Get the Message?

Nov. 26, 2005
There are so many messages coming from Detroit I wonder if they are seeing the same problems the rest of us see.

Quality is Job 1. That was the message delivered by Ford Motor Co. back in the 1980s — a clear statement at a time when domestic automakers badly needed to cut through a lot of bad news and project a competent, confident image. The message brilliantly linked Ford’s purpose and methods to its products. It would be good if today’s aimless auto industry could deliver an effective message. The trouble is, they send lots of messages but none seems to be the right one.

Because of the centrality of the auto industry to the manufacturing supply chain, this is a concern for everyone. “Quality” may still be Job 1 at Ford, but there are so many other ideas coming from Detroit I wonder if they are seeing the same problems the rest of us see.

The latest is Ford’s determination to trim its supplier roster so that it can build tighter bonds with those it keeps. Ford will place larger, longer-term contracts and require a more integrated design process with its preferred suppliers.

Tony Brown, Ford’s senior v.p. for global purchasing, says the new strategy will be to involve suppliers at the beginning of a vehicle’s design process and pay them in advance for engineering and development. With longer contracts, suppliers will be able to invest more in these programs, but they’ll have to commit to remain competitive and give Ford access to their technologies.

Have no doubt that if this strategy works, or more important, if investors like the idea, GM and Chrysler will mimic it. Automakers and their suppliers should improve and coordinate their R&D, and it’s possible this will work well for all, but it’s not a wholly reasonable strategy.

Long-term commitments look good in advance, but cannot anticipate every future development. When you’re planning a budget you want to forecast costs but you can’t guarantee revenue, which is why so many budgets get revised midyear. At some point, Ford and its suppliers will want to break these commitments.

Also, in a free market buyers want variety, not limitation. Ford will want to choose products from off the “preferred” list; suppliers will want opportunities to sell elsewhere.

Most important, such a plan does nothing to address the most critical problem facing Ford and the other domestic automakers. There is a cost-structure crisis moving through the manufacturing supply chain that is about to spring on them. It is the vast difference between corporate revenues and liabilities, particularly employee and retiree pension and benefit costs.

Three years ago steelmakers were strapped for revenues, and automakers benefited. For the past year auto-parts suppliers have been diving for creditor protection - and now Ford is leading a charge to cut long-term deals with them when they’re most vulnerable.

Instead of changing the supply rules, automakers should be working to solve their own problems with pension and benefit obligations, estimated in the tens of billions. Maybe they haven’t got the message.