Chrysler, GM Still Strong in Annual Buyer-Supplier Relations Study

Ford stalls in 3rd; Toyota, Honda continue slide

DETROIT – The real story in this year’s rankings of automakers by their suppliers in the 12th annual study released Monday of OEM working relations is not their overall rankings, but rather the dramatic and continuing slide of Toyota and Honda, and the continuing improvement of Chrysler Group, General Motors, and Ford since 2005.

The 12th Annual North American Automotive OEM-Tier 1 Supplier Working Relations Index Study is conducted annually by Planning Perspectives, Birmingham. The study tracks supplier perceptions of working relations with their automaker customers, in which they rank the OEMs across the six major purchasing areas broken down into 14 commodity areas.  The results are used to calculate the Working Relations Index based on 17 working relations variables. This year, 564 supplier personnel from 439 suppliers participated, representing 62 percent of the six automakers’ annual buy.

Toyota and Honda, which rank first and second place respectively overall, have fallen in 2012 to their worst scores in 11 years. Ford, GM, and Chrysler, in third, fifth, and sixth place respectively, have improved dramatically and as a group, have achieved their highest scores. Ford fell slightly but remains in third place overall even though its improvement has stalled the last three years. Similarly, Nissan’s rankings have fallen during the same period but also showed improvement this year; however, it could lose its fourth place to GM or Chrysler next year if these companies continue their current trend lines. Only eight points separate the three.

However, “it’s a concern that all of the automakers are ‘converging toward mediocrity’ in the overall low Adequate range in the Working Relations Index which is equivalent of a grade C in academia,” says John Henke, president of Planning Perspectives and a professor at Oakland University. 

In fact, 40 percent of suppliers still rank the Detroit 3 and Nissan in the “Poor – Very Poor” range.  According to Henke, there are several reasons for this. Automakers with poor relations with their suppliers are supported by less experienced supplier personnel and receive smaller price concessions, so the automakers must work harder to get them. Also, those with poor relations typically are not among the first to get their suppliers’ best ideas and innovations.

Over the years, the study has convincingly shown that automakers with Good – Very Good working relations get the following benefits.  Their suppliers are more willing to support the automaker beyond contractual terms, to invest in and share new technology, and give greater price concessions to the OEMs. Suppliers are assigning their “A teams” in terms of OEM support personnel and are communicating more openly and honestly.

The costs to automakers of poor working relations are substantial. The importance of good relations is significant and will only increase going forward, with more automakers manufacturing more vehicles in North America and competing for the same suppliers.

“The automakers must understand that maintaining supplier working relations is a never ending process; it’s dynamic, not static, and requires continuous attention,” Henke says.