First Up -- General Motors: Another Cracked Brick in the Wall

An annual supplier relations survey shows more evidence of why GM has proven to be a $50 billion problem for the U.S. government.

The General Motors bankruptcy stands in stark contrast to a photo in the company's 2007 annual report showing the smiling faces of Rick Wagoner, Bob Lutz and Fritz Henderson grouped around a shiny Cadillac at the 2008 North American International Auto Show. In that annual report, Wagoner wrote about the juncture between GM's first century and the "bright and exciting future" facing the company. While noting the company's $38.7 billion loss, he urged readers to look "under the hood" at the bigger story of the company's restructuring and new products and technologies.

Could GM's top managers at that time imagine a world where the U.S. government would own 60% of the company, the Pontiac, Saab, Hummer and Saturn brands would be sold or liquidated, and its dealer network would be cut by more than 40%? I don't think anyone owned that crystal ball.

Now, the restructuring of GM will occur under the stewardship of a bankruptcy court. The "New GM," says board chairman Kent Kresa, will "emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel." Those of us who care about the future of manufacturing in the United States certainly hope that will be the case. Not just for GM's sake, but for the thousands of suppliers and dealers that will continue to work with GM in the days ahead.

In J.D. Power and Associates' 2008 Initial Quality Study, three GM brands achieved rankings better than the industry average -- Cadillac, Chevrolet and Pontiac -- while Buick rated average for problems with 118 per 100 vehicles. In its look at car segments, Honda had three winners, more than any other nameplate, but GM had two -- the Chevy Malibu and Silverado LD pickup.

Such results are desperately important because GM's problems were not just a cumbersome bureaucracy or high health care costs. Too few people wanted to buy GM's cars, models they thought were unreliable, cheaply appointed or offering old technology. Particularly now as a company emerging from bankruptcy, GM must create an insistent buzz that its products are innovative, attractive and durable.

But since GM leaders have invited us to look under the hood, we'll take them up on their offer and refer them to the North American OEM-Tier 1 Supplier Working Relations Study, conducted by John Henke, Ph.D., president and CEO of Planning Perspectives. The study ranks supplier working relations for the top three domestic and foreign-owned auto manufacturers building cars in the U.S. Since manufacturers typically spend 50% or more of their revenue on buying goods, relations with their suppliers are a critical business concern.

The study ranks automakers on 17 variables across five areas: OEM-supplier relationship, OEM communication, OEM help, OEM hindrance and supplier profit opportunity. Honda achieved an overall Working Relations Index (WRI) score of 349 out of a possible 500. The other suppliers had the following ratings: Toyota (339), Nissan (268), Ford (232), GM (183) and Chrysler (162). The industry mean was 255.

Favorable supplier rankings have a real impact on the OEM's fortunes. The better the WRI rating, the study has shown, the more likely that the automaker will receive benefits such as lower costs, higher quality and innovation from its suppliers. For example, the study showed that suppliers were more willing to share new technology with Honda and Toyota than with the other OEMs.

Henke says GM is moving in the right direction, but noted that the company has plenty of room for improvement. If GM is to become a truly competitive company, supplier relations will be one of many measures in which the General has to demonstrate better results.

Steve Minter is IW's chief editor. He is based in Cleveland.

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