21 February 2014
Back in the summer of 2013, with its volumes climbing again and the end of government ownership finally within sight, GM presented its suppliers with revised terms and conditions of business. It would be fair to say that the reception they received was unseasonably frosty.
In a nutshell, GM wanted future contracts to hold suppliers responsible if
the automaker were to later determine that a component posed a safety risk to consumers; even where the component in question was built in accordance with GM specifications (previous contracts limited supplier liability to cases where products didn't meet GM specs). In other words, a de facto open-ended liability beyond the usual warranty on supplier parts, which generally expires at the same time as GM’s consumer product warranty.
At the same time, GM introduced a clause which appeared to give it
significant new rights with respect to the ownership and licensing of
suppliers’ intellectual property. Then there was the new audit clause
which required a supplier to “promptly provide” (to GM) “its most current income statements, balance sheets, cash-flow statements and supporting data and schedules upon request.” It’s easier to negotiate with your supplier on price once you know exactly what net margins he's making across his whole business.
Not surprisingly, feathers were ruffled. Following months of “feedback”
from its suppliers, and what one assumes was a better-than-average
Christmas for Detroit’s corporate law firms, the automaker had a change of heart - announcing it would re-word the more controversial sections of the new contract. Last week GM's global purchasing chief, Grace Lieblein, told Automotive News that the contract changes “left a lot of room for
interpretation,” and may have led some suppliers to think GM’s intention
was to assert an unreasonable degree of leverage over its key suppliers.
“I don’t want to be talking to CEOs about terms and conditions,” she said. “I want to be talking to them about technology and quality and driving waste from the system to go after cost.”
Indeed. The days when carmakers called all the shots in the automotive
value chain are long gone. Today’s leading global T1s are powerful
technology partners, and they know it. Their competency in key areas like
advanced electronics, software, communications, emissions control, new
materials etc. often exceeds that of even their biggest clients. They
invest spectacular sums in R&D and they create technologies and features
which end users get excited about. GM’s hasty retreat from this “misstep”
is one of the strongest signs yet of a new world order. It's a world in
which eye-wateringly high levels of investment are required to perfect
challenging new technologies and automakers can't make it on their own.
The smartest OEMs and suppliers will embrace the reality of their profound inter-dependence and learn to collaborate ever more closely on advanced technologies, keeping their eyes fixed on the real prize: that of making vehicles which customers will pay a premium for.
History suggests that some OEMs will handle these changing relationships
better than others, but one thing is already clear. The suppliers that are
worth having can no longer be bullied.
Author: Ian Dickie