By on May 19, 2008

squeezing_blood_out_of_a_turnip.jpgChrysler's told its suppliers to cut their prices by 25 percent and get the Hell out of Dodge. ChryCo Purchasing Czar John Campi unveiled his employer's latest supplier initiative to hundreds of Chrysler suppliers. Here the deal [via Automotive News, sub]… ChryCo promises to give its suppliers 30 days' notice of its production schedule (rather than seven), share more parts among nameplates, and reduce late engineering changes. Suppliers will split the savings with Chrysler– unless they fail to reduce component costs by 25 percent. If not, they'll have to cut prices and eat the loss. (The 25 percent reduction benchmark applies to parts both old and new.) With "the vast majority" of Chrysler components coming from America, Campi is encouraging suppliers to move operations overseas to facilitate the costs. Holy shit! It's bad enough that Chrysler's driving itself into the ground, but owners Cerberus seem hell-bent on taking its entire American supply chain down with it. You can't squeeze blood from a stone; with the price of nearly every raw material rising, Chrysler's audacious cost-cutting will only yield more bankruptcies. And lower quality products. And American job losses. This will not make Chrysler any friends when it hits the bankruptcy buffers, nor should it.

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29 Comments on “Chrysler Tells Its American Suppliers to Leave the U.S....”


  • avatar
    AKM

    As home depot customers, employees, and even shareholders know, one doesn’t hire Nardelli to make friends.

    And when you’re a financial master of the world, who cares about friends? I’m not exactly surprised to hear from such gun-in-your-mouth tactics by Chrysler.

  • avatar

    AKM:

    As home depot customers, employees, and even shareholders know, one doesn’t hire Nardelli to make friends.

    Nor money.

  • avatar
    Terry

    Edward, I have to ask…
    Unless you are a ChryCo supplier, stockholder, employee, etc..who really cares??
    Yes, I see the tax dollar and job loss to communities with plants, and I do feel empathy for those long-term employees who have seen their expectations dashed.
    But it seems to me that automotive life has moved on beyond whatever happens to the traditional Big 3.
    Regardless of the numbers, I envision the Big 3 now as Toyota, Nissan, and Honda. Especially on this particular site.

  • avatar
    menno

    Doesn’t matter what these idiots “want”, because Chrysler won’t last 3 more months, never mind 3 more years.

    First thing that crossed my mind when I saw this was, how in h*** could they reduce parts costs any further? Their interiors are already sub-contracted out to playskool.

    So they’re going to try to do a Wal-Mart and bring in everything from China, I take it?

    Here’s a newflash for you, Mr. Nardelli.

    Commodity costs are up worldwide; doesn’t matter where you produce stuff, commodities to make them with (and energy to run the plants with) pretty much cost the same.

    The US dollar has devalued against the Chinese Rimibi by some 15%, adding 15% to the cost of everything imported from China. Wages in China are on the upswing, and India looks to be a lower cost provider.

    Plus there are shipping issues with a lack of ports and ships to deliver goods.

    Plus, how in heck can you build cars with “just in time” processes with a multi-thousand mile delivery distance from China to Mexico, or Canada or even the US?

    These idiots deserve to fail.

  • avatar
    thalter

    Most of the things Chrysler is offering (30 day lead times, fewer engineering changes etc.) will not reduce the supplier’s cost that much (certainly not by 25%). Unfortunately, I think your conclusions are spot on – More bankruptcies, offshoring, and lower quality.

  • avatar
    OE Supplier Veteran

    Mr Campi may have had success in harvesting low-hanging fruit in his previous job, however, his approach to OE auto illustrates a certain disconnection from reality.

    A few points:
    – Most OE supplier are cracking out the champagne at a 5-point margin (go to NYSE: BWA, pull down some financials, and do the math for one of the most successful parts makers of recent times).
    – Every conceivable input cost is going up; the most basic of inputs, steel, is at stratospheric levels and shows no sign of reversing direction any time soon. Let’s not even talk about petrochemical-based inputs.
    – Suppliers do not necessarily cost in Chrysler’s organizational inefficiencies up front, therefore it is naive to assume that if the Chrysler folks run their business “normally”, all sorts of savings are going to flow to the suppliers’ bottom lines.
    – The bloom is off the rose on many LCC (Low Cost Country) initiatives, with many Tier II/III quotes from offshore now exceeding domestic pricing.

