Auto Supplier Study Shows Honda #1, Toyota Slipping to #2, Ford Gaining on Nissan,...

Auto Supplier Study Shows Honda #1, Toyota Slipping to #2, Ford Gaining on
Nissan, and Chrysler Still Last in 'Working Relations'

DETROIT, May 25 /PRNewswire/ -- The turmoil in the automotive industry is
reflected in the results of this year's annual study of the automakers'
supplier working relations, with the most significant shift in the suppliers'
ratings of the auto manufacturers since the study was launched eight years
ago. The annual North American OEM - Tier 1 Supplier Working Relations Study
tracks the supplier relations of the top 3 US and top 3 Japanese automakers.

Honda has taken over the top spot held by Toyota since 2002, though both
companies are ranked somewhat lower this year. Toyota, which has had the best
supplier working relations of any company, in any industry, for years, has
dropped steadily for the past two years.

At the same time Ford, which only two years ago was rated as having the worst
working relations with suppliers, has made dramatic and steady gains for the
past two years. This year, Ford has the highest rating ever achieved by a
U.S. automaker in the Study and is closing in on Nissan, which is in third
place. Among the Japanese automakers, Honda is the most preferred foreign
domestic customer, while Ford is the most preferred domestic automaker
customer.

General Motors shows some improvement after a slight downturn last year, but
remains well behind Ford.

Chrysler is last in supplier working relations, virtually the same position it
was in last year - a dramatic decline since it was the top rated U.S.
automaker in 2006.

"We have been tracking supplier relations since 1992, during which time Toyota
has been clearly the industry leader in supplier relations," says John W.
Henke, Jr., Ph.D., president and CEO, of Planning Perspectives, whose firm
conducts the annual Study.

"Toyota supplier relations have lost significant ground in the last two years
and it has slipped out of first place in our Study - a position it held since
we started measuring the supplier working relations of the six automakers in
2002 with our Working Relations Index. Suppliers suggest a potential reason
for this drop is a younger, less experienced staff in Toyota's purchasing
group for whom the 'Toyota Way' is not yet the way of doing things."

"With respect to Ford, two years ago the company transferred the head of
European Purchasing to the U.S. to be head of Ford North America Purchasing.
The results have been a dramatic improvement in supplier working relations
last year and this year," says Henke.

"In fact, Ford's working relations with suppliers are the highest they have
been since 2001 now ranking just below Nissan. While Ford still has a lot of
work to do, what they're doing with their suppliers is working. The number of
suppliers that say they have 'good to very good' relations with Ford increased
by 50% this year, while the number of suppliers indicating they have 'poor to
very poor' working relations with Ford is down by 25 percent. Ford is clearly
headed in the right direction."

Overall Ranking: Working Relations Index
The WRI represents the suppliers' rating of their working relations with each
of the six major North American automotive OEMs. The WRI consists of 17
variables comprising five components that are the principal drivers of
supplier working relations. The components include OEM communication with
suppliers, OEM help given to suppliers to reduce costs, and the supplier's
profit opportunity at the OEM.

Of the six automakers, the Domestic OEMs have been on the bottom half of the
scale since 2002 when the WRI was first used, while the Foreign Domestic
automakers have continually been on the top half with Toyota and Honda having
the highest WRI ratings of the automakers (see photo).

(Photo: http://www.newscom.com/cgi-bin/prnh/20090525/DE21633 )

For the second year Chrysler ranks at the bottom of the six North American
OEMs with a WRI of 162, virtually the same position as last year (Table 1).
After dropping 11 points last year, GM advanced 20 points this year to 183.

In terms of percentage change, the Toyota and Chrysler WRIs dropped 18 percent
in the last two years, while Ford's WRI gained 43 percent.

Nissan remains in third place, while improving 15 points this year, after a
drop of 36 points in 2008. Ford is close behind Nissan and could, at the rate
it is improving, pass Nissan next year.

TABLE 1. 2002 - 2009 Overall OEM - Supplier Working Relation Index

OEM YEAR 2008 - 2007 -
2002 2003 2004 2005 2006 2007 2008 2009 2009 % 2009 %
Change Change
Honda 297 316 384 375 368 380 359 349 -2.8% -8.2%
Toyota 314 334 409 415 407 415 367 339 -7.6% -18.3%
Nissan 227 259 302 298 300 289 253 268 5.9% -7.3%

Industry
Mean 224 234 266 259 266 270 249 255 2.4% -5.6%

Ford 167 161 163 157 174 162 191 232 21.5% 43.2%
GM 161 156 150 114 131 174 163 183 12.3% 5.2%
Chrysler 175 177 186 196 218 199 161 162 0.6% -18.6%

The Working Relations Index (WRI) ranks OEMs' supplier working relations based
on 17 variables across five (5) components: OEM-Supplier Relationship, OEM
Communication, OEM Help, OEM Hindrance, and Supplier Profit Opportunity. WRI
scores can range from zero to 500, with 500 indicating the strongest supplier
relations. A WRI ranking of zero to 249 indicates very poor to poor supplier
working relations; 250-349 indicates adequate relations; and 350-500 indicates
good to very good supplier working relations.

