Hardball Is Still Gm's GameJames B. Treece
It's axiomatic in the auto industry that carmakers can't do well these days without wholehearted support from their suppliers. With sales robust, new models coming out, and factories running on overtime, suppliers are strapped to keep up. So how do parts makers feel about working with General Motors Corp.? Here's how one sums it up: "We're not gonna bust our fanny for [GM] anymore."
Call it the lingering legacy of Lpez. A year and a half after controversial purchasing czar Jose Ignacio Lpez de ArriortPound a defected from GM to rival Volkswagen, suppliers are still simmering. GM, which has attacked Lpez in a dispute over trade secrets, still largely embraces his bare-knuckle purchasing practices. As a result, GM's relations with its suppliers remain the worst in Detroit. "There is an anger out there that's palpable," says a consultant.
HUGE SAVINGS. When Lpez first came to Detroit from General Motors of Europe Ltd., he reopened scores of contracts, demanding and getting price cuts of up to 20%. His actions were drastic, but they got results: GM says that by the end of 1993, it had saved a staggering $4 billion in cumulative purchasing costs. Those savings were key in returning GM's North American operations to a breakeven level last year after a loss of $4.5 billion in 1992 (chart). In 1994, the strategy will help the unit post a profit of $1.5 billion.
Car buyers aren't complaining, GM points out. "When you buy a suit, you don't ask who supplied the buttons, you ask is this the right product at the right price?" says Harold Kutner, GM's vice-president for worldwide purchasing.
But suppliers say GM continues to press too hard. An electronics supplier tells of a $30 part he developed jointly with GM. He says that after he slashed the price to $15, the GM purchasing agent demanded more cuts, citing a $9 bid from a Chinese company that had never made the part in question. While he hasn't lost business, Dale Meyering, sales manager at Michigan Rubber Products Inc. in Cadillac, Mich., says GM's frequent quoting and requoting on contracts "makes it difficult for us to plan people, capacity, and equipment more than a year ahead."
Suppliers agree, however, that GM's purchasing staff is no longer as abrasive as during Lpez' tenure. Says James S. Reid, chairman and CEO of Standard Products Co.: "There has been improvement, and GM is making an effort as best they can to rebuild the relationships obviously hurt by Lpez." GM's Kutner confirms that his company has tried to mend hard feelings but adds: "We're not going to violate our process. We're going to be tough and be fair."
Many suppliers still think GM's approach is a mistake. For instance, its multiyear contracts mandate a 5% price cut in the second year but don't include incentives for further cuts. Chrysler Corp. rewards suppliers for cost-cutting through the life of its contracts--and sometimes gets savings of 6% or more. Moreover, with GM's policies, "you don't get any points for responsiveness or quality" above expectations, says Susan Helper, a professor at Case Western Reserve University.
Intellectual-property issues, perhaps more than any others, still upset suppliers. GM says it needs to "benchmark" parts prices to make sure that it is getting the best value for the sake of its customers. So it shows a vendor's engineering drawings to competitors, to see if they can make the part for less. GM says it will not show the drawings to other suppliers if the part is patented or if the original supplier can prove that the drawings are proprietary. But even GM's own Saginaw Div., which makes power steering systems, admits it "cleanses" its drawings of proprietary information before showing them to GM's purchasing arm.
MOSTLY TALK? GM eventually will be hurt by its practices, suppliers say. One parts maker that does approximately $600 million in business with carmakers says it is focusing its efforts on selling to GM's rivals. Other suppliers tell horror stories: how GM's low-bid supplier of an ashtray couldn't deliver acceptable quality last year, delaying the launch of the 1994 Chevrolet Caprice.
To be sure, the suppliers have voiced similar anger before, and some of their most dire predictions haven't come to pass. Still, they note that the auto industry's long lead times mean the full effects of Lpez' policies may not be seen until next year and later--when cars developed using parts sourced entirely under Lpez' watch roll out. Lpez may be gone, they say, but his ghost will haunt GM for years to come.