    I understand Mr. Campi has a job to do at Chrysler,and it is true that Mr. Andersson’s consistent and relentless policies have driven cost out of GM over that last number of years. However, Mr. Campi is late to the game and in many cases the cupboard is bare on the supplier side. It just isn’t as simple as mandating a 25% decrease in today’s environment.

  • avatar
    ttac2000

    Robert Farago :
    May 19th, 2008 at 1:05 pm

    AKM:

    As home depot customers, employees, and even shareholders know, one doesn’t hire Nardelli to make friends.

    Nor money.

    To be fair, Home Depot did make a ton of cash under Nardelli. I think he doubled sales and more than doubled income during his time there. The stock price just never reflected it.

    Just sayin.

    Chrysler’s 25% savings goal is the same kind of edict you hear from any kind of poorly run purchasing dept from time to time. 25% cost reductions during the most inflationary time in decades? I’m sure your suppliers will get right on board.

  • avatar
    windswords

    Chrysler needs to SCORE a win in the OEM/supply chain relationship. Apparently all the employees who knew about SCORE left or were shown the door after Dumbler took over.

    http://forums.industryweek.com/showthread.php?t=1544

  • avatar
    turbosaab

    Let me guess, Chrysler is planning on reducing the price of their vehicles 25%.

    oh, wait, nevermind…

  • avatar
    jaje

    Just waiting for the next Plastech scenario to start up. Again Chrysler doesn’t work with suppliers but rather treats them as the enemy.

  • avatar
    picard234

    Suppliers that can will walk away, plain and simple.

  • avatar
    Airhen

    Maybe their main market is going to be China and other developing countries, not the US/ Canada?

    Too bad that they own Jeep.

  • avatar
    OldandSlow

    If Cerberus Chrysler are still in business in three years, look for the number of vehicle recalls to increase dramatically.

  • avatar
    Bancho

    If they just don’t want to build cars anymore then why don’t they just come out and say so?

  • avatar
    folkdancer

    Will the 2.8 please stop making vehicles! All that money tied up in factories and machinery could be better used for making solar panels and windmills. The 2.8 are so far behind in even making light vehicles (the 400 pound heavier Pontiac 2 seater vs Mazda Miata)let alone hybrids and diesels. All the 2.8 are doing is loosing money and tying up investment money that could be better used elsewhere.

  • avatar
    Airhen

    Will the 2.8 please stop making vehicles! All that money tied up in factories and machinery could be better used for making solar panels and windmills. The 2.8 are so far behind in even making light vehicles (the 400 pound heavier Pontiac 2 seater vs Mazda Miata)let alone hybrids and diesels. All the 2.8 are doing is loosing money and tying up investment money that could be better used elsewhere.

    Frankly it’s their money to build what they think customers want to buy. I personally would not care for a car with a windmill on top – nor would Ted Kennedy in Nantucket. ;)

  • avatar
    GS650G

    To be fair, Home Depot did make a ton of cash under Nardelli. I think he doubled sales and more than doubled income during his time there. The stock price just never reflected it.

    They lost money too, and market share, along with 210 million dollars. Bob was the worse thing to hit HD ever.

  • avatar
    eh_political

    It is possible that Chrysler is looking to muddy the waters prior to declaring bankruptcy. By making their situation appear more complex, blaming suppliers for shutting down, etc it draws focus away from poor management decisions, and abysmal product.

    Handouts are inevitable for GM and Ford, maybe not Chrysler. It is just different enough, just small enough, just crappy enough to be made an example of. Convince both the public and the remaining two automakers that there is moral hazard with respect to performing incompetently.

    I think Daimler purged Chrysler of it’s most imaginative execs, and robbed them of the means to mount any sort of product based comeback. Pity. The company has added untold billions to the economies of the US and Canada since the loan guarantees.

  • avatar
    yankinwaoz

    If not, they’ll have to cut prices and eat the loss.

    I’d like to see the gun that Chrysler thinks they have pressed against the temples of their vendors’ skulls. I think the vendors are going to tell Chrysler to stick this “plan” where the sun-don’t-shine. How in the hell do they think they can force a vendor to take a loss, especially in the light of knowing that there is no relief in the short or long term.

