as “government work,” the presumed tendency is for buying and other practices to grow lax and sloppy. Let’s not go there.

  • avatar
    menno

    Well, magoo, your statement about wanting Chrysler to play “hardball” with parts suppliers sounds tough and macho and stuff, and you make it sound like your taxpayer money is on the line along with ours, too… but in reality? When the suppliers start falling down like bowling pins and hundreds of thousands of workers are put on the public dole (and/or these selfsame companies go with palm up to B.O. and co. and ask for THEIR DAMN BAIL OUT MONIES), just how will you feel then?

    Perhaps instead, Chrysler should man up and follow best industry practices. Look at Toyota and even Hyundai, or Honda.

    Do you realize the difference of attitude that the OE suppliers have towards competently run companies which think of their suppliers as PARTNERS instead of another victim to rape & pillage?

    Read the Automotive News some time and look between the lines at the stats. The OE suppliers are SIGNIFICANTLY more likely to send their latest and best technology to Toyota, Honda, Hyundai-Kia, Nissan even – and as for GM, Ford and especially, Chrysler? Not so much. As in – a very statistically significant not so much. As in “no way in hell.”

    So – next time I or millions of others go car shopping, do I want to bop down to the Crapster stealership, especially after seeing their interiors at the Detroit Auto Show (which compared favorably – to the Brilliance of China cars, ok they were equivalent to… let’s be fair to the Chinese). Knowing that Crapster is literally spending monies suing suppliers to force them to reduce prices and take payments later and later, do you think I want to put my life, my family’s lives and even my beloved pet’s life at risk by owning one of their low-rent POS’s made with el-cheapo parts?

    Not so much.

    Hence, I have to respectfully disagree with your assessment about being all proud that Chrysler is even now drying to get blood out of a stone, instead of finally (albeit way too late) coming around to using industry best practices. A la Toyota.

    Look how it has been working for Hyundai world-wide. Up from an obscure car manufacturer from a 2nd world country, to #5 in the world? You can’t say “oh, Menno, your ideas won’t work”.

    Hyundai has proved me right already.

  • avatar
    magoo

    SherbornSean :
    “You know, every Sunday when I pack my family into the Caravan I say to myself “Gee, I wish Chrysler would source its parts cheaper. I really want to trust my children’s lives to a firm that puts so much pressure on its steering and brakes suppliers that they provide the very lowest quality parts possible.”

    Excellent use of the reductive fallacy.

    The automaker who pays over the market for components and materials cannot be competitive. You are assuming that Chrylser is asking its suppliers to cut quality. No, it is asking them to cut prices. It is true that price can drive down quality but that is a second-order function in a vendor contract. The first-order function is that Chrysler will hold its suppliers to the specs just as it will hold them to the prices. This is exactly how the transplant OEs play the game. Hell, that is how capitalism works.

  • avatar
    magoo

    menno :
    “Well, magoo, your statement about wanting Chrysler to play “hardball” with parts suppliers sounds tough and macho and stuff, and you make it sound like your taxpayer money is on the line along with ours, too… but in reality? When the suppliers start falling down like bowling pins and hundreds of thousands of workers are put on the public dole (and/or these selfsame companies go with palm up to B.O. and co. and ask for THEIR DAMN BAIL OUT MONIES), just how will you feel then?

    Perhaps instead, Chrysler should man up and follow best industry practices. Look at Toyota and even Hyundai, or Honda.

    Do you realize the difference of attitude that the OE suppliers have towards competently run companies which think of their suppliers as PARTNERS instead of another victim to rape & pillage?”

    Menno, I am going to take the intuitive leap here and guess that you do not work in the OE biz. In fact, the transplants and American Honda in particular have a reputation for cut-throat dealings with their suppliers while historically, Chrysler is a soft touch.

  • avatar
    NickR

    Magoo. Picture this: Your employer has lowered your salary for three years in a row. It is so low now that it costs you more to commute to work and acquire work clothes than you make in wages. You have no benefits. Your employer comes and says ‘Hey Magoo, we are dropping your salary another 5%.’

  • avatar
    dualquad

    Magoo: Great to hear from an industry insider. It may not always seem fair, but costs are benchmarked. The purchasing group knows what they should be paying for their widgets and there’s nothing wrong with demanding competitive pricing, in fact their stockholders (including every tax payer these days) should demand it. But…. as demonstrated by recent supplier performance and bankruptcies, it’s often taken way too far. If the OEMs drive their suppliers into the ground and the supplier base isn’t healthy the OEMs suffer in the end.

  • avatar
    geeber

    magoo: In fact, the transplants and American Honda in particular have a reputation for cut-throat dealings with their suppliers while historically, Chrysler is a soft touch.

    The Detroit News regularly publishes surveys that ask suppliers which manufacturer they prefer to work with on projects…Honda and Toyota are routinely rated ahead of GM, Ford and Chrysler.

  • avatar
    magoo

    NickR: Your tableau is not representative of Chrysler’s relationship with its suppliers — or of the industry as a whole. Especially now.

    There is tremendous overcapacity in the industry and it applies to all the suppliers in the chain just as it does to the assembly plants. It’s a buyers market for cars so it’s a buyer’s market for components. Prices have to come down — and they will come down because suppliers are going to take any job that is right side-up so they can keep their own doors open. Rest assured the transplants are going to push for the best deals they can and so must the Detroit Three.

  • avatar
    50merc

    Chrysler’s policy: the components will continue to get shoddier until overall vehicle quality improves.

  • avatar
    dougfixit

    The big 3 have been beating up on us suppliers for years. I would bring up the point time and time again that they are saving a few pennies now, but paying out big bucks later in warranty and customer dissatisfaction. The supplier I worked for does business with all the big 3 and some of the transplants, yet despite their diversification, they are deathly afraid of losing business. To which I would say “Zero money is better than negative money.” Anyway I am now unemployed.


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