If automakers are going to meet financial challenges that loom ahead, such as a drop in forecasted sales, they will have to work more closely with their suppliers given OEMs spend 70 percent to 80 percent of their revenue on parts, components, and materials, says a new study released today by Planning Perspectives Inc., a Birmingham-based consulting firm.
“Going forward, automakers will have to invest heavily in new resources and training programs to improve their working relations with suppliers because suppliers have a significant impact on an automaker’s profits,” says John Henke, president of Planning Perspectives. “Currently, this investment isn’t happening across the OEMs with sufficient focus.”
Henke says the study finds General Motors Co. was the only automaker to improve its working relationship with suppliers, putting the automaker in fourth place, ahead of Nissan. Toyota and Honda are the two traditional leaders, followed by Ford Motor Co.
“At a time of record profits when the automakers should be investing in building more collaborative relations with their suppliers, the major indicators of this year’s study suggest this isn’t happening,” Henke says.
He says Nissan and FCA are ranked in fifth and sixth place, respectively, and are on trajectories that don’t bode well for either company. For both, the percentage of buying situations the suppliers rank as being very poor/poor is increasing, while the percentage ranked good/very good is falling, and has been for several years. At GM, very poor/poor buying situations are declining, while good/very good relations are flat.
“Overall relations at Nissan have been essentially flat since 2008, followed by a significant drop in the past two years, while Ford relations have been flat with very little improvement since 2010,” Henke says. “The flat Toyota and Honda relations this year is somewhat surprising given their steady improvement since 2013.”
The study also looks at how automotive companies work to build trust with suppliers. Henke says buyers at GM are considered by suppliers to have improved in working to build more trusting relations with them. Buyer rankings at FCA, Nissan, and Ford have been declining in this area for the past several years.
Planning Perspectives’ 16th Annual North American Automotive OEM — Supplier Working Relations Index Study is available here.