Carmakers Pinching Suppliers Costs Billions in Profits

Aug. 4 (Bloomberg) –- Bloomberg’s Craig Trudell reports on the strong auto sales in July that may help give automakers their best year in 8 years. He speaks to Angie Lau on Bloomberg Television’s “First Up.” (Source: Bloomberg)

The six largest U.S. automakers in the U.S. could have earned $1.4 billion more last year if they had improved their relationships with suppliers, a study shows.

The carmakers would have received such benefits as more advanced technology and dedicated supplier resources, better communication and quicker time to market, according to Planning Perspectives Inc., which conducted the research. In the case of General Motors Co., operating profit might have jumped by as much as $152 per vehicle, or about $400 million for the year.

As little as a 10 percent improvement in an automaker’s working relations with suppliers would have increased profit by at least $58 per vehicle, said Planning Perspectives. The firm conducts an annual study gauging the relations between the automakers and the companies that supply more than two-thirds of the parts, components and technology that go into a vehicle.

Ford Motor Co. (F), GM and Chrysler, now part of Fiat Chrysler Automobiles NV, lag behind their Japanese competitors in the annual survey, said John Henke, chief executive officer of Planning Perspectives in Birmingham, Michigan.

“GM, for example, they’re talking about cultural change; this is where cultural change has really got to take place, in the purchasing and engineering area,” Henke said in an interview. “Same thing with Chrysler. Ford, too. They’ve been languishing. For the last several years, nothing has really changed.”

Chrysler Miss

Chrysler, for example, would have earned $24 billion more in profit from 2000 and 2012 if the company worked with suppliers better, according to Planning Perspectives’ analysis. The Chrysler total excludes 2008, Henke said, when the automaker under Cerberus Capital Management LP lost more than $3,000 a vehicle.

Those years for Chrysler represented multiple owners, including the then-Daimler-Benz AG, which acquired Chrysler in 1998. Cerberus bought 80 percent of the automaker in 2007. Fiat began acquiring Chrysler in 2009 as part of a government and labor-union bailout of the U.S. automaker.

Relations with suppliers account for 51 percent, on average, of the automakers’ profit per vehicle. As little as 5 percent of the portion comes from suppliers agreeing to lower prices when relations are particularly good, Henke’s analysis showed.

The Japanese automakers’ lead over Detroit in Henke’s supplier relations survey is much less than it was a decade ago, when the difference helped explain the market-share gains coming at the expense of the U.S. companies. The study, now in its 14th year, asks suppliers in North America to rate their interactions with automakers.

The survey asked companies supplying parts to carmakers to rate their interactions across six major purchasing areas, including chassis, powertrains, exteriors and interiors.

To contact the reporter on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Bruce Rule, John Lear

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