Targeting execs at automakers

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The North American auto manufacturing market is expected to ship nearly 17 million cars and light trucks by the time 2005 draws to close, marking a fairly flat year compared with 2004.

However, these numbers are a bit deceiving. Ford Motor Co. and General Motors Corp.'s fortunes are sinking like a stone, said Peter Brown, VP-associate publisher at Automotive News, which is published by Crain Communications Inc., parent of BtoB. "Historically, they've had the big market shares domestically, but they're slipping as more and stronger competitors turn up the heat," Brown said. "Meanwhile, GM and Ford both have major problems with their businesses. They have real problems with legacy costs, few hit cars and trucks, and they've squeezed suppliers dry."

Recently, both Ford and GM have announced plant closings, employee layoffs and major restructuring plans—changes that will dramatically affect their futures and their relationships with original equipment suppliers. Over the next several months, they'll have to compete with fewer factories, fewer workers and lower capacities as they try to fill the capacity they'll have left, Brown said. "Meanwhile, major transplant operations are expanding. Toyota, Hyundai, BMW, Nissan, Honda are all on fire in America."

The ramifications have most OE suppliers scrambling to court business from foreign manufacturers and some reeling from now uncertain relationships with GM and Ford. Many are even willing to walk away from unprofitable business with the struggling carmakers.

"The bankrupt Delphi Corp.—one of the largest tier one OE suppliers—just got GM to agree to rescind what the industry calls `pricedowns' that were scheduled for next year," Brown said. (Pricedowns are forced price cuts on suppliers by their major automaker customers. "Automakers will make a contract with a supplier, and then weeks or months later unilaterally impose a pricedown, simply because they can," Brown said. "It's unsavory."

Ford overhauls purchasing

Ford is working to overhaul its purchasing operation, moving from pricedowns to a more collaborative environment it's calling its "Aligned Business Framework." Tony Brown, senior VP-global purchasing for Ford, recently disclosed the company's intent to improve its relationships with suppliers at a town meeting hosted by the Original Equipment Suppliers Association. "We have a problem with the business model in this industry," he said. "It is not working effectively for our suppliers. It is not working effectively for us."

Automotive News' Brown said Ford intends to cut its list of major suppliers in half and then give long-term business to the survivors. (As of Dec. 1, Ford had announced 24 suppliers to participate in this new framework.) "In principle, this gives Ford and a supplier the chance to work together on real cost-cutting, innovation and improvements in efficiency," he said. "The collaborative model, which has been long employed by Honda, Toyota and BMW, has long fared better. It encourages the supplier to be a long-term business partner, not just a seller of a commodity part one time at the lowest bid."

One side effect of the problems afflicting North American manufacturers is a growing opportunity for different kinds of marketers, particularly those that sell products or services to improve carmakers' business operations.

Management of supply chains, manufacturing operations and financial and compliance reporting have never been more critical for auto manufacturers, said Terry Onica, director of automotive marketing for QAD Inc., a provider of enterprise resource planning software and services to the auto manufacturing industry. "This is especially true in the growing global economy and in emerging markets such as China and Central and Eastern Europe," Onica said. "To help carmakers toward higher profitability, we've also had to be more collaborative in our efforts, offer a higher level of intelligence and become better manufacturing partners."

Though GM and Ford have announced significant layoffs, there's still a looming labor shortage of skilled workers—primarily because of the industry's aging work force—that has created an opportunity for Advanced Technology Services, a provider of factory maintenance and industrial component repair. The U.S. Bureau of Labor Statistics says a sharp decline in skilled workers in the next five to 10 years will cost carmakers an average of $50 million each in training and recruitment, as well as in missed production, overtime and lost sales.

Outsourcing gaining momentum

ATS commissioned a study of 100 automotive executives that confirmed carmakers are well aware of their impending skilled labor crisis. Some 70% of the execs polled said they'd consider outsourcing certain operations, including manufacturing facility maintenance, to limit the costs and headaches.

With automakers facing a less experienced and less technically adept pool of employees, ATS hopes to capitalize by providing an outsourcing solution. The company is actively recruiting and training young workers to fill the labor gap, said ATS President Jeffrey Owens.

"We feel the automotive sector has great opportunity to improve factory output and performance through improvements in production maintenance," Owens said. "Not only are we certain that auto execs feel the same based on our survey results, but also that they understand outsourcing production maintenance offered the best return on investment over other forms of outsourcing."

Even though the upheavals at Ford and GM have created some opportunities for marketers to get their foot in some doors—and shifted focus away from low pricing—it's still a long and difficult process to get OE supplier status with a carmaker. Strong performance in the automobile aftermarket is one of the best ways to attract auto manufacturers' attention, said Gary Pilibosian, president-CEO of Microheat, which recently succeeded in getting its wiper fluid heating system into two cars (see case study at left).

Trade shows have historically been one way that suppliers can get face time with auto executives, but increasingly demonstrations are going on in private. Ultimately, it's up to a strong engineering-focused sales and marketing team to put products into the hands of auto design teams to build awareness.  

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