General Motors' dramatic about-face on its standard purchasing contract last week was more than a gritty admission by GM's purchasing chief that she was wrong.
It was confirmation of a seismic shift in the balance of power between automakers and suppliers of cutting-edge technology.
In an era of tough CAFE, connectivity and self-driving cars, the titans of tech can't be pushed around.
In an exclusive interview last week with Automotive News, GM purchasing chief Grace Lieblein revealed that the company is eliminating controversial portions of the company's standard contract, introduced just six months ago, that had outraged suppliers and was seen as an effort to exert unprecedented control over vendors.
It "was a misstep for sure," Lieblein said. "I don't want to be talking to CEOs about terms and conditions. I want to be talking to them about technology and quality and driving waste from the system."
But she had little choice.
As automakers race to boost fuel economy, improve infotainment and make their cars collision-proof, suppliers of cutting-edge technology feel no particular need to accept unfavorable contracts.
When GM unveiled its revised terms and conditions in July, there was an immediate uproar. Angry suppliers said the contract could saddle them with open-ended liability for parts later deemed unsafe -- even if those parts were made to GM's specifications.
Another stinker was intellectual property rights. Suppliers said GM was not obligated to keep their technical data confidential unless the two parties signed a separate agreement.
Critics said the terms had roots in a long-gone era in which automakers played the tune and suppliers obediently danced.
In the early 1990s, GM purchasing chief Inaki Lopez demanded huge price cuts from suppliers, who feared Lopez would share their technology with rivals if they refused. But now, for several key technologies, a few specialized suppliers control the market.
Airbags are a good example. Five companies -- Takata, Autoliv, TRW, Key Safety Systems and Toyota Gosei -- control the bulk of worldwide sales. If you don't like their prices, you can't order cheap knockoffs from a hole-in-the-wall factory in Shanghai.
So it's no surprise that Takata Corp. is a member of GM's supplier council, an inner circle of 11 companies that spent several months suggesting revisions to GM's terms and conditions.
GM told the council it would assert the right to a supplier's intellectual property only during periods when the vendor is unable to ship products, and that satisfied Robert Fisher, president of Takata's North American subsidiary.
"I think GM gets it," Fisher told Automotive News. "Their behavior will determine which suppliers they attract, and those suppliers will determine what new technology and innovation they get."
The contract dispute has been a trial by fire for Lieblein, who became purchasing chief in December 2012 after her predecessor, Bob Socia, was put in charge of GM China. She had not worked in purchasing but had experience overseeing product launches and manufacturing as president of GM's operations in Brazil and Mexico.
After she revised GM's terms and conditions about six months into her tenure, suppliers complained they had not been consulted and objected to GM's take-it-or-leave-it stance.
While Lieblein was working to placate GM's suppliers, other automakers have assiduously built alliances with suppliers to access their technology. Audi AG is a good example.
When Audi CEO Rupert Stadler spoke last month at the International CES in Las Vegas, he used a driverless car to illustrate his company's tech prowess. After a modified Audi A7 sedan drove itself onstage in the swank Chelsea theater, Stadler bragged that future Audis will feature a new and more powerful computer chip: the Tegra K1, developed by Nvidia.
Then he invited Nvidia CEO Jen-Hsun Huang onstage to bask in the applause. Stadler's message: Nvidia was a partner in Audi's development of driverless cars.
Another case of automaker-supplier cooperation is the 2014 Jeep Cherokee's all-wheel-drive system.
Years ago, before the new Cherokee was on the drawing board, American Axle & Manufacturing Inc. pitched an awd technology to Chrysler that could switch between front-wheel drive and awd by engaging or disengaging the driveshaft from the transmission to the rear differential.
That would allow the Cherokee to perform like an SUV off-road while achieving the fuel economy of a hatchback in regular driving.
Chrysler was interested. American Axle began working on the Cherokee's awd system before Chrysler gave it a production contract. That wouldn't have happened if the automaker and the supplier lacked trust.
Meanwhile, Ford purchasing chief Hau Thai-Tang discussed the need for collaboration with suppliers in an October session with reporters. Asked about Ford's standard contract, he said the company revised it in 2004 after lengthy consultations with key suppliers.
'Brutally honest' meetings
Ford's efforts paid dividends when it awarded BorgWarner Inc. a contract to produce turbochargers for EcoBoost engines.
Last month at the Automotive News World Congress, BorgWarner CEO James Verrier described his company's decision to share sensitive information with Ford. He said BorgWarner's senior management met once a month with top Ford executives.
The execs dispensed with the usual PowerPoint presentations and staff support. Instead, both companies listed on a sheet of paper the problems that threatened the launch. "These meetings were brutally honest," Verrier said. "They were very, very intense."
The executives -- half a dozen or so -- were empowered to make decisions, Verrier said. The companies shared more information than they normally would, and that kept the program on track.
Verrier shared that information because he was confident that Ford wouldn't misuse it. According to a supplier survey published in May, GM trailed rivals in the trust category.
Last year, consultant Planning Perspectives Inc. asked North American suppliers whether they were willing to share new technology with automakers without a purchase order. Ford ranked third, behind Honda and Toyota. GM ranked fifth out of six automakers studied.
Lieblein's revisions of GM's terms and conditions will help change that, said Planning Perspectives President John Henke, who conducted the survey.
Said Henke: "This is one of the most profound things that GM has done in my experience."
You can reach David Sedgwick at firstname.lastname@example.org