USA: 'Pay to play': Visteon makes new demands on its suppliers - BRG
Automotive Newswire from BRG Townsend, Inc. reports that if it's hard being a Tier I supplier today, being a Tier II supplier to Visteon just got tougher.
BRG reports that Tier I Visteon has told its plastics parts suppliers that in order to do business in the future, suppliers will have to buy the business with a commitment to cut prices a minimum of 6% per year for five years and then pay an up-front check for the first year's reduction and portions of future year reductions.
If you think most suppliers will not be able to meet those terms, you're right. And that's what Visteon is betting on. Since gaining its independence from Ford Motor, Visteon has said it wanted to reduce the number of suppliers it had and recently the company confirmed in letters to its suppliers that it will choose only two or three supplier firms per business segment.
According to Bloomberg News, Visteon hopes to cut its supplier base from 2,500 to 500 over the next five years. That shouldn't be too difficult as there are not too many injection moulders that can afford the dues for "pay to play." Injection moulders that have attempted to balance their business with automotive moulding along with appliance, electronics, or other types of moulding will find it difficult to play. Supplying Visteon successfully will become a full-time, totally dedicated operation working on high volume and narrow margins. In years when sales are good, moulders will do well. In bad sales years, companies will be devastated.
Consider the injection milder quoting on a part for a 2004 model today. With oil prices as volatile as they have been in 30 years and resin prices rising twice a month in some cases, it's virtually impossible to accurately quote a part, much less guarantee a 6% cost reduction.
Visteon, of course, may be forced into adopting this type of business model by its major customer, Ford Motor Co. As always in Detroit, there are a lot of hills, and stuff seems to roll down them.