Why the OEMs Need to be Concerned
Favorable supplier rankings of the automakers have a very real impact on the
OEMs' future fortunes. For many years, the study has consistently shown that
automakers with the best rankings, specifically Toyota and Honda, receive the
greatest benefit from their suppliers in a variety of areas including lower
costs, higher quality, and innovation.

As the WRI increases, the OEM becomes a more preferred customer, and their
suppliers reciprocate with equivalent behaviors, which results in greater
benefits for the OEM. As can be seen in Table 2, suppliers are much more
willing to share new technology with Honda and Toyota then with the other
OEMs. In addition, suppliers are more willing to invest in more new
technology that benefits Ford and Nissan than they are willing to do for
Chrysler or GM.

Interestingly, as supplier working relations increased at Ford during the past
two years "supplier willingness to invest in new technology" for Ford
increased from 2.8 in 2007 to 3.2 this year, while the same measure for
Chrysler dropped from 3.1 in 2007 to 2.4 this year as its WRI dropped. In
other words, suppliers' future investments in the OEM track the Working
Relations Index.

TABLE 2:
2009 Consequence or Benefit to OEMs
Supplier Chrysler GM Ford Nissan Toyota Honda

Willing to
Share New Tech
w/o PO (1) 2.2 2.5 2.7 2.8 3.2 3.3
Willingness
to Invest in New
Tech (1) 2.4 2.8 3.2 3.1 3.7 3.8
Working Relations
Index (WRI) 162 183 232 268 339 349
Preferred
Customer (2) 2.6 2.9 3.8 3.8 4.5 4.7

1 Five point scale; 2 Six point scale

"The Working Relation Index is not a popularity measure," says Henke. "It is
a measure of how suppliers perceive their customer works with them. The OEMs
need to be concerned about how their suppliers perceive working with them,
because suppliers act toward their customers as they perceive their customers
act toward them. As working relations get better for the supplier, the
supplier reciprocates with greater benefits for the customer. This is an
undeniable 'cause-effect' impact that we have seen time and again across
multiple companies in numerous industries throughout the world."

"If Chrysler doesn't change its ways, it is going to be in big trouble,
regardless of how it comes out of bankruptcy. Chrysler needs its suppliers
more than ever; it cannot survive without them. Right now, Chrysler's
suppliers are not doing anything to support the company because of the
treatment they've been getting for the past two years," says Henke. "With its
relatively new VP of Purchasing in place and as the bankruptcy settles down
Chrysler will hopefully return to improving the way it works with its
suppliers as it was doing in 2004 - 2006.

"However, it seems that Ford and GM are finally starting to understand the
impact of good supplier relations," says Henke. "They're beginning to
appreciate the fact that their future depends in large part on their
suppliers, so they're beginning to work much better with their suppliers -
especially their larger suppliers."

"Overall, however, the automotive industry has not fully realized what good
working relations can mean to a company, which is common in many of the
industries in which we work. Toyota and Honda used to have the best supplier
working relations of any industry we've surveyed, but now they, too, are
slipping. There is no easy answer to good supplier relations, they take hard
work, and as the WRI indicates, it's a complex process and requires focusing
on a broad range of supplier-interfacing activities. But it clearly pays
off."

Profit Opportunities for Suppliers
An important concern of suppliers and the industry in today's economic climate
is the profitability of suppliers. Supplier Profit Opportunity has been found
to be an important component of the Working Relation Index. Providing
suppliers an opportunity to make a profit is also a critical concern for the
OEMs, because it is a reflection of their concern for the financial stability
of their supply base.

Table 3 shows how suppliers rank the automakers in the various Profit
Opportunity measures this year. The ratings show that Honda and Toyota are
clearly ahead of their competitors in this area.

While the domestic OEMs lag Honda and Toyota rather significantly, Ford in
particular has improved considerably in these areas in the past two years, but
as can be seen it has a good way to go to be comparable to Honda and Toyota.

