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With Fiat, Chrysler has new clout to reach out to suppliers

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With Fiat, Chrysler has new clout to reach out to suppliers

Alisa Priddle / The Detroit News

It may be time for suppliers to take a chance on Chrysler Group LLC again.

The automaker has a new partner in Fiat SpA, a slew of new products to source parts for, global contracts and new leadership that wants to work more closely with its supply base and devote resources to better partnerships.

It's a significant change for an automaker that has the worst relations with suppliers in North America and has seen suppliers come and go as the Auburn Hills automaker's ownership has changed. Chrysler has suffered from cutbacks in product development and lack of money to investigate and implement suppliers' ideas.

The automaker also has lacked any real global presence or scope for parts makers looking to land contracts.

Nor has there been consistency in leadership at Chrysler -- Dan Knott is the third purchasing chief in as many years.

But the tide may be about to turn.

The partnership with Fiat SpA, formed in June, allows Knott to combine Chrysler's $28 billion annual purchase of auto parts and materials with Fiat's $40 billion annual purchasing tab. That $68 billion in buying power will give Fiat clout to get better prices from suppliers, who in turn will get larger orders. The expected savings for the automaker: $2.9 billion over five years.

It is part of the overall plan to leverage the strength of a Chrysler-Fiat tie-up to make both companies stronger and more global in everything from purchasing to engineering to selling vehicles. And to do that, Knott has a carrot.

Chrysler has started sourcing for the huge, midsize platform slated to produce 700,000 cars and crossovers annually for Chrysler and another 300,000 for Fiat by 2014.

Engineering is under way for vehicles to replace C-segment vehicles, including the Dodge Caliber, Chrysler PT Cruiser, and Jeep Compass and Patriot, as well as D-segment cars, including the Chrysler Sebring, Dodge Avenger in 2012, the Dodge Journey and future small minivans.

Hitting the reset button

"It's a watershed moment for purchasing," Knott said of the chance for suppliers to become part of a Chrysler-Fiat global supply base. "It is the biggest leverage we have had in the last few years and will have in the future."

The purchasing chief is hoping the new contracts and partnership with Fiat to share in savings will act as a catalyst so suppliers will consider working with Chrysler again and the automaker ultimately will be rewarded with improved quality.

"If I don't have a healthy supply base, I'm not going to have the best parts and I'm not going to have the best products," Knott said.

"So my focus is to be a better customer."

It is crucial, said Dave Andrea, vice president of industry analysis and economics with the Original Equipment Suppliers Association. "Chrysler has always been a resource-constrained company and needs to depend on the supply base for success going forward."

Knott recognizes Chrysler has a lot of ground to make up.

"The last couple of years we've been the last in the industry in supplier relationships," he said. "It's not a fun way to run a business."

Chrysler is "the worst, and has been for a number of years now," said John Henke, president of Planning Perspectives Inc. of Birmingham, which publishes an annual survey gauging the relationship of automakers and suppliers in North America.

Chrysler was as tight with its suppliers as Toyota Motor Corp. in the 1990s, Henke said, under a dream team that included Lee Iacocca, Bob Lutz and Tom Stallkamp. The relationship with suppliers was so good, they helped save the automaker from near-death by continuing to provide products without being paid.

But after the 1998 merger with Daimler AG and cost-cutting demands, "things went to hell in a handbasket," Henke said, and worsened under the private ownership of Cerberus Capital Management LLC in 2007.

Henke described the then-new Cerberus purchasing chief, John Campi, as "the worst vice president of purchasing the industry ever had. His actions created a very adversarial atmosphere. He didn't understand the industry and publicly sued suppliers."

Today, Chrysler has used bankruptcy to strip liabilities from its balance sheet, and there is positive buzz around Knott and his efforts to repair relationships.

"Chrysler is now is a position to do things right and they're moving on that," Henke said.

'Oodles of opportunity'

Suppliers are responding.

"I'm encouraged by what I see," said Don Walker, co-CEO of Magna International Inc.

Before emerging from bankruptcy "they were not spending money and they were cutting back," Walker said.

Dick Dauch, chairman of American Axle & Manufacturing Holdings Inc., appreciates the changes. "We have oodles of opportunity with Chrysler as it is now organized. We see it not only in North America but on a global scale."

Already, "we've added some Chrysler suppliers to the Fiat base and Fiat suppliers to our mix," Knott said, referring to plans to build the Fiat 500 in Mexico for the U.S. market.

The numbers are small -- about 20 companies added to each automaker's roster -- but it is a good test of joint sourcing, with volumes eventually in the 130,000 range, before tackling the larger, 1 million unit C-segment program.

For suppliers, the time to jump on board is now, said Jim Gillette, supplier analyst with CSM Worldwide in Grand Rapids.

"When a company is down, it can be a good time to establish a relationship," he said.

From The Detroit News: http://www.detnews.com/article/20100310/AUTO01/3100349/1148/auto01/With-Fiat--Chrysler-has-new-clout-to-reach-out-to-suppliers#ixzz0hmMW7ftZ

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