“Was uns nicht umbringt, macht uns härter.” Martin Winterkorn’s may not have quoted Freddy in his speech at the International Zulieferer Börse (IZB), related to us via Automobilwoche [sub]. But the CEO of Volkswagen’s theme was clear. “Don’t panic!” Winterkorn said (in German). VW will emerge from the crisis “stronger than ever.” Winterkorn pointed to growth markets such as China– which did little to calm suppliers’ fears (unless they were Chinese). “In China, 100 million people have a driver’s license,” VW’s capo di tutti capi said. Correct. “Only 10 million have a private car,” he added. Wrong. As a matter of fact, nobody really knows how many private cars there are in China. Gasgoo.com once had two numbers in the same article:  “The total number of private cars in China jumps 32.5% to 15.22 million units by the end of 2007,” Gasgoo wrote.  A paragraph later.. “35.34 million are private cars, an increase of 20.8% from one year earlier.” It’s easy to get confused in China. But if VW, China’s largest auto manufacturer doesn’t know the market’s size, who does? OK, now you can panic. [NB: the IZB is an ingenious cost-cutting measure of VW Purchasing whereby parts suppliers meet in Volkswagen’s Autostadt— and pay for the privilege.]

Thanks to the global economy’s stomach-churning loop-the-loop, demand– and prices– for auto-related commodities like steel and oil are dropping. For the moment anyway. Automotive News [sub] reports that the downturn in commodity prices couldn’t come at a better time for profits-challenged automakers, who will finalize supplier contracts this December. By locking in a lower price now, automakers will put the onus on suppliers to renegotiate if commodity prices go back up over the next year. Hear that? It’s GM VP for purchasing and supply chain Bo Andersson rubbing his hands and cackling maniacally. Andersson plans “a different mix of contracts with steel makers in a bid to get lower prices for 2009,” despite supplier concerns that the cost of raw materials such as coke and iron ore have not fallen as rapidly as the price of finished steel. Bottom line?

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TTAC called this back in January, when we first heard reports that construction had stopped on a $530m Getrag transmission plant in Tipton, Indiana. The factory was designed to crank-out DSG-style (dual clutch) transmissions for the Phoenix V6 engine program. Our initial instincts were correct: Chrysler has cut bait on the deal. ChryCo’s official FOAD came despite (because of?) the fact that they’re suing Getrag for breach of contract. Chrysler alleges the supplier failed to raise an agreed $300m in debt financing to build the plant. “Getrag said on Friday Chrysler had rejected a financing structure it offered with banks,” Reuters reports. “[The arrangement] required Chrysler to secure some of their obligations under the supply agreement.” Translation: Chrysler refused to guarantee factory finance with its assets. “Getrag is still evaluating its options in light of Chrysler’s decision… It also said it would seek reimbursement from Chrysler for expenses incurred by Getrag and its suppliers in the project.” Good luck with that.

Chrysler uses Getrag DSG transmissions in its Euro-market Journey, Avenger and 300C offerings, They’d planned on offering them on its American models as well. So much for that, at least for now. Chrysler is suing Getrag in Michigan for failing to raise $300m in debt financing for its new factory. Automotive News [sub] reports that the Tipton plant is the victim of a complex partnership disagreement that has delayed the 2009 production date and, now, casts the entire project into question. Like many a lawsuit, the conflict defies simplification, but Automotive News condenses it thusly: “The complaint says that Chrysler had agreed to a price increase on the transmissions to get Getrag to sign a definitive agreement for the project. Getrag had balked at the agreement and briefly stopped work at the construction site in December 2007, the lawsuit says. Chrysler alleges that Getrag had assured Chrysler that it could raise the debt financing. The lawsuit says Getrag did not make a good faith effort to get the money.The lawsuit indicates that Getrag had sought to line up the money from German banks as long as it was guaranteed by the German government. Chrysler argues that it should have been informed of that condition before signing the definitive agreement. As it turned out, the German government would only guarantee the debt if Chrysler set up a $300 million escrow account to assure repayment, the lawsuit says.” Simple.

