Any hippie will tell you what Chrysler is finding out as it tries to kick-start its product development to life: karma’s a bitch. In the pre-bailout era, Old ChryCo held the dubious distinction of having the worst supplier relations in Detroit. Now, for some odd reason, suppliers aren’t wanting to shoulder the cost of developing components for new Chrysler vehicles. The Wall Street Journal reports Chrysler isn’t making any production volume promises for future products (an ominous sign in its own right), which means cash-strapped suppliers aren’t rushing in to spend their money developing parts. “Why would we want to tie ourselves to Chrysler when GM and Ford are a known factor?” asks one interior-component supplier. “We’re already financially strapped so we have to be more choosey in where we will spend our money.” Meanwhile, this supplier recalcitrance is making it hard for Chrysler to plan anything.
Chrysler’s board of directors is waiting on Fiat CEO Sergio Marchionne to present future product plans for the US market, but with no help forthcoming from suppliers, well…
It is unclear whether the board will be able to approve the five-year product plan at this point, however, because Mr. Marchionne’s management team is still trying to work out many of the details of how Chrysler would build the vehicles
Recent estimates show that as much as 60 percent of all auto R&D could be done by suppliers by 2012. Chrysler’s going to have to fix this problem at some point, and until it does its BoD will be waiting impatiently.
“Sometimes dead is better…”
Pet Sematary
I really don’t see any way that Chrysler can be viable.
The three-headed dog continues to maul its victim.
jpcavanaugh :
While it’s still reeling from the savage tea-bagging administered by Daimler…
How much better would GM (and Ford?) be if Chrysler had been allowed to go away?
At least Chrysler is honest about not promising production volumes that they won’t be around to fulfill.
The government might be dumb enough to bailout Chrysler but the suppliers are administering a good old fashion, free-market reality check.
… until the suppliers are told by the US government that Chrysler is “too big to fail”, and so they’d better help out.
Chrysler made it’s bed… now it has to lie in it.
I hope they like the sheets…
The world has operated on greed forever. Suppliers will jump right back in the fire with an over optimistic zeal for the brass ring.
Much as I’d love to see a “lesson” taught here, CyCarConsulting is probably on the right track.
There will be hemming, hawing, and positioning.
Terms will be extracted, but in the end, some will be supplying them.
(The terms may, of course, include someone shoveling money in the backdoor. See: Delphi.)
I’ve thought this for months that when they, GM and Chrysler start production they will have to convince all of their suppliers that they have a business model that works.
They ask suppliers to provide them with the pieces that comprise their vehicles and invest scarce dollars in suspect projects that might not in the long run pay them a profit down the road, when you amortize these investments over years of production and up front dollars huge you don’t bet on the roulette wheel that GM and Chrysler have become.
Those that do sign on with them will want more for their parts and pieces and will put them both at a cost of production disadvantage.
Robert is right.
@Rod Panhard: At least Chrysler is honest about not promising production volumes that they won’t be around to fulfill.
In general there are rarely any volume commitments. However, other manufacturers don’t ask suppliers to bear the burden of R&D, either.
Wrong! When you ask a supplier to spend X dollars you have to prove that you will purchase and pay for enough of X parts at X price and these suppliers make a decision based upon design, price point and their opinion of your ability to pay them back and provide them a profit.
This is not something that either GM or Chrysler can provide right now. The future of both is suspect. In an environment where cash is king those that have will place their dollars with those they perceive have the ability to provide a profit on their investment.
They are tainted goods. They have entered into a class of stock I call “clunk” bond status, lower than “junk” bond status.
Robert’s still right.
I have the feeling the end result is that if they can get anyone to sell them parts, their already shitty build quality will become double shitty.
They won’t want to spend any more on the parts, so if prices are raised they will specify even cheaper junk to keep their cost down.
