PSA's Jean-Philippe Collin wants suppliers to help the automaker cut production costs.
"Typically, we share the savings on a fifty-fifty basis with our suppliers," said PSA purchasing chief Jean-Philippe Collin at the auto show here.
The French automaker says some of the ways suppliers could cut costs could be: Reducing the number of parts in its vehicles; lowering their weight or simplifying production processes. "Several carmakers are doing this," said Edmund Chew, head of supplier consultant SupplierBusiness.com. "Some suppliers have voiced disappointment at the outcome."
Last December Collin said PSA is not happy with the quality of components it gets from its suppliers.
He said the proliferation of car models in recent years increases the risk of defective components because it raises the total number of parts.
PSA has embarked on a three-year plan to reduce the overall rate of faulty parts (usually measured in parts per million or PPM) by 25 percent every six months through the end of 2007.
Mathematically, that would mean an 82 percent reduction by the end of the program.
Squeezed by raw materials costs
PSA's search for savings comes as automakers' profit margins are squeezed by the rise in raw materials such as steel.
Intense competition for sales also is forcing automakers to cut new-car prices, hitting their profit margins.
PSA expects the rise in raw materials to add between E250 million and E300 million to its costs this year.
That's roughly 10 percent of its overall raw material costs, which stood at about E3 billion in 2004.
With steel accounting for most of the increase, PSA is asking suppliers to re-engineer car parts to save as much steel as possible, Collin said.
PSA spends E22 billion a year on car components. As part of its plan to boost parts quality, PSA held its first-ever supplier awards ceremony at Geneva.