Delphi has been lingering in Chapter 11 for nearly three years now, with little relief appearing on the horizon. Automotive News (sub) reports that the GM spinoff has filed a new reorganization plan, which appears to more realistically reflect its predicament. In the new filing, Delphi’s worth is estimated at $7.2b, down significantly from the $12.8b value the firm was said to carry at the beginning of this year. With its only investor, Appaloosa Capital, having bailed, Delphi needs to raise $3.75b in order to emerge from bankruptcy. But that number doesn’t reflect the fact that the new plan calls for GM to make a $10.6b investment in its parts maker, including taking over $3.4b worth of pension obligations. In other words, GM must sink more money into Delphi than the part supplier is worth or risk a supply shortfall since other firms won’t touch Delphi’s GM contract pricing. And it’s not like GM has tons of cash just sitting in the bank to bailout its spinoff. This is where GM’s cash burn and supplier cost-shuffling come together to put the General between a rock and a hard place. There’s no word on if, when, or how GM is going back its struggling supplier, but a hearing is planned for October 23 and a final ruling should arrive by December 17. GM needs $10.6b by then to prevent its entire business from crumbling. Otherwise, Delphi goes to Chapter 7 while GM begins a bankruptcy court adventure of its own.

State Department “undesirable” and reportedly mobbed-up Russian oligarch Oleg Deripaska has given up his 20 percent share in contract manufacturer and supplier Magna International. Marketwatch reports that Deripaska had bought into Magna in order to reap expertise in developing his own Russian-based automotive empire, but the credit crunch has him backing out. In fact, Deripaska had laid his 20m Class-A Magna shares as collateral for their purchase, and thanks to major retreats in the Russian stock market, Deripaska is simply walking away from his $1.54b investment. Magna stock has dropped 45 percent since Deripaska bought in, further exasperating his position and forcing his Basic Elements holding group to repritoritize. Meanwhile, Magna is happy to have had the opportunity to gain access to Russia’s auto manufacturing market, through the Deripaska-owned GAZ Group. Though Deripaska’s stake in Magna will be sold off by an unnamed creditor, collaboration could continue between the two firms. “We believe that the Russian market still holds significant opportunities for us and intend to continue to pursue joint opportunities with Russian Machines and GAZ, as well as other opportunities to advance our position in Russia,” says Magna co-CEO Siegfried Wolf.

Take that, GM. Formerly-sick car company Mitsubishi Motors has a working electric car; they’re already testing a fleet of a few hundred units in Japan. The Mitsubishi innovative Vehicle promises a 75mph top speed and a 100 mile range. It’ll take seven hours to recharge the battery using a normal socket (220V). If you’ve got high voltage, figure an 80 percent recharge within 30 minutes. Being a totally new car, the iMiEV benefits from the packaging advantages inherent to electric propulsion. The Li-Ion batteries are located beneath the passenger department, and the small electric engine is rear-midships. Thus, despite a sub-four meter’s length, it’s roomy enough for four. The Innovative Vehicle’s interior is airy but spartan/simple– no expensive materials for a lightweight car that wants to be affordable for commuters. I could only take the Mitsu EV for a few-minutes’ spin in a parking lot, so I can’t verify any of company’s range or speed claims. But acceleration is strong, smooth and silent, the steering is pleasant, and it brakes in a solid fashion. It feels like a proper, developed car, not like a prototype. No magic-year nonsense; commercial sales will begin in 2009. If Mitsubishi can keep their performance promises, this one’s a winner, at least for urban early adopters.

While Chrysler plays hardball with its suppliers, Ford is reforming its supplier relations by sharing technology and standardizing components. Automotive News (sub) reports that Ford will share a variety of its intellectual property with minority-owned suppliers in hopes of developing new products and commercial uses for them. Among the first suppliers to receive assistance in the Joint Technology Framework are Dakkota Integrated Systems, Flex-N-Gate, Gonzalez Production Systems, Grupo Antolin Wayne and Prime Wheel. “We need to support our minority- and women-owned suppliers in moving toward a business model that competes on technology, in addition to cost,” said Tony Brown, Ford VP for global purchasing. The program aims to allow those suppliers “to attract the engineering talent and new sources of capital to migrate these technologies to the next level.” Ford is also attempting to standardize European and American products by sharing as many components across markets as possible. The forthcoming US-market Fiesta will share 78 percent of its parts with its European cousin, while the US Focus will share 90 percent of its parts with the Euro model. Unifying product strategies helps Ford not rely on the approved $25b bailout loans, says Brown. “Our product plans are funded,” Brown tells Automotive News (sub). “None of Ford’s product plans hinge on it.”

