DaimlerChrysler, Suppliers Poised To Square Off

A long-term relationship doesn't automatically mean a renewal of contract at DaimlerChrysler.

It looks as if a battle is about to brew in the auto world. No, I'm not talking about Ford and Firestone again. This time, the battle surrounds DaimlerChrysler and its suppliers, a team that at one point had the most harmonious relationship in recent industry history. While the battle lines were drawn a few months ago when DaimlerChrysler announced it would demand a 5% price reduction from all suppliers, it seems that was just the beginning. Recently, DaimlerChrysler's Chrysler Group President and Chief Operating Officer Wolfgang Bernhard told attendees at the University of Michigan's annual automotive management conference in Traverse City, Mich., that loyalty alone no longer pays off at Chrysler. "In the '80s, it was a dog-eat-dog relationship. The '90s was a love-in relationship. In 2000 and beyond, we are going to have a right-size relationship [with suppliers]," Bernhard said. In other words: if you don't come to the table with the right technology at the lowest possible price, we'll go elsewhere. That's a stark contrast to Chrysler's past strategy with suppliers, which focused on working together to develop components and systems that would provide a good return for suppliers, while keeping Chrysler competitive with the rest of the world. In return, it was basically a given that suppliers would have their contracts renewed when a redesigned product was developed. Loyalty, in those days, was the key. Now, it's all about cost. Bernhard contends that while Chrysler was coddling its suppliers, it wasn't getting the best possible price for some components. Suppliers, it seems, were getting too comfortable with their relationship with Chrysler. Renewal was a given. This change in strategy has received lukewarm reviews from various suppliers, many of whom fear that if they show their best technologies to Chrysler purchasing executives and the prices are too high, those purchasing folks will shop that technology elsewhere. This sounds like a familiar tune in Detroit. It was just a few years ago that GM hired a firebrand purchasing executive by the name of Jose Ignacio Lopez, whose job it was to get GM's costs in line -- and he did that task on the back of suppliers. Many suppliers refused to meet with GM purchasing execs during Lopez's reign, and his name came to have a negative connotation in auto circles. Could the Lopez philosophy be rearing its ugly head again, this time at Chrysler? If Chrysler takes this initiative too far, it could turn out to be a horrible mistake. GM is still trying to recover from the errors of Lopez. Interestingly, GM's new purchasing guru, Bo Andersson, seems to be taking a note from the old Chrysler book. Here's a statement from his speech at the Traverse City conference: "Our suppliers are critical to our survival and a major reason why you see us improving in J.D. Power [quality] and Harbour [productivity] studies," he said. "Our supply base is critical to [our] success." While GM may be taking a few steps forward in its relations with suppliers, it looks like Chrysler is ready to take several steps back.

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