Forster's Epiphany: The Suppliers Make All the Money

Bertel Schmitt
by Bertel Schmitt

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
Bertel Schmitt

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=""> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href=""> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Joeaverage Joeaverage on Sep 17, 2009

    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.

  • Anonymous Anonymous on Sep 17, 2009

    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.

  • 3SpeedAutomatic Once e-mail was adopted by my former employer, we were coached about malice software as early as the 90's. We called it "worms" back then.They were separating the computers that ran the power plants from the rest of the system in the early 00's. One plant supervisor loaded vacation pictures from a thumb drive on his work PC. His PC was immediately isolated and the supervisor in question was made an example of via a disciplinary notice. Word spread quickly!!Last I heard, they still had their own data center!! Cloud Computing, what's that?!?! 🚗🚗🚗
  • 3SpeedAutomatic At this time, GM had a "Me Too" attitude towards engine development:[list][*]the Euro luxury brands have diesels, so can we via an Olds V8[/*][*]variable value timing, welcome to the brave new world of Cadillac V8-6-4[/*][*]an aluminum block V8 engine via the HT4100, the go-go 80's[/*][*]double overhead cams, 4 valves per cylinder, no sweat, just like the Asian brands via NorthStar. [/*][/list]When you mindset is iron block and cast iron heads, life if easy. However, each time, GM failed to understand the nuances; intricate differences; and technical difficulty in each new engine program. Each time, GM came away with egg on its face and its reputation in ruin.If you look today, the engines in most Cadillacs are the same as in many Chevrolets. 🚗🚗🚗
  • 3-On-The-Tree I don’t think Toyotas going down.
  • ToolGuy Random thoughts (bulleted list because it should work on this page):• Carlos Tavares is a very smart individual.• I get the sense that the western hemisphere portion of Stellantis was even more messed up than he originally believed (I have no data), which is why the plan (old plan, original plan) has taken longer than expected (longer than I expected).• All the OEMs who have taken a serious look at what is happening with EVs in China have had to take a step back and reassess (oversimplification: they were thinking mostly business-as-usual with some tweaks here and there, and now realize they have bigger issues, much bigger, really big).• You (dear TTAC reader) aren't ready to hear this yet, but the EV thing is a tsunami (the thing has already done the thing, just hasn't reached you yet). I hesitate to even tell you, but it is the truth.
  • ToolGuy ¶ I have kicked around doing an engine rebuild at some point (I never have on an automobile); right now my interest level in that is pretty low, say 2/5.¶ It could be interesting to do an engine swap at some point (also haven't done that), call that 2/5 as well.¶ Building a kit car would be interesting but a big commitment, let's say 1/5 realistically.¶ Frame-up restoration, very little interest, 1/5.¶ I have repainted a vehicle (down to bare metal) and that was interesting/engaging (didn't have the right facilities, but made it work, sort of lol).¶ Taking a vehicle which I like where the ICE has given out and converting it to EV sounds engaging and appealing. Would not do it anytime soon, maybe 3 to 5 years out. Current interest level 4/5.¶ Building my own car (from scratch) would have some significant hurdles. Unless I started my own car company, which might involve other hurdles. 😉