BMW losing favor with suppliers
MUNICH - BMW, which long has been a favorite of automotive suppliers, is beginning to burn some of that goodwill because of its sharpened emphasis on cost-cutting.
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"My impression is that BMW is now undertaking a shift from a company driven by technology to one driven solely by operating figures," one supplier manager said.
CEO Norbert Reithofer has set a goal of raising BMW's profit margin to between 8 percent and 10 percent a year by 2012, in part by cutting spending by 6 billion euros or about $8.7 billion by then. For the first half of 2007, BMW achieved an operating profit margin of just 5.5 percent.
Suppliers are expected to make the biggest contribution to those savings. "Yes, the pressure has increased," said the sales manager for one Bavarian-based supplier.
Herbert Diess, formerly head of BMW Motorcycles, has filled a new position on the BMW executive committee to oversee suppliers and the cost-cutting strategy.
The simmering resentment went public in October and November after Manfred Schoch, deputy chairman of BMW's supervisory board as well as head of its works council, seemed to suggest in an interview that the automaker's suppliers needed to offer some price concessions.
"We've noticed that many suppliers, such as Conti, Bosch, Magna or ElringKlinger, generate better returns than we do," Schoch told the magazine Auto Motor und Sport in an October interview.
The backlash was immediate.
"In my view, it is alarming when someone on the union side excoriates suppliers for making a profit," said Stefan Wolf, CEO of ElringKlinger, responding to Schoch.
Union officials expressed "amazement and dismay" at Schoch's comments. In a letter to the BMW labor chief, IG Metall officials said they found it "unbelievable" that he should be putting suppliers under more pressure.
"Automotive suppliers today are under enormous pressure from manufacturers and are subject to their control," the union representatives wrote. "When they still manage to show a profit, they do so thanks to their ability to innovate and the good work of their employees."
BMW has been one of the supplier sector's favorite manufacturers, alongside Toyota. The two automakers traditionally emphasize quality and technology over price when sourcing parts, and typically offer suppliers stable long-term contracts.
But Arndt Kirchhoff, chairman of the midsized-company group within VDA, the German auto industry association, confirmed that resentment is growing over BMW's new business practices.
"Once agreements are struck, they should be observed," he said.
You can reach Klaus-Dieter Floerecke at kfloerecke@craincom.de.
