Despite Profits, OEMs Still Squeezing Suppliers

Edward Niedermeyer
by Edward Niedermeyer
despite profits oems still squeezing suppliers

One of the major losers in the recent “Carpocalypse” was the supplier sector, which lost hundreds of business to bankruptcy as OEMs clamped down on costs and the government refused to stop the bleeding with an effective bailout. Relationships have re-stabilized over recent months,as both the surviving suppliers and OEMs have swung back to the black, but profits aren’t enough to stop the oldest management profit-inflating move in the book: putting the screws on suppliers. Since the US market doesn’t appear on-track to regain its old 16m annual sales level, suppliers and OEMs can’t simply grow together.

According to several Automotive News [sub] sources, the supplier wars are on their way back:

“A lot of the fundamentals are coming back, and it forces those folks that are watching the dollars and cents to take a longer look at pricing. Purchasing groups are going to come back into the fray and start looking at long-term (purchasing) agreements again.”“As volumes improve and the level of new business awards are ramping up and supplier health is more robust, customers (manufacturers) will naturally return to a more aggressive stance on product price-down, and we see this happening now with our customers.”“You’re going to continually see increased pressure on every program to get the best absolute cost structure in place to make it profitable for both parties,” he said. “OEMs want to get back to investment-grade ratings, and lowering the cost or optimizing the cost is best for both sides instead of artificially pushing prices that will swing margins back to the crisis period of 2009.”Meanwhile, the economy is recovering enough to drive up prices for commodities just as OEMs start crunching on prices, a sure-fire recipe for more supplier bankruptcies. The only silver lining: any supplier company that survived the bloodletting of 2008-09 knows that it has to fight hard to stay in business, and keep its margins healthy. And with overproduction under better control, there may be room on the margins for maneuvering. Still, anytime the OEMs look towards suppliers as a way to improve the bottom line, you know things are going to get ugly.
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  • Lokki Lokki on Dec 07, 2010

    The difference between the American manufacturing model and the Japanese manufacturing model is a fundamental one. The American engineer is taught to think in these terms: "How can I make a component with the same functionality but make it more cheaply?" The Japanese engineer is taught to think: "How can I make a component with the better functionality but not make it more expensive?" Neither engineer ever succeeds completely. The American component gradually decreases in quality. The Japanese component gradually increases in price. However, the Japanese can put a lower cost model below the unit with the increased cost - Think of the history of Honda: Accord as small car, Civic as small car, Fit as small car. The Americans end up with the diminished quality working its way upward through the product line - think Cadillac. Unfortunately, we have taught the Chinese the American model and that is therefore our future as consumers.

  • Vento97 Vento97 on Dec 07, 2010

    Yep, good ol' GM - leaders in the race to the bottom. Another wasted IPO,,,

  • Malcolm It's not that commenters attack Tesla, musk has brought it on the company. The delivery of the first semi was half loaded in 70 degree weather hauling potato chips for frito lay. No company underutilizes their loads like this. Musk shouted at the world "look at us". Freightliners e-cascads has been delivering loads for 6-8 months before Tesla delivered one semi. What commenters are asking "What's the actual usable range when in say Leadville when its blowing snow and -20F outside with a full trailer?
  • Funky D I despise Google for a whole host of reasons. So why on earth would I willing spend a large amount of $ on a car that will force Google spyware on me.The only connectivity to the world I will put up with is through my phone, which at least gives me the option of turning it off or disconnecting it from the car should I choose to.No CarPlay, no sale.
  • William I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.
  • Tassos The Euro spec Taurus is the US spec Ford FUSION.Very few buyers care to see it here. FOrd has stopped making the Fusion long agoWake us when you have some interesting news to report.
  • Marvin Im a current owner of a 2012 Golf R 2 Door with 5 grand on the odometer . Fun car to drive ! It's my summer cruiser. 2006 GLI with 33,000 . The R can be money pit if service by the dealership. For both cars I deal with Foreign car specialist , non union shop but they know their stuff !!! From what I gather the newer R's 22,23' too many electronic controls on the screen, plus the 12 is the last of the of the trouble free ones and fun to drive no on screen electronics Maze !