Forster's Epiphany: The Suppliers Make All the Money
The outsourcing v.v. insourcing debate has been waged for decades in the auto industry. GM just realized there is one. “The balance of power has shifted. The profits are made by the people who have the technological know-how, and that’s the suppliers,” quoth GM Europe VP Carl-Peter Forster last night, while Focus was taking notes.
Forster is expected to take over the CEO job of Opel, owned by the Magna/Sberbank/GM cabal. Is he just pandering to the new guys in charge? Oh no. Just the opposite . . .
“We all had the vision that the OEMs (original equipment manufacturers) should just assemble bits and pieces, do a little bit of marketing, a little bit of design and all the rest would be done by suppliers,” Forster said via Reuters. “That was a nice vision. It sounds very lean, but the profit making opportunity is also shifting to the ones that have the technological knowhow.”
Now wasn’t there all this hue and cry about the IP escaping to Russia? Now Forster says there never was much valuable IP—it’s all with the suppliers already.
In the world according to Forster, “volume carmakers in good years at best earn an operating margin of 4 to 5 percent; suppliers that control exclusive technology can make double-digit returns.” (Suppliers will have a different view.)
So Forster is looking for “areas you want to move back into. And interestingly enough one of the areas is electrical propulsion.” His big hope to bring technological know-how inhouse: the Volt.
Anyway, corporate amnesia must run rampant at GM. GM had started the outsourcing trend in the last century, some time in the 80s. Then, they lost their outsourcing champion Jose Ignazio Lopez to Volkswagen, where he infested Wolfsburg with the same bug. GM sued for industrial espionage and invoked the RICO act. Lopez was fired, VW paid $100M to GM . . . and had to outsource parts worth $1B to GM.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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KatiePuckrik I totally agree. At my previous job which I left just in the nick of time (THANKS TTAC) - we worked with Visteon and some of their competitors. I have a friend at a Japanese supplier that sells to OEMs Asian and domestic about three hours from here. Both his experiences and mine are similar to what you report. Domestics squeeze every last penny out of their suppliers. Domestic OEMs seem surprised when the parts they get break b/c the supplier designed something cheap to turn a profit. My friend says they test stuff to the nth degree and that the Asian customers test everything they receive. If ANYTHING is bad then the whole batch is sent back for testing at the supplier's expense. The domestics test SOME of the parts they receive. Much more lax and concerned about cost vs quality. If a few are good enough then good. Exactly the same experience we had with the domestics.
In the US, the Onetime big 3 were horribly abusive towards their suppliers. It wass obvious that the suppliers had zero power, while the big 3 had "Monopsony" power and starved the suppliers to death with it, and are still doing so when they can today. In the long run, this greedy strategy proved to be short-shighted and there is no wonder two of the three domestics went bankruot and still are in terrible shape. On the conrtary, I used to read how TOyota and Honda had far more humane relationships with their own suppliers.