Detroit is touchy about its penny-pinching

Oct. 11, 2001
Editorial CommentOctober 11, 2001Several months ago I was the keynote speaker at a technical conference.
Editorial CommentOctober 11, 2001

Several months ago I was the keynote speaker at a technical conference. The audience consisted of more than 1,000 people, and not to brag, but the talk seemed to go over well. As I was packing my briefcase afterward, several people came forward to offer compliments and tell me how much they enjoyed hearing what I had to say.

However, not everyone liked my talk. Some people in the audience were from automobile companies, and at least one of them complained about my remarks to an official of the trade group that had invited me to speak.

I don't know exactly what the complainer said because I learned of this just recently from a third party. But I can imagine. My comments on Detroit concerned automobile companies putting the screws to suppliers, and how the emphasis on cost reduction is bringing a cheapness to cars that is becoming apparent to the public.

I said nasty things about the upside-down bidding process that has become routine in the automobile industry, starting with the fact that Detroit has pretty much dispensed with any semblance of ethical bidding for buying things. Instead, suppliers go through a round of bidding where the low bid isn't the winner. It merely becomes a "target price" for a new round of bidding. This goes on and on in a bloody tough-man contest until a battered last-man-standing gets the job.

Despite this brutalizing of commercial relationships, you still hear high-flown statements from auto companies about how they want to "partner" with suppliers. I pointed out that it is impossible to partner with a supplier whom you intend to stab in the back.

I also related how I once attended a conference where a panel of people from automobile companies explained how vital it was for auto companies to embrace suppliers with partnering arrangements. In the Q&A session afterwards, I innocently asked how the panel could reconcile talk of partnering with the brutal nature of today's bidding process. That really got the panel bouncing up and down in their seats. One obviously agitated member insisted that he get the floor to reply to what he called the "pointed nature" of my question.

After much huffing and puffing, all he could say was that despite being in a partnering arrangement, a supplier must be competitive. That was it. In short, he had no rebuttal nor even an explanation. I evidently had hit a raw nerve.

I mentioned all this in my speech, and then went on to say that the new bidding procedure is producing cars built with cheaper and cheaper components. The process is inexorable and something the public is beginning to notice as components from suppliers fail left and right in new cars.

I then said there appears to be no hope because Wall Street is putting relentless pressure on CEOs in Detroit. Investors want stock prices to rise unceasingly, and that means profits must likewise rise unceasingly. Since automobile manufacturers are running out of ways to make profits from product development or improved marketing, they have only one place to turn. Detroit will boost profits by relentlessly milking money from its suppliers.

That was the essence of my talk, and somebody from an automobile company took offense. My, aren't we touchy!

-- Ronald Khol, Editor

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