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Old 09-29-2005, 14:18   #1 (permalink)
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US:Ford plan to halve suppliers will hasten shakeout

Ford plan to halve suppliers will hasten shakeout

Reuters

MILWAUKEE -- Ford Motor Co.'s plan to slash by one-half the number of suppliers it uses for key auto parts will hasten the shakeout among suppliers and eventually help create a stronger industry, analysts said on Thursday.

Ford, the second largest U.S. automaker, said it intends to expand significantly parts sourcing from seven key suppliers, as it cuts by half suppliers for new business in seats, wiring, restraint systems and instrument and trim panels.

The automaker said it will award longer-term contracts to streamline a complex and costly network and expects to name other key suppliers in the coming months.

"It could be a good thing (for suppliers) because it looks like Ford is making an effort to improve its relations with its key suppliers," Morningstar analyst John Novak said. "It is a step in the right direction."

Ford's list of key suppliers includes former unit Visteon Corp. and Delphi Corp., which is in discussions with General Motors and the United Auto Workers to restructure struggling U.S. operations.

Also on the initial list of suppliers is Sweden-based Autoliv Inc., Johnson Controls Inc., Canada's Magna International Inc., Lear Corp. and Japan's Yazaki.

Top-level suppliers that provide key parts to Ford may thrive under the program, while lower-level suppliers that produce generic parts will face pressure, Novak said.

"Someone who just makes cup holders, I would be worried," Novak said. "There certainly is overcapacity in the industry."

A U.S. auto parts trade association has forecast the number of suppliers will drop to 5,000 by 2010 from about 10,000 at the start of the decade through consolidations and bankruptcies.

American Axle & Manufacturing Holdings Inc. CEO Richard Dauch told Reuters Autos Summit last week to expect a radically restructured U.S. auto parts sector.

American Axle is slashing the number of direct suppliers it uses and expects to eliminate up to 80 percent of its stamping or metal fabrication suppliers over 2-1/2 years.

Ford is due to close on a bailout of Visteon on Oct. 1, under which Visteon will return high wage unionized U.S. plants and workers to Ford. The restructuring will cut Visteon's annual revenue by one-third but reduce its Ford-based revenue to about 50 percent from 70 percent.

Ford has talked for years about reducing the number of suppliers, and larger suppliers chosen for the program will walk away with more business, Standard & Poor's credit analyst Martin King said.

"(Ford's) goal is to have stronger suppliers and to lower its procurement costs, and it will be a challenge for both sides to do that," King said.

Suppliers that fall outside the program may feel the heat, JP Morgan credit analyst Kirk Ludtke said in a note.

"The program will put additional pressure on smaller (suppliers) that may slip to a lower-margin, Tier 2 status or off the list altogether," Ludtke said.
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Old 09-30-2005, 04:25   #2 (permalink)
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Re: US:Ford plan to halve suppliers will hasten shakeout

Ford to slash supplier ranks

Automaker adopts Toyota purchasing model: friendlier, long-term relationships

By Christine Tierney and Bryce G. Hoffman / The Detroit News


Restructuring moves

Ford took another step to restore profits Thursday by revamping the way it purchases parts. Other recent cost-cutting moves:
• Cut nearly 3,000 white-collar jobs in North America.
• Eliminate 10 percent of contract employees.
• Sell Hertz rental car unit for $5.6 billion.
• Eliminate 2005 bonuses for salaried management employees worldwide.
• Suspend the company's 401(k) matching grant for salaried employees.

Without mentioning Toyota Motor Corp. publicly, Ford Motor Co. is adopting key elements of the Japanese automaker's supplier strategy as part of an effort to cut costs, improve quality and accelerate vehicle development.

"We have a problem in terms of the business model in this industry -- it's not working effectively for our suppliers, and it's not working effectively for us," said Ford's top purchasing manager, Tony Brown, as he outlined an overhaul of the Dearborn automaker's $90 billion annual purchasing program.

Ford plans to thin the ranks of its 2,500 auto suppliers by more than half. But it will offer its key partners bigger and longer-term contracts to help stabilize their business, Brown said in a conference call Thursday.

He said Ford had not patterned its new strategy after any one automaker. But company officials privately acknowledge that the new policy borrows heavily from Toyota's model. Suppliers consistently rate Toyota as their preferred customer.

Taking up another feature of the Toyota system, Ford will invite supplier participation earlier in the development process to tap suppliers' ideas and give them a head-start in their production plans.

"We'll de-risk the equation for them," Brown said. "They won't have to worry about whether or not they have the next program, so they can do a better job of planning."

Ford did not disclose the savings it expects to generate from its new policy, but the reduction in the number of its suppliers is bound to accelerate the consolidation in the U.S. auto parts-making industry.

Many suppliers that rely on Detroit's automakers for business are already struggling financially because of the decline in the U.S. car companies' North American market share and production cutbacks.

Ford and General Motors Corp. are losing money in North America. They have exerted intense pressure on suppliers to cut prices, leading to deterioration in their relations.

While some of the suppliers' complaints point to the automakers' strong-armed pricing tactics, other issues have more to do with the handling of the relationship.

In a recent survey, North American suppliers said Toyota was the automaker that showed most concern for their financial welfare.

The poll of 259 top North American suppliers conducted by Birmingham-based Planning Perspectives Inc. found that most of the parts manufacturers prefer dealing with Toyota and Honda Motor Co. and trust the Japanese automakers more than they do Ford and GM. As a result, many were shifting resources to gain business with the thriving transplants.

"Close customer-supplier collaborations time and again prove the most effective way to do business," said Dave Andrea, vice president of business development for the Original Equipment Suppliers Association in Troy.

Andrea said Ford's plan could send ripples through the entire sector. "It impacts from the largest suppliers down through the supply chain," he said.

Brown said Ford suppliers reacted positively to the new strategy. The automaker has chosen seven companies as initial members of the "selected strategic Ford family of suppliers," including Delphi Corp., Magna International Inc. and Ford's former subsidiary, Visteon Corp.

"Being involved earlier will lead to a stronger partnership and greater collaboration," Visteon President Don Stebbins told The Detroit News. "We're enthused by the commitment to a partnership relationship that these agreements represent."

Ford is now in the initial phase of its plan, which involves just over 200 key suppliers making 20 types of components. It expects to select the winners -- fewer than 100 -- by the middle of next year. Brown said Ford had not contacted any suppliers that had not made the cut.

"Our expectation is that suppliers will be in a better position to provide us better technology sooner, that they will help us accelerate our time to market, that they will help us to improve our quality and warranty performance," he said.

In many areas -- quality and the time it takes to produce a new vehicle -- U.S. automakers lag behind their Japanese rivals. Industry experts say one reason the Japanese have an edge is because of closer ties with suppliers.

Among the Japanese automakers, Toyota has particularly close relations with its suppliers and owns equity stakes in many of its key partners, such as Denso Corp. and Aisin Seiki Co. Ltd.
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My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.

My next Ford.....
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