Chrysler’s annus horribilis (horrible year) after two more or less miraculous years is putting a severe strain on its supplier relations.
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Now comes a new emphasis on purchasing savings. DaimlerChrysler has launched a cost-cutting offensive, sending a German management task force to the United States.
The offensive is dead serious. There is even speculation that CEO Tom LaSorda’s job is in jeopardy.
As part of the plan, Chrysler wants longer-term relationships with its suppliers. But the key element of that effort is price cuts. And some suppliers are starting to push back.
US component makers still maintain that among the ‘Detroit Three’, Chrysler has the most collegial, open-minded and productive working relations. But the company’s over-production and growing financial crisis has begun to put pressure on those partnerships.
The state of supplier relations usually reflects an OEM’s success in the marketplace. Robust production and rising profit margins almost always coincide with generally positive interaction.
Certainly, Chrysler procurement under Peter Rosenfeld appeared to win over many suppliers when sales began to rise in 2004. Rosenfeld was the first of the Detroit Three purchasing chiefs to speak openly about a more collaborative working style with suppliers – and longer-term relationships.
But some supplier executives say privately that Rosenfeld’s efforts are being undercut by slowing demand for Chrysler’s big SUVs and pickup trucks, and even the once fast-selling 300 sedan.
Now the growing impression among suppliers is that the emphasis is no longer on collegial relations and innovation, but on cutting prices – a reversion to Chrysler’s unpopular cost reduction drive under Wolfgang Bernhard six years ago, a power play from which the company’s supplier relations had only begun to recover.
At least anecdotally, the realities of the marketplace have begun to take their toll on Chrysler’s dealings with suppliers. The Wall Street Journal, for one, has reported that the company’s attempts to develop longer-term relations with suppliers are falling on deaf ears. The Journal maintains that two parts makers already have declined to join the cost-cutting effort.
As Chrysler reported a $US1.48bn operating loss, dragging down the parent company’s operating profit to $1,132m from $2,332m, and its vehicle inventories soar sky-high, senior management in Stuttgart has begun to dispatch German executives to Auburn Hills to work on a cost-cutting plan.
The aim of the so-called Project Refocus is to cut the cost base per vehicle by $US1,000. The effort is headed by Mercedes chief operating officer Rainer Schmuckle. The group will study savings in purchasing and other areas. But suppliers are expected to feel the brunt of that effort.
SupplierBusiness.com
