In-demand tech puts suppliers on guard

That trust that automakers have worked so hard to rekindle among their parts suppliers? It's slipping away again.

An industry survey shows that automakers' desire for hot, new vehicle technologies is stirring suppliers' suspicion and mistrust. Many say they are increasingly wary of sharing technical ideas and innovations with customers.

And now some suppliers that have developed key technologies are withholding their expertise from automakers with which they have poor relationships.

"Suppliers are more and more concerned about their intellectual property," said Bill Forsythe, a principal at consulting firm Deloitte. "Technology has become a differentiator in the marketplace."

The warning shows up in the newly released biennial North American Suppliers' Choice Study by Deloitte and Automotive News.

According to the study, suppliers said this year that they lost some trust in the four automakers that rank highest as customers — BMW, Mercedes-Benz, Tesla and Toyota.

Those companies received top grades out of 15 North American automakers.

The study asked 110 suppliers to rate their customers based on five factors: openness, trust, incentives, willing- ness to implement innovations and ease of working relations.

The results indicate that automakers are slipping in the estimation of their suppliers.

Overall, the industry's score for all five factors was 568 on a scale of 100 to 1,000, down from 578 two years ago. Even the industry's top-ranked customer, BMW, suffered a steep decline with a score of 654, down from 707 two years ago.

The index for trust, considered the most important factor, totaled 583 this year, down sharply from 628 two years ago.

The biggest factor for the general downturn was that lack of trust, Forsythe said.

The results suggest the industry may be in for some bumpy supply-chain sailing as it hurriedly rethinks how autos are going to operate, what they are going to look like and how they are going to be manufactured in the coming decade.

The new consensus is that suppliers with innovative solutions are going to gain more power in dealings with automakers.

The study measured three aspects of trust: an automaker's respect for confidentiality, willingness to partner with suppliers and commitment to fulfill the contract's terms.

Suppliers indicated that automakers are already paying a stiff price for the growing lack of trust:

• Sixty-one percent of respondents said they are not sharing their most innovative technology with automakers with whom they have poor relations.
• Fifty-nine percent said they are withholding their best personnel from those automakers.
• Fifty-nine percent said they do not offer their lowest prices to those companies.
• Sixty-four percent said they do not offer exclusive access to their most innovative products.

Despite these penalties, automakers rarely change their purchasing practices dramatically. In fact, the same automakers tend to appear at the top and bottom of the study each time.

Since the Deloitte study began in 2002, BMW, Toyota and Mercedes have been perennial leaders. This year, BMW was the top automaker for the fifth straight time.

Volkswagen, Nissan and Hyundai received the worst ratings in 2017. VW and Hyundai have lingered near the bottom since the 2011 survey. Nissan, which ranked fifth in 2007, has fallen steadily since then.

The new kid on the block — Tesla — finished fourth, down from third in 2015.

Some suppliers credited Tesla's fast decision-making, while others chided it for arrogance. Said one vendor: "They want new ideas, but they lack patience."

Tesla remains a work in progress, Forsythe said. "I am in wait-and-see mode with Tesla," he said. "The company is new, and they are perceived to be open to new ideas. It will be interesting to observe them over time."

The trust issue that dragged down automakers' grades on this year's survey is not going to go away, Forsythe said. Automakers' need for cutting-edge technology will likely force them to mend relations with suppliers, he said.

"Clearly the scores suggest there is room to improve," Forsythe said. "The suppliers are holding the technology cards, and they are playing those cards more intelligently."