General Motors Corp. presented suppliers Thursday with a new plan the automaker hopes will improve its relationship with them while cutting its purchasing costs.
Under the plan, which will be in effect from the last quarter of this year through 2007, GM will set cost-cutting targets for individual parts rather than setting overall corporate cost-cutting targets for 250 to 300 of its top suppliers. GM spokesman Tom Wickham said suppliers have criticized GM for setting overall cost-cutting targets for supply companies even if they were meeting GM’s targets for some of their individual parts.
Under the new program, a supplier that makes three or four separate parts for GM will be given a cost-cutting target for each part based on market data and other factors. Wickham said GM will give greater consideration to cost issues facing suppliers when they’re building certain parts, such as the high cost of steel.
“The idea is greater collaboration with the suppliers and hopefully greater cost savings for us,” Wickham said.
Chain S. Sandhu, the chief executive of Livonia-based NYX Inc., which supplies GM, Ford Motor Co., Honda Motor Co. and other automakers, said he sympathizes with GM’s effort to cut costs because of global competition. NYX makes plastic components for seats, consoles and door panels, among other products.
“With this new strategy, we can work together with the supply base and GM engineering and create a value not only for GM’s success but a value for our other customers,” Sandhu said.
GM has 3,200 suppliers and spends $85 billion annually purchasing parts, Wickham said. The Detroit-based automaker has had a rocky relationship with suppliers, which have accused the company of squeezing them to stem its own losses. The world’s largest automaker lost $286 million in the second quarter.
In a survey of 259 suppliers this spring, 85 percent said they had a poor working relationship with GM, and just 3 percent said they had a good relationship, according to Planning Perspectives Inc. Suppliers’ trust in GM was at its lowest level in 15 years, the survey said.
Planning Perspectives President John Henke said GM’s plan is welcome but hardly revolutionary.
“Toyota and Honda have been doing this for decades,” he said. “It’s what they should have been doing all along.”
GM isn’t the only automaker that has been trying to improve its relationship with suppliers. DaimlerChrysler AG’s Chrysler Group said last month that it has begun rewarding its highest-performing suppliers with longer-term contracts and the first opportunity to bid for new business.