June 13, 2025 • 63 mins
TOPIC: Supplier Relationships PANEL: Dave Andrea, Plante Moran; Lindsay Brooke, Industry Expert; Gary Vasilash, shinymetalboxes.net; John McElroy, Autoline.tv
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Episode Transcript
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Speaker 1 (00:01):
That's we're live.
Speaker 2 (00:04):
So yeah, we start the show, then, yeah, you can
go whatever.
Speaker 3 (00:08):
Start the show, John, Okay, everybody out there watching the
show right now, we're having technical difficulties. The streaming service
that we usually use to do the show has gone
down for reasons. We don't know what's going on here,
but we are able to come to you anyway. The
video's probably going to be okay. The audio maybe not
(00:30):
as good, but maybe good enough. So we're gonna go
ahead with the show anyway. And of course we've got
Gary Vassilash here, the famous Gary Vassilash. We've got Dave
Andrea from Plant Moran, the more famous, the more famous,
soon to leave Plant Moran, but we'll get into that.
We got Lindsay Brooke are College, the infamous Lindsay Brooke.
(00:55):
But but we're gonna do online after hours anyway. And
I know, Gary, one of the things that you wanted
to have us talk about is how much the four
of us have seen the auto industry change over the
course of our careers.
Speaker 2 (01:09):
And I think particularly since Dave will be retiring from
Platin Moran at the end of the month, and he
has probably had more perspectives on different things than the
three of us, all.
Speaker 1 (01:21):
Working as journalists for our careers, have had. I think, Dave,
we need to start with you to give us just
give us.
Speaker 2 (01:29):
A snapshot of where we are now and how we
got there.
Speaker 1 (01:34):
Well, look over the forty years, I have had many
different perspectives. They've always been from the outside looking in
to the industry here. But sometimes Gary, I think it's
the old The more things change, the more they stay
the same going through Like on the Working Relations Index studies,
(02:00):
I remember and.
Speaker 3 (02:01):
Let me interduct you with the Working Relation Index. This
is where suppliers evaluate how the different automakers treat them,
I guess is the way to put it. But just
for those who may not know the WRI off the top.
Speaker 1 (02:14):
Of her perfect John, Yeah, I can go back truly
to nineteen eighty three, nineteen eighty four when I was
an intern at Ford Motor Company, and some of the stories,
some of the comments that are in the WRI are
things that I experienced forty years ago. So it hasn't
(02:37):
changed that much, without a doubt, though. What has changed
is the globalization of the industry in terms of the
number of players and the culture of the players, and
certainly Detroit has changed from when I started forty years ago.
Speaker 2 (02:55):
So you're basically always looking at it from the point
of view of relationships between the two types of organizations,
the OEMs as well as the mainly Cure one suppliers,
and then also sort of from an economic perspective.
Speaker 1 (03:12):
Is that fair to say, Well, the economics come in
terms of the macro environment, and we do see over
the years how things change. If you go back, you know,
fifteen years or so, when the industry was all coming back,
the production levels were all growing, profits were in the industry.
(03:36):
The numbers follow the profitability. A lot of times, when
things get difficult, that's when the relationships tighten up in
terms of everybody's trying to get protect and get their
own dollar, and that's where we see a lot of
the tension and stress in the industry.
Speaker 3 (03:55):
You know, when I got into the industry, boy, it
was a different worldly, different world. It was the World
War two generation was running the auto industry. And I
don't mean the World War two generation that ran World
War Two. I'm talking about the grunts. So, like you know,
when I got onto Automotive Industries magazine, one of our
(04:17):
guys that I worked with, had been at the D
Day invasion, he was a captain in an LST. Had
another guy that worked on the magazine that had fought
through North Africa and up through the Italian campaign. Had
another guy that was on a mind sweeper in the Pacific.
And so the whole attitude at that time was America
(04:41):
was so great, Detroit was so important. And I remember
wanting to write about these companies called Toyota and Honda
and Docson at the time and getting criticized, why are
you writing about those companies. Those are the Japanese. We
beat them in the war. And you know, when I
think about back to the attitude then and the way
(05:02):
that the industry was structured, it's completely different today. I mean,
back then, the Detroit Three, the Big three as they
were known then. Right now they're the Big four, five,
and six. That's how much they've come down. Is they
built something like eighty percent of everything in the house.
And the supplier industry was this small little thing. They
(05:24):
were tires, and maybe they were some specialty transmissions and
stuff like that. But the car companies did everything in
the house. They had not really there was not the
supplier industry that there is today. It's completely changed now.
You know, they buy seventy to eighty percent of what
goes into.
Speaker 1 (05:43):
A car, and the engineering and design were flip flipped
around as well. And that's part of that globalization. And
you probably get the same type of opinion right now
about writing about BID and g Lee some of those
other Chinese firms. But the thing with the half LIFs right,
(06:05):
because it took Volkswagen decades right to make their inroads.
Then it took when you look at at Kendai and
Dawu and like, it just took decades for them to grow.
And so that the speed of how the industry has
changed from a market share standpoint and then from a
(06:29):
leverage standpoint, has without a doubt, has changed dramatically. And
that's where going back to the twenty five years ago
with the WRI, the leverage was purely in the hands
of the of the vehicle manufacturer.
Speaker 2 (06:45):
Some man the vehicle manufacturers could tell us players, we
want this, this is what we wanted when we.
Speaker 1 (06:50):
Wanted well, right, and so when you said, well why
do you put up when you ask the question, well
why do you put up with that attitude? Well, it's
the volume, right, And that's the customer and will do
anything for the customer. Where things have changed now because
you have to go down five, six, seven and eight
right to get in terms of total production share. Now
(07:16):
that leverage has changed, and that's where we see that
the vehicle manufacturers then respond to the survey because the
suppliers have choices, and in fact, when we give them
the comments, there's direct comments. You know, we're working away
(07:37):
from one one OEM or we want to grow with
another OEM. And with the technology transformation is that it's
moving so fast, the vehicle manufacturers have to try at
least to be a customer of choice that the suppliers
want to work with them. So necessary.
Speaker 4 (08:00):
One second, Gary, we don't have many complaints or anything
like that in the comments. We have about one hundred
people watching now on this one. Do you mind just
giving a quick little update on kind of what's going on.
Speaker 3 (08:11):
Yeah, yeah, yeah, Sean just asked me to talk to
you guys who are watching right now. We're having technical difficulties.
The streaming service that we use normally to go live
with the show, which we've been using now since two
thousand and eight, never had a problem somehow or other.
Speaker 1 (08:28):
It went down.
Speaker 3 (08:28):
Today, we're still trying to figure out what's going on
with that, so we've got sort of a backup mode.
The audio may not be as good. I think the
video is okay, but just so all of you watching
understand right now why it's not to our regular production
quality standards.
