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Weak Supplier Relations Cost Automakers Billions

Ford, General Motors, FCA US and Nissan would have earned $2 billion more in operating profit last year if their supplier relations improved as much as Toyota's and Honda's did during the year.
Ford, General Motors, FCA US and Nissan would have earned $2 billion more in operating profit last year if their supplier relations improved as much as Toyota's and Honda's did during the year.

Here's a good lesson in supplier relations: According to an automotive study published yesterday, collectively, Ford, General Motors, FCA US and Nissan would have earned $2 billion more in operating profit last year if their supplier relations improved as much as Toyota's and Honda's did during the year.

The results of this study – the North American Automotive - Tier 1 Supplier Working Relations Index – show the important role these relationships play in meeting the bottom line in the industry today.

"Last year we unveiled an economic model that proves a direct cause-effect relationship between an automotive OEM's supplier relations and the OEM's operating profit," said the study's author, John W. Henke, Jr., Ph.D., president and CEO of Planning Perspectives, Inc., Birmingham, MI.

"This year, Toyota and Honda improved their WRI ranking a combined average of 8.7% over last year's levels," he explained. "Using our economic model, we know that if supplier relations at Ford, Nissan, FCA and GM also improved by 8.7%, they each would have realized significantly higher operating income – an estimated $2.02 billion collectively."

"At the low end, Nissan would have generated another $261 million and at the high end GM would have earned another $750 million, with Ford and FCA in between," he added.



The 2015 Study also shows the following significant changes in supplier relations among the OEMs:

  • "Toyota's and Honda's continuing efforts to improve supplier relations have paid off handsomely as they are ranked one and two, respectively, for the fifth straight year, well ahead of the other four automakers. Toyota has been ranked in first place since the study's inception in 2002 except for 2009 and 2010 when Honda captured first place."

  • "Honda, with 11.8% improvement this year, nearly doubled Toyota's improvement of 5.6%. If Honda keeps up the pace, it could take over first place from Toyota next year. Honda is the most preferred customer of suppliers, but just slightly over Toyota."

  • "Ford has regained third place over a declining Nissan, but only because Ford declined only 2% compared to Nissan's 10.6%. Ford has dropped to its lowest ranking in five years, but is significantly ahead of FCA and GM."

  • "In a major shift, Nissan, which was most improved overall last year, had the greatest drop in ratings this year and slipped to fourth place behind Ford. This year, Nissan is the least preferred customer of the six OEMs."

  • "And, for the second year in a row, FCA's and GM's rankings have fallen. They are now tied for last place, having both dropped 8.5% in the rankings – more than 100 points behind leaders Toyota and Honda."
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