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Chrysler, suppliers on solid ground


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Chrysler, suppliers on solid ground

Alisa Priddle / The Detroit News

Traverse City -- Chrysler Group LLC said it has a much healthier supply base than a year ago as it continues to ramp up production of a refreshed lineup of new vehicles.

"I think the worst is behind us," Sig Huber, senior director of supplier relations, said at the Management Briefing Seminars here. He filled in at the annual event for purchasing chief Dan Knott who could not attend.

Both the automaker and its suppliers were in dire straits in the last two years but Chrysler shed much of its debt in bankruptcy a year ago and many suppliers have improved their liquidity and reduced their fixed cost base as well, Huber said.

The average supplier liquidity has improved 20 percent since 2009, money that can now be spent on research and development, Huber said.

And 28 percent of Chrysler's annual purchase volume was with suppliers at risk a year ago but that figure has dropped dramatically to less than 4 percent.

More than 12 per cent of Chrysler's supply base was considered high risk in June 2009 and today that figure is less than 1 percent. The number of companies on Chrysler's "watch list" to monitor for potential problems has stagnated at about 3 percent.

Huber urged suppliers to base future production plans on the more robust figures Chrysler is now providing, as opposed to the more modest figures being cited by skeptical third parties. Huber would not say how much production is being increased for the automaker that is refreshing 75 percent of its lineup this year.

Sourcing is now complete for the North America version of the Italian Fiat 500, which will be made in Mexico and which has 66 percent of its contracts with new suppliers, including 35 North American companies.

And sourcing is well underway for a family of compact and midsize vehicles that will amount to about 1 million vehicles annually between Chrysler and Fiat SpA brands.

Huber said he is confident suppliers can ramp up to new volumes with little difficulty.

And revamped relations with suppliers including a rejuvenated dealer council, monthly webinars and surveys, appear to be paying off. "You won't see the churn you've seen previously."

Dave Andrea, vice president of industry analysis with the Original Equipment Suppliers Association in Troy, agreed relations have improved substantially under the new regime.

"The feeling at Chrysler is much like a start-up company," Huber said of the mood in Auburn Hills.

At Ford Motor Co., the last 24 months have proven that liquidity, and cash in particular, is king, said Birgit Behrendt, executive director of global programs and Americas purchasing.

Commodity pricing is still a concern as well as costs to meet emissions standards.

Ford has been migrating to fewer global platforms, more common parts and a goal of 750 preferred global suppliers who are brought in early in the process to improve its efficiency and cost structure, Behrendt said.

"We want to be profitable at current demand," she said.

Steven Patton, principal with Ernst & Young LLP, said the next 12 to 24 months will be a critical period for suppliers with a lot of debt covenants coming due. But he expects single-digit losses of suppliers going under.

Huber estimated there is still 40 percent overcapacity in the supply industry.

From The Detroit News: http://detnews.com/article/20100803/AUTO01/8030427/1148/auto01/Chrysler--suppliers-on-solid-ground#ixzz0vaIhbZW1

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