Speaker 1 (08:45):
You know what's going on. Thank you. I think that
should be good. The content is above for great. I
just want to make that clarity. So we didn't make it.
Speaker 2 (08:54):
So John was talking about how early on in our
careers OEMs were vertically integrated.
Speaker 3 (09:03):
Why did they stop being vertically integrated.
Speaker 1 (09:07):
Well, there was always a perception that they were the
high cost manufacturer. So I go back when I was say,
an analyst at Ronian Company, and that was at the
time when GM was spinning off what became the Delphi assets.
(09:29):
Ford was spinning off the Vistian assets. I remember going
to these meetings where the vehicle manufacturer side would make
this case that they had to spin off the parts
side of their business because it was too capital intensive,
it was too costly, and they were going to shed
(09:52):
that and become more profitable. And then literally next you
would go next door to hear the Delphi or the
Vistian or the the ACU Stars story. They never went
in public, but and it was completely the opposite. Well, wait,
because we're going to be focused, we're going to be
capital efficient, we're going to be profitable, we're going to
(10:13):
be able to sell a course more so to other OEMs,
and we're going to diversify our customer base. And you know,
we'll wait a minute. Just five minutes ago you heard
that these were the worst assets, the most costly, and
now it's the best story ever. So it didn't give.
It didn't.
Speaker 5 (10:34):
But during that period too, we had in this history
the Japanese setting up manufacturing widespread in particularly.
Speaker 1 (10:43):
In the eastern part of the US, and.
Speaker 5 (10:46):
Toyota and Honda brought their corretzus with them, and for
a long time you hear about, well, we can't compete
because of the Corretz, we can't compete because of the
relationship with Eijen and den Soil and et cetera, et cetera,
And that was seen as a real asset that the
new Japanese North American automakers had.
Speaker 1 (11:09):
Well there, lindsay. The thing I always found funny was
when I was at for it and we had the
internal parts division side. We treated those guys as worse
or more worse than as an independent supplier. And and
(11:32):
you'd question that, why would you You know, it's the same,
it's a Ford paycheck, right, And they did because it
was the vehicle manufacturer versus the supplier in that standpoint,
My point being, I think if they would have acted
like a Japanese in the terms of the Japanese culture
(11:55):
of respecting those the design, the engineering, the production capabilities
of the suppliers, that would have been a different industry.
But they know they treated them just as bad as
any other supplier, even though they were.
Speaker 2 (12:10):
But John, do you think that goes to the cultural
thing of.
Speaker 1 (12:12):
The people who were running the car companies or in
managerial positions, not just running, but.
Speaker 3 (12:18):
Who are in charge of those guys. I think you've
got to look at a big picture here. So number one,
when they were vertically integrated and they were oligopolies and
they were GM Ford and Chrysler were oligopolies, they had
collectively eaten nine plus of the market, So everybody had
(12:40):
to do whatever they wanted them to do, whether it
was the customer, the dealers, or the suppliers, and so
when things started to change, when international competition, namely the
Japanese started to come in and eat their market share,
they really got much more focused on cost because now
(13:00):
they had to compete with the Japanese. They couldn't just
pass costs along, and so when they started looking at
highly labor intensive operations like wiring highnesses and cutt and
soap for making seat covers and seat assembly, it was like,
holy crap, we can outsource this to suppliers who are
(13:21):
paying fifty percent less on their labor costs. Also, both
suppliers they can shift to any automaker, they're not just
an in house one. And that was part of the
culture thing. I think that you got to the supplier.
The in house supplier operations knew the company had to
buy from them. There was no competition there. And when
(13:42):
you started to get into new technologies, then the automakers
started to realize, Wow, now we got to spend a
lot of capital on our in house operations. Why don't
we just start outsourcing this stuff? And so the outsourcing
craze started in the early eighties, and then they took
it too far. They outsourced too much, and they realized
(14:04):
that they pulled some back and and there's still this
ongoing debate today is it make or buy? Do we
do we make it ourselves or do we buy it
from a supplier.
Speaker 2 (14:13):
So, Dave, you mentioned CHS, Dion and Delphi. That didn't
work out so well for either of those two companies
going forward.
Speaker 1 (14:20):
No, it it didn't. And I was out of the
analyst role after they really were established through their I
pos and we're standalone companies from that standpoint, And that
was probably because they were staffed managerially with people who
(14:44):
still had the mindset of their parents. Right, they weren't
they weren't the true competitor and for and also the
piece of competition changed, I think from exterior design in
a bit on interior design really heavy to technology. But look,
(15:08):
I think when when I went through the Vistai on
R and D centers and all those things, and you
look at some of the instrument cluster the instrument clusters,
and a lot of that innovation started at Fistian or
with FISTI on. So it wasn't like they didn't have
it or couldn't do it. But I just don't know
(15:30):
why they didn't get the establishedment and to go up
against the other independent, always an independent.
Speaker 3 (15:38):
But remember Dave, they were unionized, and so you don't
only have much higher labor rates. You've got union work rules,
lines of demarcation, threats of strikes. You have to create
a much bigger labor staff. And so I think that
played a key role in why they were not able
to compete. Having said that, several of the spinoffs have
(16:01):
done fantastic. Detroit Diesel, which is now part of Dinler
Truck is healthy and going. American Axle has done relatively
well for itself. On Delco Remy, you know, is still
alive and kicking. So there were operations that were spun
off that you know figured out now. Having said that,
(16:22):
look who their leaders were. Roger Penske is ahead of
Detroit Diesel. Dick dalk is the head of American Axle.
Hal Spurlock former president of Chrysler running Delco Remy. They're
a dynamic personnelity, dynamic executive. So even though they may
have had that OEM mindset, they got it. They knew
exactly what they had to do. Roger didn't have that
(16:45):
OEM mindset. He's always been an entrepreneur, entrepreneur.
Speaker 1 (16:48):
And they had the operations standpoint, and more of an
engineering bent I think for the cost piece of the puzzle. Yeah,
on the union side, I've always have felt that it
was as much, if not more, of the work rules. Yes,
that stemied the flexibility that then you couldn't overcome the
(17:11):
cost differential. It's not so much the wages and beneface.
Speaker 3 (17:15):
You can manage that if but having to manage a
plant along with a union adds a huge layer of complexity.
Speaker 2 (17:25):
So, Dave, I want to I want to ask you
about your findings for this twenty fifth Working Relations Index,
because I think that there are some surprises.
Speaker 1 (17:36):
To me anyway in here.
Speaker 2 (17:38):
Now, what's not surprising is that Toyota leads the pack again, Okay,
But what is surprising is the space between them and
the one of the bottom Stilantis, so on a five
hundred point scale, which I think is absurd because nobody's
ever to get near five hundred, because the top has
only been four fifteen by Toyota back in the day. Okay,
(18:00):
So Toya scores three eight six, Stillantis scores one for one?
