PARIS -- "Pay to play" plans that require suppliers to make cash advances to land long-term contracts are common in the United States. But they have failed in Europe, supplier associations say, because parts makers there refuse to pay upfront.
In a typical pay-to-play plan, a Tier 1 supplier or automaker asks a parts maker to provide an immediate payment. Such a payment usually covers anticipated cost savings from productivity gains during a multiyear contract.
General Motors, Visteon Corp. and Delphi Corp. are among U.S. companies that have used the practice. But Lars Holmqvist, CEO of CLEPA, the European suppliers association, says he is "not aware it's a European practice."
"We in Europe consider these kinds of practices as unethical, unfair -- the rawest form of capitalism," Holmqvist says.
Holmqvist says he got two pay-to-play requests a few years ago when he was an executive of a Tier 2 supplier. He says he was asked for about $100,000 each time -- once to participate in an auction and once to make a bid. Holmqvist says he refused.
Holmqvist adds that he knows of attempts to get European suppliers to pay in advance for future savings in a contract. But those suppliers resisted successfully, he says.
European suppliers cannot afford to take part in pay-to-play plans because they are less profitable than their U.S. counterparts, says Armand Batteux, chairman of the French auto suppliers association.
Says Batteux: "It would put their financial survival at risk."