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Cuts at Whose Expense?


8/1/2003
By Jon S. Owens

The latest developments in OE and supplier consolidation should neither surprise us, nor scare us.
 

As many of us remember, there was a major wave of supplier consolidation several years ago. This was big news around the industry and as the list of consolidated companies grew, I wondered how long it would go on - and what the ultimate fallout would be.

We havent had a major supplier consolidation in a while, and I thought things had quieted down. That is, until I heard about ArvinMeritors recent attempt to buy Dana Corp.

Ive also read other news on the OE side that may be at the crux of consolidation. Im talking about the DaimlerChrysler "world price" announcement.

Basically, DaimlerChrysler recently told its suppliers that they needed to meet Chryslers new "requirements for cost and performance." If they failed to do so, these suppliers would lose DaimlerChryslers business. The Financial Times reported that this message was part of the DaimlerChrysler "effort to cut purchasing costs."

Apparently, according to the Financial Times report, Chrysler had previously asked all of its suppliers to bring prices in line with a "world price" that the company believed more accurately reflected competition from lower-cost suppliers in regions like Asia. By the time I read the Financial Times report, Chrysler hadnt received responses from 132 of its North American-based suppliers, and therefore felt the need to issue this final warning.

How maddening is this continual belief in the myth that there is gold to be mined from the extermination of your suppliers? Maybe thats a little harsh (and I completely understand the need to be diligent in managing your costs and being stern in the face of excessiveness), but how many more times will we hear from an OE that their suppliers must lower their prices in order for that particular OE to survive. This is becoming a bit crazy, isnt it?

All of this brings me to the ArvinMeritor effort to purchase Dana. Hmm, I wonder, what could be driving this phenomenon? I commend ArvinMeritor for seeking solutions. This is less growth for growths sake and more of a strategic and pragmatic way to achieve efficiencies. At the same time, I commend Dana for their initial rejection of ArvinMeritors bid.

The more I think about it, the more I realize what a sad state of affairs we truly have brewing among OEs and their suppliers alike. Expect more consolidation, expect the OEs to continue to pressure their suppliers for price concessions and expect this ridiculous cycle to continue until the first bankruptcy (at the OE level) is filed. Maybe then well all realize that innovation, research, development and long-term investment and thinking is what the OEs and their suppliers truly need.

Polybagged with this month is MEMAs Automotive Aftermarket Suppliers Association (AASA) Top 70 Automotive Aftermarket Suppliers List. Take a close look at this comprehensive list of the largest aftermarket suppliers. But dont get too comfortable with the names on that list. I can guarantee that it will change.













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