How can how can Stillantis compete when its suppliers have
such a low level of respect for the.
Speaker 1 (18:19):
Company out and and we've seen that you have to
take it at least a three year window on that
because if you go now here, this is where I'm going,
Gary is if you go back and when Stillantis was
riding high on well, don't look at don't look at
(18:40):
the w r I number, No riding high on on
the RAM pickup truck sales on the Cherokee, on the
Grand Cherokee. And they were making higher margins than the
other two Big three. Their profitability was and but there's
(19:00):
supplier numbers were down here. If you take that snapshot,
and maybe if your question going forward, how can they
do it? They can't. They need their supply base to
be with them. Because John was pointing out sixty seventy
(19:22):
percent of the value of the vehicle is with those suppliers,
and so Stillantis is providing the design and the integration
and all those other elements. But they need their suppliers.
And that's one where the suppliers are starting to make
choices of where they're lining up. They're constrained resources, both
(19:45):
human resources and financial resources. So is it a case that.
Speaker 2 (19:53):
A supplier is more likely to provide an OA that
they have good relationships with the latest technology versus others
that don't score quite so high in terms of the
relationship index.
Speaker 1 (20:12):
Absolutely, and and that plays out in many different forms.
It does come back to the cost to serve, which
has been a big theme for us this year and
in the in the w r I roll out. So
think of it from this standpoint. You have a history
of getting paid for that innovation, uh, for the volumes
(20:37):
on that intervation. You know, is it going to be
exclusive exclusivity or can you sell it to all of
those other elements. So when the tech fares happen and
the other types of innovation fares happen, without a doubt,
the innovation gets shown to your better customers. But more
(21:01):
equally important is every day to day operation. So there's
a problem in the assembly plant on a warrant, a
potential warranty issue, and they call is the supplier, and
particularly if they get two or three calls, is a
supplier going to send out the team to the assembly
(21:24):
plant of their best engineers, their best workaround experts to
the customer they had the most difficult relationship with, or
the one with the best And that may not be
just the pure profitability piece. It's just all the friction
that goes into the relationship, and the suppliers will say
(21:48):
that well, while contractually they have to provide production to
all of their customers, it doesn't mean that you can't
respond quicker or better to an issue with the people
you have a better working relationship with. That's that's what
(22:10):
this shows. And I think back to your point about
how why the range is this year really points to
how difficult it is to be a supplier today because
typically the suppliers supply at least four, you know, or
(22:31):
even sometimes five or six of those OEMs, So you
have to have your own systems set up to fit
what a Stilantis. You know how to work with a
Stilantis as well as how to work with the Toyota.
And that's a tremendous amount of complexity.
Speaker 5 (22:51):
Hey, what's your sense in looking at the supply base
you interviewed, any differences of feeling to there's the OEM
comparing say hard parts suppliers and soft software and electronics suppliers,
which the ladder being a major major cause of customer
(23:12):
dissatisfaction today.
Speaker 1 (23:14):
Yeah, so that's one area where as John mentioned, I'm
going to be retiring at the end of this month,
Angela Johnson will be taking over for me and we're
we're working with a group of suppliers right now to
change around the questionnaire because it was developed up for
(23:37):
the hard parts, stamping, foraging, casting and volume. Yeah, you
know high production parts too. So we're going to integrate
more things like over the air updates. How does that happen?
Progress payments progress payments for tooling for hard tooling is
completely different than progress payments for software.
Speaker 2 (24:01):
Sure, john from what he was saying about the situation.
Say with Stilantis and we were talking earlier before the
show started about the RAM EV pickup truck, and you
were suggesting that it may not come out. I wonder
how much of that might be predicated on technology issues
(24:24):
with the supply base.
Speaker 3 (24:26):
Look, I'm speculating that ram will not and then Speculation
will not come out with its BEV pickup. Why because
BEV pickups are not selling very well. I mean the
Ford Ranger or the Ford Lightning excuse me, is now
outselling the cyber truck. The Silverado is less than that,
(24:47):
the Rivian's less than that, the GMC Sierra is less
than that. None of them. If you look at their
sales through the first five months. None of them will
crack thirty thousand sales this year. You can't make mone
me at that. So why would you bring a new
truck to the market knowing it's dead on arrival. You're
just going to lose money on it. I think the
(25:10):
Stalantis has got a lot of issues to solve right now.
Why would you bring a product to market that you
know you're going to lose money on it. I think
it's better bite the bullet right off. The investment in
that go to the e REV the extended Grange GV
version of that truck, which I think happens to have
a much better fighting chance than a pure BEF does
(25:32):
because you can toe with it, you can haul heavy
loads and the like. I don't think it's a technology issue,
except as technology is such with evs right now that
they're really not conducive to towing or hauling heavy loads.
Speaker 1 (25:46):
The use cases aren't there. But flip around everything you
just said about Stilantis in terms of the volume, the profitability,
all those things. It's the same for the suppliers, right right, Yeah,
So why would the supplier go and put in a
lot of investment certainly in new innovation that's bespoke to
(26:12):
one vehicle manufacturer, and certainly to one nameplate or one platform.
Let me go there. If they don't believe there's going
to be a return on that investment, So okay.
Speaker 2 (26:26):
But if I'm a supplier, I mean, my existence is
predicated on my being able to.
Speaker 1 (26:31):
Sell stuff to someone else.
Speaker 2 (26:34):
Wouldn't I just be interested in trying to sell to
whomever I possibly can to keep my business going.
Speaker 1 (26:43):
But as long as you know you can sell, whether
it's fitment specifications, all of those other elements to those
other customers, yeah, because if it's to a Stillontis design,
then I locked in. And that's where it's interesting watching
(27:06):
or reading the analysts and everything now of you still
have to keep it ev investment stream going because that's
where the industry ultimately will be. We just don't know when.
Like the all the four billion dollars of GM investment
(27:28):
that they just announced, some new, some old, but you
know it four billion.
Speaker 3 (27:33):
Dollars, don't you think they they threw everything in the
kitchen sink to make that number look as big as possible.
Speaker 1 (27:40):
Well, there's there's a bit of public relations there, sure,
but what that's but that's you know, maybe going also
back to how things have changed. It's, you know, back
thirty years ago, the industry government relationship was all about
regulation or about regulation, and now it's about the business conditions.
(28:08):
It's about tear trade and tariffs, it's about all the
elements of the business case, not necessarily about the product.
It's although you know, the terrorists are on the product,
but it's about the business versus about hard regulations.
