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Ford to Cut Suppliers

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Ford to cut suppliers

By Poornima Gupta
Thursday, September 29, 2005; 2:55 PM

DETROIT (Reuters) - Ford Motor Co. <F.N> on Thursday said it will cut its suppliers by about half and award key parts makers larger, long-term contracts in a move to reduce costs globally and stem losses in North America.

Ford -- which buys about $90 billion worth of parts, goods and services a year worldwide -- has already chosen seven companies as initial suppliers.

They are Swedish-based Autoliv Inc. <ALV.N>, Delphi Corp. <DPH.N>, Johnson Controls Inc. <JCI.N>, Visteon Corp. <VC.N> and Lear Corp. <LEA.N> of the United States, Canada's Magna International Inc. <MGsva.TO>, and Yazaki Corp. of Japan.

Other suppliers in the initiative, which promises to simplify a complex and expensive network, will be named later, said the No. 2 U.S. automaker, which currently has about 2,500 suppliers.

Analysts noted that Ford also stands to benefit from improved quality and better contract terms. Ford, however, declined to detail the specifics of the expected savings.

The company's purchasing chief, Tony Brown, said on a conference call that the new plan would have a "significant impact" on costs.

"We've worked with our key suppliers on several programs to take out waste, increase economies of scale, improve quality and customer satisfaction, and create a framework for stronger relationships," Brown said.

"Although we've made progress, business conditions require us to accelerate these efforts and raise the nature of our relationships to an entirely new level," he said in a statement.

In the plan's first phase, Ford said it expects to reduce by about half the number of suppliers from which it sources new business for 20 key parts and commodities. They include seats, wiring, restraint systems and instrument and trim panels -- components that represent about 50 percent of Ford's global production purchases annually.


Ford will see a significant reduction in costs with the move, said Paul Haelterman, director of market assessment at CSM Worldwide.

Fewer numbers "mean they have less one-on-one contact," Haelterman told Reuters. "Ford is really going to be able to reduce some of its white-collar labor because it's not going to need as many of those people."

Both Ford and its short-listed parts makers will also see a large reduction in warranty, material and service costs, Brown said.

For example, the automaker and its suppliers should benefit if Ford gives out large contracts that allow suppliers to raise factory utilization to 90 percent from 70 percent, he said.

Ford said it also expects suppliers to be involved in the design and production process early on, cutting the time and costs of bringing a Ford vehicle to market.

The automaker's purchasing overhaul, which follows an aggressive growth plan to build more environmentally friendly hybrid cars disclosed last week, comes as Ford struggles with strong competition, soaring health-care and raw materials costs, and a slide in U.S market share.

In the second quarter, Ford's North American auto operations swung to a pretax loss of $1.21 billion, including charges.

The company already has plans to cut North American salaried positions by 8 percent this year. Ford has not ruled out further cuts in its salaried work force or plant closings.


As part of the new purchasing program, Ford said it will agree to pay all the key suppliers money upfront for their engineering and development costs.

Ford's plans will likely hasten the shakeout among suppliers and eventually help create a stronger automotive industry, analysts said.

They come amid financial crisis at several large suppliers, including Visteon and Delphi, companies that have struggled with overcapacity as U.S. automakers lose share to Japanese automakers.

Those two suppliers also suffer from high wage and benefit costs for union workers and rising prices for steel, resins and other raw materials.

"This is a positive for the large suppliers," Haelterman said.

He cautioned that smaller parts companies will soon feel the heat, either being forced into a so-called tier-two status of supplying their components to larger parts makers rather than directly to the automaker or being cut out of Ford's supply base entirely.

Ford shares were down 10 cents at $9.85 in afternoon trading on the New York Stock Exchange.Washington Post StoryDetroit Free Press Story

Thursday, September 29, 2005


Ford Motor Co. on Thursday said it will reduce by half the number of companies from which it buys 20 key parts and commodities - a move that represents a major overhaul to the way it does business and will impact about half of the company's $70 billion production buy.

Ford, which has been trying to reinvent itself in the face of continuing financial troubles, said it will sign long-term agreements with fewer preferred suppliers, who have promised to give Ford cutting-edge technological innovations in return for an increase in business volume from Ford.

Tony Brown, senior vice president of global purchasing for Ford, refused to say how much streamlining the number of parts suppliers with whom Ford works might save the company. He said the move is being made because the current way of doing business doesn't work for Ford or its suppliers.

"It is not working effectively for our suppliers, and it is not working effectively for us," Brown said.

The immediate winners: Autoliv, Delphi Corp., Johnson Controls, Lear Corp., Magna International, Visteon Corp. and Yazaki.

Brown said Ford will honor current contracts, but it's not clear which suppliers might lose business in the future.

"It's too early for us to say who's out," Brown said in a conference call with journalists.

North American auto suppliers ranked Ford as the next- to-worst automaker to work with among six in an annual survey released by Planning Perspectives Inc. of Birmingham i May. Suppliers ranked Toyota Motor Corp. as the best.

Jim Gillette, director of supplier analysis at CSM Worldwide, said the problem with the way Ford does business is that it continually pushes suppliers for the lowest cost, rather than on building relationships. That has contributed to serious financial problems for the auto industry in Detroit, resulting in bankruptcies, layoffs and restructurings.

Gillette said suppliers will likely welcome Ford's new strategy.

"It's really going to cost them more in the long run if they keep this auction going with the auto suppliers," he said.

However, he said it may take time before suppliers believe Ford is serious, as similar efforts by auto companies have fallen through in the past.

Contact SARAH A. WEBSTER at 313-222-5394 or swebster@freepress.com.

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