It's Not Business. It's Extortion

Automotive Industries,  March, 2001  

• E-mail
• Print
• Link

"As a member of the OEM supply base, I must concur wholeheartedly with your December, 2000, column..."

"It was refreshing to see someone finally take a strong position, recognizing what the OEMs are -- and have been doing to their suppliers...".

"While bonuses are paid out at the OEMs, the big Tier 1 conglomerates wilt operate marginally and the little guys will be buried or bought up..."

"You have hit the nail on the head, sir. (The situation) is reminiscent of 1991 and Mr. Lopez..."

"The OEMs are going to kill the free market system that they have taken advantage of for years..."

I expected our readers to react strongly to publisher Andy Cummins' December 2000 column, entitled "Price vs. Quality: What Gives?" But I wasn't prepared for just how strong your reactions would be. Since Andy's piece ran four months ago, we've received nearly 100 letters, ranging from one-sentence kudos to multi-page opuses. The letters are still coming in, which means the page is being photocopied and circulated widely.

In my many years of indentured service on this magazine, no single opinion piece we've run has even come close to igniting such a firestorm of feedback. And almost unanimously, you've agreed completely with Andy's premise -- that the quality of your products and, ultimately, the vehicles they go into, are bound to suffer under greater supplier-cost squeezing. The five excerpts from your mail included above indicate the depth of your feelings on this explosive issue.

"What is frustrating is when a manufacturer asks you for a cost reduction, then doesn't help you reach it," said Nissan President Carlos Ghosn in an interview with us last month. Ghosn worked in the supplier ranks for 18 years and has felt the squeeze. But according to our mail, the "partnerships" that OEMs regularly brag about only exist among a few automakers and their supply chains, most notably the Japanese. Readers tell us that their customers usually give them no choice. Purchase orders are amended, sometimes without warning, to reflect newly slashed prices.

Another flash point is the disparity between the cash-rich OEMs and their cash-poor vendors. The Tier 2s and 3s we interviewed in the Supplier Roundtable (page 27) are $300 million to $1.1 billion companies; none have any real cash on hand.

Indeed, cash flow is a constant struggle for many privately-held suppliers. One of them asks, "How does anyone justify pressuring us to cut wages of people making under $10/hour when you consider the wage scale of our customers?" No one, hopefully, who is concerned about a reputation for quality.

Yet some readers claim OEMs are hinting they will use QS9000 registrations as a lever to force lower prices on their suppliers. In other words, if you like that Q1 banner flying over your plant, you'll eat more cost. One reader describes the situation this way: "It's not business. It's extortion."

Your prolific, passionate letters prompted us to load the editorial gun and take aim again. We're devoting the lion's share of this month's Automotive Industries to the price-cutting debate. Executive Editor Gerry Kobe fires the cover-story shot. Our regular columnists address the topic in their respective areas of expertise.

Tackling controversy is what Gerry does best, although this month's topic was no easy tackle. Many people who were quite enthusiastic about talking to him during initial conversations quickly got cold feet when Gerry called back for on-the-record interviews. The bail-outs included OEM vice presidents and global Tier 1 honchos. Of course, the smaller the supplier, the more they fear retribution.

It is a customer's right to demand price reductions and shop for the best deals in price, quality and technology. It is also a supplier's right to choose what price, etc., they wish to offer. The battle is joined on page 26. Vehicle buyers can only pray that quality is not a victim of the crossfire.

Lindsay Brooke is editor-in-chief

COPYRIGHT 2001 Diesel & Gas Turbine Publications
COPYRIGHT 2008 Gale, Cengage Learning