A Blowout of Trust - Firestone and Ford Motor Company

Automotive Industries, Oct, 2000 by Dale Jewett

The Ford-Firestone fiasco is forcing the industry to question the fabric of its OEM-supplier relationships.

Not since the extra-marital antics of Henry Ford II has the auto industry been the divorce proceedings between Ford Motor Co. and Bridgestone/Firestone Inc. Beyond the public bickering, though, the episode is sending shock waves throughout the entire automotive supply community.

This is more than a case of defective tires. The Ford-Firestone battle brings a new focus on the long-debated, often agonizing issue of trust -- or the lack thereof -- between automakers and suppliers. Trust is critical as automakers rely more on their supplier partners to handle development, production, installation and warranty of components, as well as serve as a source of new technologies that can provide a competitive advantage in a crowded marketplace.

The fiasco also raises questions about how far suppliers should go in raising the visibility of their brands to the automotive consumer -- a trend that's on the rise.

No Longer An OEM Problem

Product recalls are a permanent feature of the automotive landscape.

In most of them the automaker alone traditionally takes the bullet; the supplier of the defective component is usually not identified. Last year, the National Highway Traffic Safety Administration initiated more than 36 safety recall campaigns covering several million vehicles. Millions more vehicles were repaired quietly under automaker "customer satisfaction" campaigns -- the so-called voluntary recalls that aren't ordered by the government.

But the unprecedented Firestone recall "highlights some realities in the changes in the relationship between OEMs and suppliers," says Michael Schmall, president of The Planning Edge, a Troy, Mich., consulting firm specializing in supplier branding.

"In the past, it would have been Ford's problem, and that's the way it goes," Schmall notes. But that's no longer the case.

"I think what Ford did to Firestone is an incredibly short-sighted strategy," Schmall adds. "Now Firestone has nothing to lose."

A factor that's helped stoke the Ford-Firestone furor is that unlike more arcane systems on their cars and trucks, the public can easily understand tires and considers them a safety component, note industry experts.

In some ways the Ford-Firestone situation is unique -- tires are the only component on vehicles that are warrantied and serviced separately by the supplier. (One exception: General Motors Corp. handles tire warranty claims on its vehicles built since 1994.) That setup keeps Ford and other automakers one step removed from the tire warranty data stream. For all other components, automakers get immediate feedback from parts replaced.

Ford vows it won't be caught in this situation again. CEO Jac Nasser has already promised his company will seek more in-depth warranty claims data from its tire suppliers.

"If you're a Ford supplier you've got to be worried now," observes analyst Scott Upham, president of Providata Automotive in Ann Arbor, Michigan. "If there's trouble, you're going to be on your own." He says the heat of the battle "got too high for Ford," as it tried to deflect the tire issue away from its breadwinning SUV. With Explorer sales a possible casualty of the battle, the automaker made a "shift in attitude" and took off the gloves against one of its oldest suppliers.

The situation also stands apart because tires are one of the few vehicle components where the supplier's brand name is plainly visible to consumers. Supplier branding is becoming more overt and important, notes a recent survey by The Planning Edge -- particularly with the growth of more sophisticated electronics in vehicles such as telematics. Consumers want to see brand names they know and trust, says Schmall.

While many of the world's largest auto suppliers, including Delphi Automotive, Visteon Automotive and Siemens Automotive, are devoting greater slices of their marketing budgets to public awareness campaigns, most believe they wouldn't face the exact same set of circumstances as Firestone if a severe quality issue or recall emerges.

"Our products are warrantied through the OEMs, and we're heavily involved in the process," notes Bob Ellis, vice president of marketing and brand development for Johnson Controls Inc. The interior supplier markets products under its own name, the HomeLink brand for remote controls and PSI for tire pressure monitoring systems.

Ellis doesn't expect automakers to back off on their efforts to increase branding within vehicles; though, he does expect the bar for suppliers to be raised even higher.

"We've had products in testing that we've found weren't ready and had to pull them back," Ellis says. "You've got to have the integrity to do that. It's a hard decision sometimes, a hard pill to swallow when you've invested a lot of money in a product with high hopes."

Of the lessons to be learned from the Ford-Firestone breakup, the primary one is the need for better communication between OEMs and suppliers, says analyst Upham.