This is pretty common in the manufacturing world, not just in autos. I would guess that by R&D they are referring to the cost of the tooling. In general, tooling costs are a big issue because they represent huge upfront costs. You can either buy the tooling yourself and keep it at the supplier site, or sign a contract with the supplier to produce a minimum quantity with tiered pricing. Either way, some states charge property tax on the value of the tooling. in Oregon for example over a five year production run property tax would represent 4-5% of investment costs.
I wonder how the situation with GovMo is with suppliers. Until last year they rated well below CryCo (now Fiatsco). Ford improve supplier relations last year but are well below you know who and you know who else.
Bunter
By R&D costs, they mean research & development of components to meet ChryCo specs.
The only way they’re going to get suppliers on-board is to front at least some of the dev costs that would otherwise be hidden in the piece price. The development of many components is quite expensive and suppliers will not survive if they don’t get paid for their engineering costs.
Just wondering how the Workers at various Chrysler plants like there New Uniforms, also heard that the majority of there plants are very dirty in actual and in space, the New Fiat owners want these plants to be ship shape, ahh time will tellI think!
When I worked in the auto supply industry (as a bean counter….don’t hate the playa…)I never understood why the industry didn’t/wouldn’t go to a graduated-pricing model, allowing the suppliers to shift risk to the OEM’s if the OEM’s didn’t hit their volume targets.
One particular negotiation was telling. I worked for a chassis component supplier for Ford, who was to provide the front cross-members and engine cradles for the D3/D219 program. Ford’s buyer came in to negotiate price reductions. Their “forecast” annual production volume was 305k units. In a porcine ocular organ, I politely told him. They’d be lucky to get 200k annual volume.
Since the capital equipment necessary to manufacture these parts was my company’s up-front investment of $15 mill; over a five year run, the difference in fixed cost amortization alone in the piece price was $6 per piece. Before interest.
I asked if there was any possible way for a graduated pricing contract, $X per piece up to a certain annual volume, $Y per piece after that, and so on, so that IF they hit their volume, they got, on average, the price they wanted, everyone’s happy. If they didn’t, everyone shares the pain.
After his derisive chuckle, he explained to me, (in a tone which I am sure was much like he would use to explain to a 6-year old why they couldn’t have a glass of scotch): Silly boy, Ford didn’t do business that way.
Long story short, Ford never did more than 165k units per year on the D3/D219 platform, and my company lost a TON of money taking on the project despite my strenuous warnings to the contrary. The OEM’s idea of “partnering” with suppliers, indeed.
DCX and GM rolled the same way. So my reaction to this karmic bitch-slap by the supply industry to the new Chrysler? “I’m shocked!”….in a Claude Rains, accepting-his-gambling-winnings-at-Rick’s-Cafe sort of way.
“….Mr. Marchionne’s management team is still trying to work out many of the details of how Chrysler would build the vehicles”
I can help him with that: With very poor build quality, that’s how they’ll build them.
;^)
How much better would GM (and Ford?) be if Chrysler had been allowed to go away?
How much better would Ford be if Chrysler and GM had both been allowed to go away? How many American jobs might Toyota, Honda, and the other imports have provided had they been forced to take up the slack that GM and Chrysler left?
It’s a shame, since BD (before Dumbler), Chrysler was number 1 in supplier relations thanks to people like Thomas Stallkammp and programs like SCORE and Extended Enterprise.
Geo. Levecque.
I you want to know what its like at Chrysler’s assembly plants you can visit them virtually here:
http://www.allpar.com/corporate/factories/
The plants in the list still operating are:
Toledo, Ohio Jeep plants
Sterling Heights Assembly and Stamping plants
Conner Avenue Assembly Plant, Detroit
Belvidere Assembly Plant, Illinois
Jefferson North, Detroit
Warren, Michigan
Windsor, Ontario
Bramelea, Ontario
I gotta wonder though if the suppliers aren’t realizing that Fiat is the new dog to feed; IOW, Chrysler is going to be importing its parts and assembling them here like Toyota, Nissan, and BMW do.