Speaker 5 (28:28):
What sense you did you get from the study on
how suppliers feel about the newcomers TESLA, I mean you
have data on that, and even the byds. I mean,
I've heard just a lot of guys saying we can't
sell it to you know, the Detroit three we're going
to We've got business growing in China, and are those
(28:49):
companies they are they learning from all the data year
to year from the study.
Speaker 3 (28:55):
You know what it takes.
Speaker 1 (28:57):
So the other the other vehicle manufacturers outside we continually
talk with trying to get them into the study. My
step is even for the supply base, an intermediate step
of saying, let's do a proprietary study. You don't have
to be in the public what first. So that's another
(29:22):
one that's queued up for after Dave. After Dave leaves. No,
from this standpoint, I we we've we've surveyed, we've gotten data.
But the thing is, I was never comfortable that we
got a sizeable sample across all of the different systems
(29:47):
to be able to say that this is representative, you know,
without a doubt. I mean people have argued, you know,
if a number goes up or a number goes down,
or maybe what the absolute number, But nobody's ever argued
that our ranking is off the Toyota, Honda, General Motors
(30:08):
on Forward and Stilantis. They don't argue the ranking. So
we just have to get the right sample to be
able to do that.
Speaker 5 (30:18):
Do you think those companies will want to come into it?
What sense you have?
Speaker 1 (30:23):
No, not not yet because they the supplier. Well it's interesting,
I mean, John, going back to your portrayal of how
some of the arrogance might be of those you know,
like with Tesla. No, but for the you know, they
(30:50):
owned that market, yeah, right, and so they could put
their specs out, they could change, they could go back
and forth until you know, Job One all those others
that you know the suppoint. But and they did that
because they were TENESLA. Now that their market share is
starting to go down, they have more competition across different
(31:13):
segments all of those types of things with their product portfolio.
Time will come when they they will care, not necessarily
right now.
Speaker 2 (31:26):
So you know, getting back to this ranking means it's
been fairly consistent. But Ford has been taking a tumble
over the last few years. Why do you think that's
the case or why what did your data show you?
Speaker 1 (31:40):
Yeah, so I think it's a combination of a couple
of things. One is well, actually they all point back
to one thing, organization and and I pointed back to
organization to two ways though. First is when they split up.
I think for the Model Model E and the Ford
(32:04):
Blue piece, that confused internally, you know, engineering, purchasing, all
those types of things. It confused the external with the
suppliers to who was making decisions and things like that
that we see with the Japanese companies about is it
(32:26):
North America or Japan making decisions. We saw that just
within Dearborn. The other element that they structurally over the
last couple of years have done is to move a
lot of purchasing activity both first to Mexico and then
(32:46):
it was to India that they moved centers to. And
in a time when the industry has a lot of uncertainty,
a lot of you know, just leave it at that.
The last thing you want to do is extend decision
(33:09):
making authority, to extend the timeliness of decisions. And that's
what they've done. I mean even from like looking at tooling,
uh tooling payment disputes that a decision has to go
over to the Indian group. Take a look, information may
(33:30):
or may not be there, to be missing, has to
come back, has to go back over. And you're you're
looking at talking about terror just you know, uh, cost
pressures and you're delaying the payment to a supplier. Well, yeah,
(33:51):
that's going to impact your numbers dramatically because your cost
to serve is going up. It's a reverse relationship to
your wr I know.
Speaker 2 (34:03):
So, Okay, I'm a supplier and I'm based in Allen Park,
which is right next door to Deerborn, right right across
ninety four.
Speaker 1 (34:10):
I've got a problem.
Speaker 2 (34:11):
Yeah, I've got to deal with India rather than the
guy who's like literally across the street.
Speaker 1 (34:16):
Depending upon what it what it is. Yeah, and and
let me just say this that it's also difficult when
the Ford organization itself doesn't know the process. Two. So
if a supplier needs an answer and they can't get
(34:40):
a quick answer, yeah, you know that's again it's an
inverse relationship. So so that those would be the two things.
And so I pointed directly back to the organization.
Speaker 3 (34:55):
Yeah, we saw some news break in China this week
where they're has been a move to essentially compel the
automakers to pay their suppliers within sixty days. And you know,
this has been a complaint here in the US. I
know it's been in year Rope two that when times
get bad, when money gets tight, automakers starts stretching out
(35:17):
the time it takes to pay. You know, the horror
cases have been ninety days. Well in China it was
way worse than that. It was one hundred and forty days,
it was one hundred and sixty days, it was one
hundred and eighty days. I think byd was over two
hundred days and paying and the government through different ministries
now it's starting to crack, the government's starting to get
(35:38):
worried about the Chinese autoway. The Chinese government is getting
worried about the Chinese auto industry, and you know, we're
seeing none of them are making money. Maybe three automakers
are making money. There, dealers are going out of business
by the thousands, and so three different ministries sort of
(35:59):
it looks like joled these automakers into saying you've got
to pay within sixty days. And literally just yesterday, almost
every Chinese automaker came out and said, we've got a
new policy.
Speaker 1 (36:11):
Now we're going to.
Speaker 3 (36:11):
Pay within sixty days. Where do we stand in this country? Now?
What do you think of the move in China?
Speaker 1 (36:17):
Well there, and before that, the Japanese government made the
same request out of their top to their top two
vehicle manufacturers as well, because they were worried about how
fragile the supply base was. And some of those decisions
(36:38):
there ended up coming over here because that's the thing
going back to you want to try to be one
Toyota or one Ford, you know, back in the Malal days,
and so that that transfers over here. Payments have pretty
(37:01):
well stayed the same over the last i want to say,
three years, four years type of of peace there. It
was interesting with one of the vehicle manufacturers it was
last year when I was reporting out to them, I
made a statement saying, look, one way you could improve
(37:26):
your numbers. I know it's costly, but it's to shorten
your payment terms. And that wasn't a popular thing to
say in the in the purchasing staff meeting because what
they came back, well, who's saying, you know how big
of an issue is that all those other kinds of things,
And and my point was, wait a minute, we know
(37:52):
you could you have all the financial numbers on your
supply base. You know how fragile it is, so the
last thing you want to do is extend those payment terms.
That's the type of thing going back to what we
see in the in the survey and things is where
(38:12):
I guess this is going to sound like I'm picking
on finance. But if finance says no way, in a minute,
we need a little more cash on our balance sheet
and not on the supplier's balance sheet, so we're going
to extend it, That's where I think the survey has
served a good purpose over the years. Then purchasing can
(38:35):
go to finance and say, look, this is what you're
causing us. And it goes back to innovation. Slowing down
and it goes back to and they know the stories
about the customer support and things like that.
Speaker 5 (38:53):
Speaking of gripes, a neighbor who works at a Tier
one said to me this morning, ask Dave Andrew about
an ongoing He called it a generational issue and that's.
