Automakers' efforts to cut costs damages supplier relations, survey says

Relations between automakers and suppliers are deteriorating largely because of intensifying cost-cutting demands, according to a new survey.

Vehicle manufacturers are looking for annual price reductions of as much as 10 percent, parts makers revealed in the 2014 Global OEM-Supplier Relations Study conducted by consultant IHS Automotive.

"With few exceptions, even the best performing carmakers have become more stringent on controlling costs in 2014, signaling a general shift for the automakers toward greater cost focus and more aggressive ways to capitalize on their negotiation leverage with suppliers," Matteo Fini, the study's lead author, wrote in the report.

The standard annual price reduction by automakers is about 2 to 3 percent, but IHS says it is not uncommon for them to seek cuts of 5 percent or more.

"Suppliers seem to accept the notion that they have to find innovative ways to generate savings on a year-over-year basis, however, they find it difficult to accept that they receive little or no support from the OEMs in doing so. This lack of support often results in strained relations between the two parties," Fini wrote.

A number of factors contribute to strained ties between automakers and suppliers, he said.

"Expanded product liability guarantees, attempts to put more of the financial burden of recalls on suppliers and such 'nitty-gritty' factors as reduced levels of compensation for raw material cost variations and reimbursement on tooling are also having a negative influence on the supplier-OEM relationship," Fini said in an interview. "In some commodity type areas, OEMs are becoming much more demanding. They clearly consider their bigger platforms lead to higher volumes and this gives them much greater leverage with suppliers."

The survey asked suppliers to rate automakers based on 29 criteria in five categories -- profit potential, organization, trust, pursuit of excellence and outlook. Based on suppliers' responses, the automakers are assigned scores between 0 and 1,000.

Toyota and BMW tied for first, each with 627 points.

Fini said suppliers indicated that Volkswagen Group and Renault-Nissan are particularly demanding.

There were some winners in this year's survey. Jaguar Land Rover, with a 16 percent improvement in 2014, established itself as the "most trustworthy" automaker. It offers, for example, a more comprehensive protection of its suppliers' intellectual property, according to the survey.

Another winner was Chinese manufacturer Great Wall Motor Co., which improved 47 points to 518, putting it just behind VW brand (525) and Hyundai (524).

Suppliers are less confident than they had been about their opportunities to expand their business, expressing particular concern about future opportunities with Hyundai-Kia and VW Group.