Automotive supplier relations take turn for the worse

Andrew Pring
30 October 2014

Relations between car manufacturers and their suppliers have worsened in 2014 according to the annual Global OEM-Supplier Relations Study conducted by IHS Automotive.

The survey allows automotive suppliers to rate carmakers on a variety of matters, including technology sourcing, profit-impacting factors, quality management and intellectual property protection matters.

Heightened friction between OEMs and suppliers on cost reduction matters is the main factor behind the deterioration of relations. Several suppliers highlighted a return to unwelcome practices, such as annual price reduction targets, which they deem unsustainable. While the standard annual price reduction in the industry hovers around 2 to 3 per cent, it is not uncommon for OEMs to request cuts of 5 per cent year-over-year, and in some extreme cases, as much as 10 per cent.

Expanded product liability guarantees and a greater financial burden in the event of recalls are among the other concerns that are impacting suppliers’ perception of their profit potential with the OEMs.

The survey reveals that nearly 75 per cent of carmakers have received lower ratings than in 2013, and that profit potential ratings were down by 5.4 percent on average in 2014 vs. 2013.

Toyota’s marginal improvement in 2014 secures it top place in the ranking, closely followed by BMW, which was also rated second in 2013. Despite occupying the top positions, both BMW’s and Toyota’s ratings remain significantly down compared to 2006 and 2007 highs, confirming a shift in the way they handle relations with suppliers.

Jaguar Land Rover, PSA Peugeot Citroën and Chinese carmakers Great Wall in particular, are among the winners of this year’s study, all for different reasons. With a 16 per cent improvement in 2014, Jaguar Land Rover establishes itself as the most trustworthy OEM.

With few exceptions, even the best performing carmakers have become more stringent on controlling costs in 2014, signalling a general shift for the OEMs towards greater cost focus and more aggressive ways to capitalise on their negotiation leverage with suppliers. For example, Jaguar Land Rover, which seems to offer the highest profit opportunity for suppliers based on the metrics of the study, has seen its profit potential rating drop by nearly two percent versus 2013.

The survey indicated suppliers seem to accept they have to find innovative ways to generate savings on a year-over-year basis, but they find it difficult to accept that they receive little or no support from the OEMs in doing so. Says IHS Automotive: “This lack of support often results in strained relations between the two parties.”

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