Speaker 1 (39:04):
Late engineering change.
Speaker 5 (39:07):
And I remember doing reporting on this years ago, you know,
and talking to people and they're no longer we're freezing it,
we're not budgeting.
Speaker 1 (39:16):
And we still hear this from the supply base.
Speaker 3 (39:18):
What's your data?
Speaker 1 (39:20):
Yes, so we do ask about actually, in three different ways,
are late or excessive engineering changes impacting cost, timing and quality.
And if you look at Toyota's over the last couple
(39:42):
of years, some of their numbers have worsened on that
and you think, well, but then you look at the
situation of like when they were putting out the new
Toyota architecture, generation architecture, on the new camera and those
(40:02):
types of things they're laid, engineering changes spike up because
most of that, of not all that was being done
in Japan. So it's an issue. That's the one thing
I keep saying to the OEA, use this data to
try to convince product development and marketing. Now I am
(40:25):
picking on those two functions to simplify your product mix.
We've heard over and over again from many of the
OEMs the old eighty twenty rule. You know, eighty percent
of our sales comes from twenty percent of our part
numbers are skews. You know, however you want to define it,
(40:49):
but we never We don't reduce that complexity. And by
not reducing that complexity, we still have all the engineering
changes that go along with way that.
Speaker 3 (41:01):
But there's a new dynamic in the industry now too
that Tesla started and the Chinese are copying, and that's
engineering changes on the fly. And part of it is
to get to market faster, not wait until you have
one hundred percent development, launch the product, and with over
the year updates and other improvements along the line, catch
(41:22):
up so to speak. Also getting to market faster. You know,
it's very obvious in the industry. First US with the
mostess is going to gain market share. And you know,
if it's the worst, no, that's absolutely true.
Speaker 1 (41:40):
It doesn't catch up with but in terms of warranty
and others, right, keep going.
Speaker 3 (41:46):
No, you're right, So I mean, uh, the Silicon Valley
model is essentially what Tesla adopted. And now that the
Chinese startups maybe not necessarily the stain enterprises in China,
but it's you know, break things fast, iterate, iterate, iterate,
you know, uh, don't wait until everything's perfect, get an
(42:07):
eighty percent of the way there and go with a launch.
And you know, Alex Partners even came out with a
study on this is you know, the the Western companies
and I'll throw the Japanese and the Koreans into that
want to have the absolute last piece of envh of
write in handling, acceleration and breaking absolutely perfect before they
(42:31):
launch a car. And so they hit the market at
a later date with higher cost and are losing market share.
So how do you reconcile with what you're saying, Yeah,
with this new imperative to go fast and break things.
Speaker 1 (42:46):
So I'm going to reconcile it by saying, what's your
what your go fast and break things that are absolutely
rooted in safety validation, on engineering validation and all those things.
(43:06):
And then what is what are the excessive engineering changes
based on we're trying to get that last feel for
the vehicle dynamics or you know, types of things and
and that was one where I go back to more
(43:28):
things change, the more they sing. How Titang from Ford
was on that at least six years ago, seven years ago,
and we haven't gotten there, you know, because because that
the engineer wanted to get it perfect, which is an
engineering mindset without a doubt, and what would the customer
(43:50):
pay for? But so that that's where I would I
would separate out kind of the hardcore vehicle functionality versus
coming up with the last five percent of to get
it perfect in the vehicle dynamic. The other thing we're seeing.
Speaker 3 (44:15):
Chin doing is buying a lot of off the shelf parts.
They're there, they're engineered, they're validated, they're six sigma, they're
ready to go.
Speaker 1 (44:24):
Why reinvent the wheel? Which is huge because the supply
base can provide that without a doubt. But this comes
back to some of the vehicle manufacturers having to have
their own design, having to have their own engineering or
(44:45):
it's not right.
Speaker 3 (44:47):
And how do you break that mindset? Yeah, well, I'll
give you a couple of examples. Well, higher pressure monitor systems.
It's a little thing that tells you what the pressure is.
Every car company's got a different one. Why you know,
a windshield wiper actuators. It's under the you know the call.
Nobody ever sees it as long as it works. But
(45:08):
they all have different ones. Why the fillernet where you
stick the nozzle in to fill your tank up, they're
all different.
Speaker 1 (45:15):
Why? Well, going back to an old story, I was
at a dinner at the at the Henry Ford Museum
and I was, you know, you start conversation with the
guy next to you, and I said, you know, what
do you do? And he said, oh, I design uh
(45:36):
ty rods And I said, oh really, and he gave
me the there was for a hybrid vehicle that and
I mean, I'm going back fifteen years so you kind
of probably guess who the hybrid was.
Speaker 6 (45:50):
But and I said, oh, I'm not an engineer, but
is that because different do you weight that you have
to have a different tirod end than the base one, uh,
the internal combustion.
Speaker 1 (46:05):
Engine and not the hybrid or And he said, no,
it has nothing to do about functionality. We got the
budget to do it, so we're gonna do it. And
and that's a chief engineer. Yeah problem. So I didn't
solve that problem for you, but I explain maybe why
(46:29):
it's there when your point about Okay, so when does
it end good bankruptcy or two will do that, that
will end it. Unfortunately, there's a lot of collateral damage
that comes along with that. But sometimes unfortunately you have
(46:51):
to hit that proverbial wall.
Speaker 3 (46:53):
What you're saying to wait is they have too many resources,
you know, because when you have limited resources, you you
think your way through the problems. You don't buy your
way out of the problem.
Speaker 2 (47:07):
Yeah.
Speaker 1 (47:07):
Well, and wasn't that kind of the American Motors Chrysler.
Speaker 3 (47:13):
Absolutely right, Absolutely, you know, American Motors had limited resources.
They did brilliantly with the resources they had. Chrysler coming
out of the first bang Rum see, based everything on
the K car and it did actually rather well. They
really came out with some innovative product off a common platform.
Speaker 2 (47:35):
Yeah, but doesn't doesn't every company think they have limited resources?
Speaker 1 (47:41):
Uh h? Every person was I was going to try
to flip it around Gary something clever. Every individual, Yes,
within those organizations, and so then collectively there's never enough,
right And and that's yeah, if that's an American thing, No, no.
Speaker 3 (48:10):
It's not, you know, because I don't mean to pick
on Mercedes and BMW but they have you want to
reduce complexity. Boy, they have a complexity issue to start.
They have way too many models, too many variants of
those models, separate all those name plates exactly, and and
(48:31):
and they recognize that they have too much, but they
can't seem to stop themselves.
Speaker 2 (48:36):
Yeah, so they want to go back to as an example,
we were talking earlier about the General Motors four billion
dollars for the three factories Orion, Fairfax, and Spring Hills.