Though Chrysler gets special attention from us for its supplier-gouging, the practice of sticking parts makers with cost increases is basically an industry standard. As further evidenced by a Bloomberg report that bankrupt supplier BHM is filing to be released from an unfair (it claims) contract with ToMoCo subsidiary Toyota Boshoku. BHM sells vehicle seat-frame components to Toyota Boshoku, which has refused to increase payments in line with an 80 percent rise in steel costs this year. “The supply contract is so unprofitable that the debtors’ continued performance on the current terms cannot be justified,” says BHM in its bankruptcy court filing. The firm had requested a new pricing schedule in June, which Toyota Boshoku has rejected. Interestingly, Boshoku may be facing pricing pressure of its own. BHM components go into vehicle seat frames that Toyota Boshoku manufactures for Chevrolet’s HHR hatchback. GM has not commented on the case, but the facts prove two imutable truths about the industry. First, that everything and everyone in the biz is connected, and second that every OEM would just as soon see suppliers go under as raise their own costs. Be they Chrysler, GM or Toyota.

Supplier relations in Detroit continue to take a beating, thanks to the OEM’s insistence that parts makers can simultaneously cut costs and deliver higher quality. And nowhere has that strategy been so fully embraced and/or embarrassingly revealed as a pipe dream than at Chrysler. Under the Cerburian fist of John “win-win proposition” Campi, Chrysler has squeezed suppliers into bankruptcy while continuing to rank at or near the bottom of most quality ratings. And now it seems the Campi-led attempts to squeeze money from nothing (and his chicks for free) have conjured-up yet another egg on the Pentastar’s face. Automotive News [sub] reports that Chrysler paid consulting firm Accenture “at least” $7.7m as part of its “Project Magellan” aimed at uncovering $900m in savings by identifying suppliers in India and China. But Chrysler “saw virtually no savings,” from the project. An enraged Campi is suing the Arthur Anderson spin-off, claiming “Accenture demonstrated virtually no experience in identifying low-cost-country suppliers for the automotive business and had no knowledge of the supply base in China or South America.” So why did Chrysler pay Accenture in full for services rendered? Since Campi took over after Project Magellan fell apart, he couldn’t answer that question. How about this one: Why should our tax money be used for low-interest loans to automakers to create U.S. jobs when these same automakers are so damn busy outsourcing jobs to Mexico, Canada, China, South America, etc.?

Even before GM spun off parts maker Delphi in 1999, critics questioned the new company’s viability. Delphi depended on GM’s business for its survival. While bean counters talked-up diversification, new markets, etc., the 800-pound General in the room wasn’t going away– especially with all the GM-obligatory Delphi-related job, pension and wage benefits secured by the United Auto Workers. And GM’s need for parts. Since then, Delphi done well abroad and lost money hand-over-fist in the U.S. And so Delphi failed, filing for bankruptcy protection in 2005. But here’s the thing: GM wants Delphi to survive as is. The money they’re proposing to pour in– $650m loan agreed, $300m more proposed– seems a good money after bad mistake. Until you realize that a semi-viable Delphi guarantees the ailing automaker a supply of mission critical parts at a price they like. That’s right: $950m (and the rest) is less expensive than paying full freight for Delphi’s parts, which cost GM $3.12b in the first half of 2008. If Delphi goes into Chapter 7 (liquidation), GM’s either going to have to buy out the factories that make their stuff (with what money?) or face a more “realistic” pricing structure from the factories’ new owners. What’s good for GM isn’t good for Delphi’s investors and creditors, and don’t they just know it. “A group led by Highland Capital Management LP said in a letter to Delphi’s board of directors that the new financing by GM would benefit only GM while stripping worth from creditors imperiled by Delphi’s continuing massive losses in North America,” Automotive News [sub] reports. And there you have it. Until you don’t. Delphi’s Chapter 7 is coming; it could well be the straw that breaks GM’s back.

