General Motors keen on longer-term supplier contracts aiming to cut costs

Wednesday, Apr 15, 2015

General Motors Co.’s purchasing chief said the nation’s largest auto maker aims to sign new parts contracts for two vehicle generations, or as long as a decade, to cut costs and gain access to advanced technologies.

The Detroit auto maker is gearing up for big investments in luxury cars, electric vehicles and other projects, and expects to sign hundreds of billions of dollars in new supply contracts over the next two years. Purchasing Chief Steve Kiefer said that by locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker can expect suppliers to share more innovations and better processes that help save money.

“We want them to double down on us,” Mr. Kiefer said in meeting at the company’s Warren, Mich., technology center. GM said it has begun making long-term contract deals.

Recently, he asked about 30 of the auto maker’s biggest parts makers to help relieve supply bottlenecks so the company can crank up production of its highly profitable pickup trucks and sport-utility vehicles. In some cases, he said GM promised to help suppliers cover addition costs to get the needed parts.

Demand for pickups and big SUVs like the GMC Yukon and Cadillac Escalade has been unexpected strong as gasoline prices have fallen.

A GM veteran, Mr. Kiefer left for a executive stint at auto supplier Delphi Automotive PLC and rejoined the auto maker in 2013. He was promoted to lead purchasing officer at the end of 2014.

Mr. Kiefer’s comments come amid a technology arms race in the industry with auto makers vying to be first with self-driving features for vehicles or propulsion technologies that reduce emissions. GM, like other car makers, has increased its spending to bring new technologies to market.

“Steve Kiefer understands well the challenges suppliers face and brings excellent technical and business knowledge to the discussion on enhancing and strengthening supplier relationships,” said a Delphi spokeswoman. “We think many of the ideas being discussed will have a positive impact going forward.”

GM Chief Executive Mary Barra recent has implemented a strategy aimed at improving relationships with suppliers that believed the auto maker was overly optimistic in its planning assumptions or too forceful in its cost-cutting mandates.

Mr. Kiefer is attempting to undo decades of damage caused by poor relationships with suppliers that had curtailed its early access to new innovations.

He also said that an internal procurements team is trolling for new automotive technologies in places like Israel and Silicon Valley. He said he is open to hearing pitches from companies that traditionally haven’t been suppliers to the auto industry.

In recent years, GM has been ranked by parts makers as having poor relationship, lagging behind Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., according to annual surveys by Planning Perspectives Inc., which regularly polls suppliers on their attitudes toward auto makers.

The firm’s 2015 auto maker-supplier relationship survey is due next month.

“It makes sense to award long term contracts,” said John Henke Jr., president of the Birmingham, Mich.-based company. “The challenge that Steve has is that down on GM’s buying level, not everyone is playing the same game. If an auto maker has great relations with the suppliers, the suppliers provide them with the innovation and support. However, if they are getting beat up by a buyer, they aren’t going to give them anything.”