And and this is in the context of suppliers.
Speaker 1 (48:53):
So Orion was going to.
Speaker 2 (48:55):
Become a plant where they're going to be building full
size evs, right, and now they're basically going, we should
put ice products in there because people are buying ice products. Okay,
but you're a supplier and you've been talking to them,
and you've been having your people work on projects that
would serve this full size EV SUV, which is now
(49:21):
not applicable at all to what they're gonna beople. So
over the last few years, haven't supplier has been faced
with having to do this in this and.
Speaker 1 (49:32):
Still be able to make money money doing it. Yeah,
And that's where I've tried to convey that profitability is
not the piece. You know that you look at each
individual program and say, yeah, they keep going with GM.
(49:53):
Is GM is it a profitable business for you? Because
it's not on each of those peace prices. It's about yeah,
I've invested tens of millions sometimes ofcity and capacity or
in tooling that's sitting idle. And so if I look
(50:18):
at my GM business now, all of a sudden, my
radar return goes down dramatically on my current business and
I have to try to figure out how to get
it back on my future business. And that's one where
I think, with the shifts in product plans and product
(50:41):
cadence and all those types of things, purchase it's not
a purchasing alone decision. It's got to be with your manufacturing.
It's got to be with your engineering and finance to
say and maybe bye, you have to it's easy to
(51:01):
meet for me to say, bite the bullet. And maybe
there's a special payment schedule that you do to help
the supplier cover their empty capacity that they have. Maybe
(51:22):
there you and this is not the old we make
it up on volume. Right, We're losing on this product,
but you know, we make it up on it and
and it really gets down to realistic production volume estimates. John,
going back to what you were going through on the
(51:45):
EV pickup trucks. You know, we've been through it so
many times before that I think any of the vehicle
manufacturers can really take a step out and show they're
different if they stabilize their well. And that's where Toyota
(52:08):
and Honda we're golden for all those years because you
know they will proverbial piece where you designed it, the
production for one less than you thought you were going
to sell, and you might give up some volume, you
might give up some sales. But I think you know
(52:28):
that's the mindset you have to get into to put
your competition out of business. Because you get the right
supply base A and then B, you can you can
price your product more competitively because you're not carrying that
burden around even though you may be selling fewer vehicles.
(52:49):
And the industry has talked about that for all. You know,
we're going about margins, we're not going about volume. But
it's an easy trap to fall back in to try
to get the volume.
Speaker 2 (53:03):
It goes back to the beginning of it's it's talked
about then it's.
Speaker 7 (53:09):
Yeah, and and and so the industry I think without
a doubt. I mean I got into it because I.
Speaker 1 (53:20):
Love the designs, I loved the engine, even if even
for the business economists and corporate finance guy, I love
the product. And there's still a love for that product.
So it's still there, It can still be there. It's
(53:42):
going to be a different cast of characters, both on
the vehicle manufacturer side and I think on the supplier side.
And some of that also that Lindsy goes back to
your question about the software providers and some of those
and and that, yeah, the soft cy versus the hard
part side is going to change dramatically.
Speaker 5 (54:06):
Well in that realm too. Recently we've seen two German
suppliers that were heading from the traditional industry transmissions with
ZF and tires with Kanti, into tech tech companies.
Speaker 1 (54:19):
They were tech companies.
Speaker 5 (54:20):
Just exploding with self driving technology, interior technology, radars, et cetera.
Speaker 3 (54:28):
And now they're.
Speaker 5 (54:28):
Splitting off and kind of heading back into you know,
it's like Johnson Controls makes thermostats now, you know, I mean,
they're all kind of reverting to that. And then today
we saw or yesterday we saw Morelli, you know, following
chapter eleven. So what happens in that scenario where we
had these giants that were really kind of scooping up
(54:52):
smaller companies and really leading in technology.
Speaker 8 (54:54):
And now with this uncertainty over EVS and uncertainty over avs,
know what happens to that to those who were wanted
to play in that realm.
Speaker 9 (55:04):
It's no different than the vehicle manufacturers, right, who grew
in what you described, rather than a lot more vertical integration, that.
Speaker 1 (55:15):
Was much more on the horizontal side that they wanted
to be in all those mobility pieces. And that's one
where I've seen the industry go back and you know,
these pendulum swings where we have to have massive change
(55:37):
to have something to talk about. One but the Toyota
case of incremental improvement, right, you know, kind of the chaison.
It's boring, but boy do you make a lot more
money over the course of the year rather than acquiring
(55:58):
and then splitting up, and then acquiring and then splitting
up again. So I think we'll end up with a
supply base that it's it. It requires greater ability to
partner and versus ownership, and I think that's that's the end.
(56:25):
Even with the vehicle manufacturers, I think that's where we go.
I mean there's these little rumblings out there about powertrain
partnerships and things like that. Gary as you smile like
he's like, yeah, that'll be the day that I see that.
But it's my favorite subject. No, but we get to it. Yeah,
I mean eventually the economics will force it, because you
(56:50):
just you can't. In going back twenty years the studies
on the industry, we've destroy more capital than we've created.
I mean, you know, if you do the pure math.
I'm not saying if you don't, if you look at
you know, what we've built around and what the our
(57:13):
communities are built on and all those things. I think
if you take that into account, we've created more capital.
But if you just take a pure basis, that's Sterns
and Sterns and Stewart. If I remember, right from my
U of M days math, Yeah, we were, and Sergio
(57:35):
Marchion right pointed that out and as capitalist confessions of
a capital capitalist, right, capital junkie.
Speaker 3 (57:45):
Yeah right, No, I I completely agree with you. Finance
is going to force the industry to do things differently.
It's already started and you're you're seeing uh, suppliers merging,
not of their own volution. It's usually venture capitalists buying
up distressed companies and forcing the merger. You're hearing more
(58:07):
and more car companies talking about the need to partner
with another car company and buy and large. That hasn't worked,
and so that's why I think they're a little bit
gun shy about it. But you know, the days of
easy capital are over. This fact thing ran its course,
interest rates are high. The investment community has seen that
(58:32):
all this autonomy and electric vehicle stuff is not going
to happen in this decade, and they're taking their money elsewhere.
The industry is going to have to figure out how
to get things done on a much more capital efficient basis.
Speaker 1 (58:49):
Yeah, it's interesting to watch what Toyota has been doing
on the on the product side on their truck truck
portfolio and then also bringing in from their curretsy right
to vertically integrate to see. It's an interesting study to
(59:09):
see how do they manage those assets that way. I
guess if you'll allow me to put my sae ad
on see, I think that's where standards come into play.