TABLE 3.
2009 Supplier Profit Opportunity Ratings of the OEMs

Chrysler GM Ford Nissan Toyota Honda
Acceptable return 2.4 2.5 2.9 2.9 3.2 3.4
OEM concern for
supplier profit
margins 1.4 1.4 1.6 1.9 2.6 2.5
Ability to recover
material costs 1.9 1.9 2.4 2.4 2.8 2.8
OEM fairness in
charge-backs 2.3 2.5 2.6 2.5 3.1 3.1

Working Relations Variations Within and Across OEM Purchasing Groups
In addition to ranking supplier working relations on an overall basis, the
study measures how suppliers rank working relations for six major purchasing
areas within each OEM. What is significant is that the WRI for each
purchasing area varies considerably within and across each OEM (Table 4).

This year, for instance, Chrysler, which has the lowest overall WRI ranking of
162, has a WRI of 182 rating of its Powertrain group, while its Body-in-White
group almost fell off the chart at 89 - by far the worst supplier working
relations ranking of any purchasing area within any of the six automakers.

Honda, with an overall ranking of 349, scored even higher with its Electrical
and Electronics purchasing area at 373 - which is also the highest WRI in this
year's study.

The highest WRI for a purchasing area in recent years was Toyota's Electrical
and Electronics area in 2007, which had a WRI rating of 523, but it slipped to
423 in 2008 and this year is ranked even lower at 319. GM's best area is
Exterior at 202, while its worst are ranking is Electrical and Electronics at
192. All other GM purchasing groups fall in between.

TABLE 4. 2009 High - Low Purchasing Area WRIs for Each OEM

OEM Highest Ranked Lowest Ranked
Purchasing Area WRI Purchasing Area WRI

Chrysler Powertrain 182 Body-in-White 89
General
Motors Exterior 202 Electrical & Electronics 146
Ford Powertrain 255 Electrical & Electronics 192
Nissan Powertrain 280 Body-in-White 237
Honda Electrical & Electronics 373 Interior 317
Toyota Body-in-White 360 Interior 319

Among the six automakers, Honda's Electrical and Electronics group has the
best supplier working relations in the industry of any OEM purchasing area,
and Chrysler's body-in-white group has the worst relations.

"Supplier working relations within each OEM vary among the various purchasing
areas, indicating that it is the OEM personnel who have the day-to-day
responsibility of working with suppliers who are the primary determinants of
the company's supplier relations. This indicates the importance of having
performance metrics in place to drive the desired behavior of these
individuals if you hope to improve your supplier working relations," said
Henke. "It also gives the OEM an easy way to identify which areas are
performing well in terms of supplier working relations, and which are not.

"By putting in place performance metrics that drive the behaviors of their
personnel who interface with suppliers, the needed supplier relations will
occur. With the right performance metrics every OEM can improve its supplier
relations to the benefit of both itself and its suppliers."

Copies of the overall study, as well as more specific in-depth reports on each
OEM and purchasing group, may be ordered by contacting Planning Perspectives,
Inc., in Birmingham, MI. For information, phone +1.248.644.7690.

About The Study
Now in its 9th year, the annual study determines the supplier working
conditions in numerous areas at the North American domestic OEMs (GM, Ford and
Chrysler) and the foreign domestic OEMs (Toyota, Honda and Nissan). This
year, 231 Tier 1 suppliers - representing 52% of the OEMs' annual buy -
responded to the survey. Demographically, the supplier-respondents represent
28 of the Top 50 North American suppliers, 43 of the Top 100 and 58 of the Top
150 North American suppliers. The study culminates in the Working Relations
Index (WRI) which is a quantitative ranking by suppliers of their working
relations with each of the six OEMs.

About PPI
Since 1990, PPI has specialized in developing and implementing in-depth
surveys of suppliers for the automotive OEMs and Tier 1 suppliers, and
companies in numerous other service and manufacturing industries worldwide,
including the aircraft engines, computer, construction tools, electronics,
energy, and food industries. In 2001, PPI initiated its syndicated Annual
North American Automotive OEM - Tier 1 Supplier Working Relations Study. This
annual Study has been recognized as the benchmark of supplier working
relations for the automotive industry in the Harvard Business Review and
several books. The Studies provide critical sales and financial planning
information for suppliers and their sales, marketing, and financial staffs, as
well as a means by which OEMs and their purchasing staffs can get a reality
check on their working relationships with suppliers. John W. Henke, Jr.,
Ph.D. is president of Planning Perspectives, Inc., and a marketing professor
at Oakland University in Rochester, MI. PPI is based in Birmingham, Michigan
USA and can be reached at +1.248.644.7690.

SOURCE Planning Perspectives, Inc.

Mike Hedge for Planning Perspectives, Inc., +1-248-789-8976,
mhedge@hedgeco.com