Yes, that is what I’d truly like to be. For if I were a big GM supplier, they’d pass the big old savings on to me. And if that doesn’t make you want to break into song, you’ve never dealt with a Mr. Bo Andersson. Yes, now that Andersson has taken his fight to make the world a less cheerful place to Russia (where such causes are far better rewarded), GM’s supplier relations are going swimmingly. Andersson’s replacement, Bob Socia, has told GM’s suppliers that under his benevolent reign, GM purchasing will split any future cost savings on parts even-steven with the supplier. Of course, it’s up to the supplier to come up with the cost savings, but c’mon. Really. Just, c’mon. “We think this decision will help generate enthusiasm in the supply base for doing business with the new GM,” say GM spokesfolks. And guess what? They’re right! [via Automotive News [sub]]
So Bizcorp Companyco figure out how to take 50¢ out of the unit cost of mufflers for GM cars. The new unit price is $5.25 down from $5.75. GM will split the difference and pay $5.50. Okeh, so far so good.
What’s to stop the supplier from taking 50¢ out of the muffler and saying “Great news, GM, we’ve figured out how to take 25¢ out of your muffler!”? Unit price $5.50 down from $5.75; GM split the diff and pay $5.63, which means Bizcorp Companyco have effectively clawed 76% of the cost reduction back outta GM’s pocket.
This is the back story that will haunt General Motors and Chrysler going forward. There are many suppliers that were left behind in the “old” and now we have no money to pay you corporations which inhabit Detroit.
These companies lumped into the bad side of the balance sheet have either gone out of business or have moved on to doing business with more stable companies that they see as having the ability to pay on a timely basis for parts delivered.
What about all of the tooling that these companies hold in their factories that GM and Fiat need to produce items that they require to complete the build process and they will want to be paid before they release anything the getting smaller to need.
What is TTAC opinion on this?
I wonder if it will go more like GM says to supplier “We are lowering your price this month to $5.50 from $5.75 and we wish you good luck in locating another $0.25 in savings and if you find it you can keep it. However we must be notified so we can properly plan our next price reduction.”
Daniel J. Stern : What’s to stop the supplier from taking 50¢ out of the muffler and saying “Great news, GM, we’ve figured out how to take 25¢ out of your muffler!”?
Umm…really detailed requirements? Which almost never exist???
“What’s to stop the supplier from taking 50¢ out of the muffler and saying “Great news, GM, we’ve figured out how to take 25¢ out of your muffler!”? Unit price $5.50 down from $5.75; GM split the diff and pay $5.63, which means Bizcorp Companyco have effectively clawed 76% of the cost reduction back outta GM’s pocket.”
Open book part costing is what stops that. Yeah, I know, it ain’t fair.
On the other hand if the supplier makes a change to a part then it will be with the help of GM’s design team (often), and it will cost GM money to validate the change and get it into production. So you have to split the cost save up somehow, and recognise that both parties incure costs in doing it. Incidentally GM would often be billed for any tooling chages there.
Actually I think this sort of deal is pretty standard, rather than some insidious plan. From what I have heard, not having worked directly in major auto manufacturing but having had bosses who had formerly worked for Ford/Delphi/Visteon it was typical for automakers to say “this is the price for year 1, after such time you reduce cost x% per year, your problem figuring out how to make it happen.” More sane companies do a deal similar to what Mr Socia is discussing where costs savings are slit up. GM does indeed incur major costs in validation of a supplier design change. They have detailed reports of suppliers’ operational flows and keep tight reins on any material/process/design change of their purchased parts. Any change must be tested and validated. Failure to do so can easily result in a recall or other field issue.
@ Greg Locock
“Open book part costing is what stops that. Yeah, I know, it ain’t fair.”
It’s only not fair when the open book shows a loss and GM doesn’t give a shit. I’ve worked with a directed Chinese supplier who didn’t realize that their initial quote should include such things as cost of PPAP, additional packaging, holding inventory when GM’s schedule changes, etc.
GM’s response:
“We assumed you included all that in your quote. There will be no discussion on any of these issues and under our T&Cs you must continue to supply parts for the life of the program.”
This was year one of a supply agreement that included a 4% annual reduction.
I’ve also seen them source a supplier with a price so incredibly low that it has to be impossible. That supplier went bankrupt before launch and they rolled the business into an existing supplier at the same price with the threat of removing all other GM business if they didn’t agree.
In my experience, GM Purchasing’s ethics are last on the list of OEMs.
Funny how after losing 60% of their market share (read: purchasing power) they suddenly feel the need to be nicer to those they previously bullied.
During my employment at an automation supplier GM stood for “Generous Motors”. Typical tactics from GM purchasing included such gems as a fax saying “as part of our cost saving measures we are now going to pay you 90% of the value of your contract”. You can bet the “new” GM will determine the cost savings and cram it down their suppliers’ throats. My employer stopped quoting to GM in 2003 and went bust the year after. Lucky for me since I was well clear of the industry by the time it all came crashing down, but I got me a double dose of hate for GM, the product is inferior AND they’re arrogant jerks to deal with.
As if.
GM regularly pistol-whips its suppliers just for entertainment as many a former supplier will tell you. Nonetheless, there never seems to be short line at the door to sell them goods and services.
Let me add a few things:
1. With so many companies willing to do business with them, GM has gotten the idea in their head they are a desirable company to do business with and therefore they are being too generous with the suppliers. Time to exert pressure on these overpaid, unwashed companies.
2. The companies lining up at the door usually do not know their true, extended costs. What they have calculated is commonly one-third short
3. These people do not suspect what GM has written into the details. What they do read, they believe it means something other than what it actually reads.
4. Companies risk the company buying the tooling to fulfill the contract. The final piece is just being put in place when GM starts showing them contracts from other companies that are willing to supply the parts for 20-30 percent less. The hell with the contract, either drop the price or the contract is cancelled.
Anyone who wants to be a supplier to General Motors has never been a supplier to General Motors.
CarPerson +1