    Sometimes, the customer is wrong.

  • avatar
    AKM

    AKM:

    As home depot customers, employees, and even shareholders know, one doesn’t hire Nardelli to make friends.

    Nor money.

    Why yes of course….his money.

  • avatar
    bipsieboy

    these simpletons don’t realize that if they keep shipping american jobs overseas,there won’t be anybody left to by their cars. showroom traffic at our cdj store is horrid. i shudder to think how sales will be with another 30-40k lost jobs in the auto sector.shame on cerberus!!

  • avatar
    oldyak

    maybe,just maybe he has a better grip on costs than we want to hear.
    labor costs in u.s. are still way too high and as a manufacturer, you must look for cost savings where you can get them.
    If you are a supplier and you cant make the product at the cost the manufacturer has asked,you find someone somewhere who will,OR THEY WILL!
    plain old economics boys and girls.
    This company may just suprise you.
    After all,it was we americans who started buying Japanese cars because they were cheap and reliable(good old boys my ass,they all have a toyota now)and now someone comes along and wants to do the same thing…
    AND WE ARE OFFENDED!
    the joke is on us(or:u.s.)
    If they found a supplier or manufacturer on Mars and it worked,we would buy it.
    YOU REAP WHAT YOU SOW

  • avatar
    guyincognito

    I was talking to a rather intelligent MIT MBA the other day. This person exclaimed that they had devised an ingenious way to cut costs at our company. Reduce rework 30%. That was the entirety of the plan.

  • avatar
    shiney

    “If you are a supplier and you cant make the product at the cost the manufacturer has asked,you find someone somewhere who will,OR THEY WILL!” Yeah, that’ll work. There are manufacturing companies making complex 6sigma quality assemblies for nearly free under every rock… The OEM I work for tried something similar to this a few years back. It must have looked great in the power point, and the MBAs involved no doubt patted themselves on the back while recording the paper savings in their management tools – but back in the real world it was a total disaster. Just getting your engineering systems compatible with a new supplier can be a huge undertaking. Manufacturing standards, CAE programs, and tolerance methods, can take many months to sort out and implement. We wound up with delayed launches, product recalls, a new supplier going bankrupt because they couldn’t afford to expand to meet the volume commitments they made, etc, etc, etc,. Basically, a total nightmare. On the good side, the company learned its lesson and has a much more insightful and supplier friendly system in place now. Sadly, in the traditional corporate manner, the executive who really pushed the hard core “tough on suppliers” program through, was promoted for the cost savings while it was still on paper, took a big bonus, then used his new lofty position to blame the eventual failures on the engineers and managers he left behind to implement an unsolvable mess.

  • avatar
    golden2husky

    This plan should ensure that the quality of the product will suck, that the quality of life for Chrysler’s workers -direct and indirect – will suck, those who bought cars hoping for a lifetime warranty will be pissed, and Nardelli will milk out hundreds of millions out of the dying carcass. In other words, the classic short sighted American business model. Nice. All I can add is that America’s fall from the top of the food chain will be painful and swift. Sad, really sad.

  • avatar
    Rix

    I want to say something sarcastic about Chrysler quality. But there’s nothing left to say.

    Cerberus isn’t big enough to wield a stick. Suppliers will just walk rather than take a loss.

  • avatar
    truthbetold37

    The irony of sourcing is that the auto companies building cars in the US tell their suppliers to buy more parts outside the US (or they source tier 1 parts outside the US). These parts are shipped on trucks or boats burning millions of gallons of diesel fuel.

    All the while they tout the fuel economy of their vehicles.

    No one in the media puts 2 and 2 together.

  • avatar
    truthbetold37

    I forgot to add….

    The Purchasing Executives will tell you that low cost country sourcing is a tool to beat down the local suppliers. However when a part is labor intensive, the local source cannot beat the price of the Chinese/Mexican/Other supplier. Ever.

  • avatar
    Jerome10

    Eh, nobody will probably read my post.

    Anyway, this is NOT a Chrysler or domestic auto company issue. Supplier I work for is getting the same requests from our transplant customers.

    Its gonna get U-G-L-Y.

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