Since taking over as Chrysler's purchasing boss in January, John Campi has whipped the Cerburian dog into an appetite for hardball supplier tactics. And the pressure to hoist the black flag and begin slitting throats is coming from Cerberus, who have mandated a $1k per vehicle cost reduction within three years. Automotive News (sub) details Chrysler's nasty legal battles, from the shockingly crass Plastech debacle to (relatively) petty suits against giant firms like Magna and JCI. When asked about his law-firm-fueled approach, Campi talks a blunt party line. "I will work with every supplier I can in a collaborative fashion to help them become profitable and help us. "But we don't have the wherewithal to prop up a supplier simply to keep them running. I won't do it." And oil, steel and plastic price hikes be damned. Supplier lawyer Fred Smith of Warner Norcross & Judd characterizes Chrysler's negotiating style as "we don't care who is at fault, you will contribute; give us money if you want to maintain a parts relationship." Acknowledging that several suppliers have threatened to stop production over price negotiation, Campi has only tough talk for the malcontents."If a supplier wants to push us because of their fear, then they are violating the contract in place, and I will take the necessary action," he glowers. "And I say, I'm not going to let you shut down production. If you're serious about this, you have to live with the legal consequences." But, after showing off all the lawyers in his Rolodex, Campi seems to remember that Chrysler has to at least appear to care about its middle- to long-term, and pledges "equally shared benefits." Meaning there's plenty of nothing to go around.

Why would Delphi's bondholders sue GM in Manhattan court to prevent a $300m cash infusion? Because Highland Capital Management and other bondholders fear GM's "undue" influence over the bankrupt parts supplier. [NB: the $300m is on top of an existing $650m loan.] In other words, GM's money could give it the leverage it needs to prevent its former division from selling off profitable bits of Delphi. Like, say, the parts of Delphi that supply the GM corporate mothership with parts. GM control would also mean that the artist formerly known as the world's largest automaker could forestall a Delphi Chapter 7, should the bondholders decided that the jig is up. "It is merely a band-aid (albeit an enormously expensive and porous band-aid),'' the bondholders told Bloomberg. "It is a truism that borrowing to fund losses is a loser's bet.'' You want to talk about cash burn? "Highland and other bondholders said in the objection to the additional financing that Delphi used more than $960 million in net cash to fund operating activities in just the first six months of 2008." Anyway, bankruptcy judge Robert Drain approved a $5m company payout for the legal costs of defending former Delphi officers and employees from lawsuits related to pension funds and the bankruptcy.

You'd think "just-in-time" production techniques wouldn't extend to, say, Korea (Aveo) or China (Equinox engine). But you'd be wrong. And The National Association of Automakers view new anti-terrorism legislation– that's been six years in the making— as a threat to their business. "The U.S. Customs and Border Protection Bureau wants shippers to collect 10 new categories of data for U.S.-bound cargo 24 hours before it's loaded on ships in foreign countries," The Detroit News reports. "As well as to provide data about the physical location of cargo aboard a U.S.-bound vessel and status messages that report container movements… Automakers say the rule could upset the delicate 'just in time' shipping of parts to arrive at auto factories as they are needed for vehicle production, which saves the companies the cost of stockpiling parts… The automakers argue the rules would do little to make the country safer." And might be extended to Canada and Mexico. "Automakers argue in their letter that 'there is a better way,' saying that CBP [Customs and Border Protection] should focus 'on importers, exporters and countries that pose a risk.'" Isn't that exactly what they're trying to do?

CNNMoney reports that Chrysler has filed suit against Johnson Controls for "systematic and deliberate overcharges." The ailing American automaker claims the world's leading battery supplier "provided fictitious weight data under the guise that it could charge Chrysler more for the amount of lead used in its battery products. Chrysler had agreed to pay more to cover increasing lead costs." ChryCo's seeking to claw back $15m from Johnson. Or it could be trying to ensure that none of its suppliers gets too "feisty," in terms of demanding cash-on-the-nail for their goods or services. Or both. Or maybe Chrysler's Cerberusian masters reckon there's gold in them thar lawsuits. The Times of India intimates that Mahindra and Mahindra are looking to pay-off settle with Chrysler re: the Jeepish front grill on the Indian automaker's Scorpio SUV.