Back to your off the shelf, whether that's about off
(59:30):
the shelf parts or if it's talking about partnerships and
things like that that we can we can standardize. We
got the standards for the part and for the software
and for the validation processes and all those things. We
have to get more standards about the business operations of
(59:52):
how those partnerships work and then we can put the
power training folks together.
Speaker 5 (59:59):
Is that difficult to do though?
Speaker 1 (01:00:01):
Yeah? Yeah, then that's why it hasn't been done. But yeah,
I guess John, as you're saying, you know that there's
not the capital markets anymore to feed this beast. So
(01:00:22):
that's no different than what we're talking about over here
with the suppliers. There's not enough of them to go
around to feed the beast. So they're going to be
selective too, and that forces you to to focus on
maybe those top three in the in the in the
(01:00:42):
in the survey, and maybe the other vehicle manufacturers start
looking at what do they have that we need to
put in place to be a customer choice to you
guys have been.
Speaker 2 (01:00:57):
It's just like they don't know.
Speaker 1 (01:01:00):
And I did want, no, it just a little sarcastically.
I did want, you know, all those OEMs to be
in that you know, at least in the average group
right before I left, but didn't get there, did I.
Speaker 3 (01:01:16):
Well, look, we're gonna have to wrap this up. But Dave,
I think you hit the theme perfect for the discussion
that we've had here today. The more things change, the
more they stay the same.
Speaker 1 (01:01:29):
Yeah, and and and that's the thing that always frustrates
me is if you talk to individuals, they know they
like even within the vehicle manufacturers, the executives, they know
those issues. And here, look, I mean the one that
(01:01:52):
I think kind of shook Nissan up several years back
was when they hit the bottom and we went in
with the the comments and there was you know, three
or four wasn't overwhelming. But that said, I know my
buyer knew what the right thing to do was, but
(01:02:15):
wouldn't do it because the organization wouldn't support it. And
that's not an individual. It's not that they weren't competent
that they you know, it's because of leadership. It's because
the organization systems that there are probably good people in
(01:02:36):
bad systems.
Speaker 2 (01:02:38):
To be fair to thee some before we go, though
they weren't at the bottom. General Motors was the bottom.
Oh well yeah, and you go, yes, so they hit
the all time low back in twenty ten. Yeah, and
now they have gone way, way way up.
Speaker 1 (01:02:56):
Yeah, because they it shook them up well. And then
plus Nissan with number three right, number four not going
back all that many years, so it's possible. And then
gumb came in. The proverbial train went off of the tracks,
(01:03:16):
didn't it.
Speaker 2 (01:03:17):
So I found it funny that when Ford was doing
its best within the last ten years, Heckett was in charge.
Speaker 3 (01:03:24):
Of course, those might have been a result of policies
that Malali put in place, so who knows. But like
I said, we're gonna have to wrap it up. Dave Andrea,
thanks so much for coming on. You'll have to let
us know what the next chapter of your career might be.
Speaker 1 (01:03:39):
I'll still be around town, yeah, Muse Brooke, great having
you here too, and Gary will keep on doing it.
Speaker 3 (01:03:46):
And thank you to all of you for having watched.
And please excuse the technical difficulties we had with today's show.
That's we're live.
Speaker 2 (00:04):
So yeah, we start the show, then, yeah, you can
go whatever.
Speaker 3 (00:08):
Start the show, John, Okay, everybody out there watching the
show right now, we're having technical difficulties. The streaming service
that we usually use to do the show has gone
down for reasons. We don't know what's going on here,
but we are able to come to you anyway. The
video's probably going to be okay. The audio maybe not
(00:30):
as good, but maybe good enough. So we're gonna go
ahead with the show anyway. And of course we've got
Gary Vassilash here, the famous Gary Vassilash. We've got Dave
Andrea from Plant Moran, the more famous, the more famous,
soon to leave Plant Moran, but we'll get into that.
We got Lindsay Brooke are College, the infamous Lindsay Brooke.
(00:55):
But but we're gonna do online after hours anyway. And
I know, Gary, one of the things that you wanted
to have us talk about is how much the four
of us have seen the auto industry change over the
course of our careers.
Speaker 2 (01:09):
And I think particularly since Dave will be retiring from
Platin Moran at the end of the month, and he
has probably had more perspectives on different things than the
three of us, all.
Speaker 1 (01:21):
Working as journalists for our careers, have had. I think, Dave,
we need to start with you to give us just
give us.
Speaker 2 (01:29):
A snapshot of where we are now and how we
got there.
Speaker 1 (01:34):
Well, look over the forty years, I have had many
different perspectives. They've always been from the outside looking in
to the industry here. But sometimes Gary, I think it's
the old The more things change, the more they stay
the same going through Like on the Working Relations Index studies,
(02:00):
I remember and.
Speaker 3 (02:01):
Let me interduct you with the Working Relation Index. This
is where suppliers evaluate how the different automakers treat them,
I guess is the way to put it. But just
for those who may not know the WRI off the top.
Speaker 1 (02:14):
Of her perfect John, Yeah, I can go back truly
to nineteen eighty three, nineteen eighty four when I was
an intern at Ford Motor Company, and some of the stories,
some of the comments that are in the WRI are
things that I experienced forty years ago. So it hasn't
(02:37):
changed that much, without a doubt, though. What has changed
is the globalization of the industry in terms of the
number of players and the culture of the players, and
certainly Detroit has changed from when I started forty years ago.
Speaker 2 (02:55):
So you're basically always looking at it from the point
of view of relationships between the two types of organizations,
the OEMs as well as the mainly Cure one suppliers,
and then also sort of from an economic perspective.
Speaker 1 (03:12):
Is that fair to say, Well, the economics come in
terms of the macro environment, and we do see over
the years how things change. If you go back, you know,
fifteen years or so, when the industry was all coming back,
the production levels were all growing, profits were in the industry.
(03:36):
The numbers follow the profitability. A lot of times, when
things get difficult, that's when the relationships tighten up in
terms of everybody's trying to get protect and get their
own dollar, and that's where we see a lot of
the tension and stress in the industry.
Speaker 3 (03:55):
You know, when I got into the industry, boy, it
was a different worldly, different world. It was the World
War two generation was running the auto industry. And I
don't mean the World War two generation that ran World
War Two. I'm talking about the grunts. So, like you know,
when I got onto Automotive Industries magazine, one of our
(04:17):
guys that I worked with, had been at the D
Day invasion, he was a captain in an LST. Had
another guy that worked on the magazine that had fought
through North Africa and up through the Italian campaign. Had
another guy that was on a mind sweeper in the Pacific.
And so the whole attitude at that time was America
(04:41):
was so great, Detroit was so important. And I remember
wanting to write about these companies called Toyota and Honda
and Docson at the time and getting criticized, why are
you writing about those companies. Those are the Japanese. We
beat them in the war. And you know, when I
think about back to the attitude then and the way
(05:02):
that the industry was structured, it's completely different today. I mean,
back then, the Detroit Three, the Big three as they
were known then. Right now they're the Big four, five,
and six. That's how much they've come down. Is they
built something like eighty percent of everything in the house.
And the supplier industry was this small little thing. They
(05:24):
were tires, and maybe they were some specialty transmissions and
stuff like that. But the car companies did everything in
the house. They had not really there was not the
supplier industry that there is today. It's completely changed now.
You know, they buy seventy to eighty percent of what
goes into.
Speaker 1 (05:43):
A car, and the engineering and design were flip flipped
around as well. And that's part of that globalization. And
you probably get the same type of opinion right now
about writing about BID and g Lee some of those
other Chinese firms. But the thing with the half LIFs right,
(06:05):
because it took Volkswagen decades right to make their inroads.
Then it took when you look at at Kendai and
Dawu and like, it just took decades for them to grow.
And so that the speed of how the industry has
changed from a market share standpoint and then from a
(06:29):
leverage standpoint, has without a doubt, has changed dramatically. And
that's where going back to the twenty five years ago
with the WRI, the leverage was purely in the hands
of the of the vehicle manufacturer.
Speaker 2 (06:45):
Some man the vehicle manufacturers could tell us players, we
want this, this is what we wanted when we.
Speaker 1 (06:50):
Wanted well, right, and so when you said, well why
do you put up when you ask the question, well
why do you put up with that attitude? Well, it's
the volume, right, And that's the customer and will do
anything for the customer. Where things have changed now because
you have to go down five, six, seven and eight
right to get in terms of total production share. Now
(07:16):
that leverage has changed, and that's where we see that
the vehicle manufacturers then respond to the survey because the
suppliers have choices, and in fact, when we give them
the comments, there's direct comments. You know, we're working away
(07:37):
from one one OEM or we want to grow with
another OEM. And with the technology transformation is that it's
moving so fast, the vehicle manufacturers have to try at
least to be a customer of choice that the suppliers
want to work with them. So necessary.
Speaker 4 (08:00):
One second, Gary, we don't have many complaints or anything
like that in the comments. We have about one hundred
people watching now on this one. Do you mind just
giving a quick little update on kind of what's going on.
Speaker 3 (08:11):
Yeah, yeah, yeah, Sean just asked me to talk to
you guys who are watching right now. We're having technical difficulties.
The streaming service that we use normally to go live
with the show, which we've been using now since two
thousand and eight, never had a problem somehow or other.
Speaker 1 (08:28):
It went down.
Speaker 3 (08:28):
Today, we're still trying to figure out what's going on
with that, so we've got sort of a backup mode.
The audio may not be as good. I think the
video is okay, but just so all of you watching
understand right now why it's not to our regular production
quality standards.
Speaker 1 (08:45):
You know what's going on. Thank you. I think that
should be good. The content is above for great. I
just want to make that clarity. So we didn't make it.
Speaker 2 (08:54):
So John was talking about how early on in our
careers OEMs were vertically integrated.
Speaker 3 (09:03):
Why did they stop being vertically integrated.
Speaker 1 (09:07):
Well, there was always a perception that they were the
high cost manufacturer. So I go back when I was say,
an analyst at Ronian Company, and that was at the
time when GM was spinning off what became the Delphi assets.
(09:29):
Ford was spinning off the Vistian assets. I remember going
to these meetings where the vehicle manufacturer side would make
this case that they had to spin off the parts
side of their business because it was too capital intensive,
it was too costly, and they were going to shed
(09:52):
that and become more profitable. And then literally next you
would go next door to hear the Delphi or the
Vistian or the the ACU Stars story. They never went
in public, but and it was completely the opposite. Well, wait,
because we're going to be focused, we're going to be
capital efficient, we're going to be profitable, we're going to
(10:13):
be able to sell a course more so to other OEMs,
and we're going to diversify our customer base. And you know,
we'll wait a minute. Just five minutes ago you heard
that these were the worst assets, the most costly, and
now it's the best story ever. So it didn't give.
It didn't.
Speaker 5 (10:34):
But during that period too, we had in this history
the Japanese setting up manufacturing widespread in particularly.
Speaker 1 (10:43):
In the eastern part of the US, and.
Speaker 5 (10:46):
Toyota and Honda brought their corretzus with them, and for
a long time you hear about, well, we can't compete
because of the Corretz, we can't compete because of the
relationship with Eijen and den Soil and et cetera, et cetera,
And that was seen as a real asset that the
new Japanese North American automakers had.
Speaker 1 (11:09):
Well there, lindsay. The thing I always found funny was
when I was at for it and we had the
internal parts division side. We treated those guys as worse
or more worse than as an independent supplier. And and
(11:32):
you'd question that, why would you You know, it's the same,
it's a Ford paycheck, right, And they did because it
was the vehicle manufacturer versus the supplier in that standpoint,
My point being, I think if they would have acted
like a Japanese in the terms of the Japanese culture
(11:55):
of respecting those the design, the engineering, the production capabilities
of the suppliers, that would have been a different industry.
But they know they treated them just as bad as
any other supplier, even though they were.
Speaker 2 (12:10):
But John, do you think that goes to the cultural
thing of.
Speaker 1 (12:12):
The people who were running the car companies or in
managerial positions, not just running, but.
Speaker 3 (12:18):
Who are in charge of those guys. I think you've
got to look at a big picture here. So number one,
when they were vertically integrated and they were oligopolies and
they were GM Ford and Chrysler were oligopolies, they had
collectively eaten nine plus of the market, So everybody had
(12:40):
to do whatever they wanted them to do, whether it
was the customer, the dealers, or the suppliers, and so
when things started to change, when international competition, namely the
Japanese started to come in and eat their market share,
they really got much more focused on cost because now
(13:00):
they had to compete with the Japanese. They couldn't just
pass costs along, and so when they started looking at
highly labor intensive operations like wiring highnesses and cutt and
soap for making seat covers and seat assembly, it was like,
holy crap, we can outsource this to suppliers who are
(13:21):
paying fifty percent less on their labor costs. Also, both
suppliers they can shift to any automaker, they're not just
an in house one. And that was part of the
culture thing. I think that you got to the supplier.
The in house supplier operations knew the company had to
buy from them. There was no competition there. And when
(13:42):
you started to get into new technologies, then the automakers
started to realize, Wow, now we got to spend a
lot of capital on our in house operations. Why don't
we just start outsourcing this stuff? And so the outsourcing
craze started in the early eighties, and then they took
it too far. They outsourced too much, and they realized
(14:04):
that they pulled some back and and there's still this
ongoing debate today is it make or buy? Do we
do we make it ourselves or do we buy it
from a supplier.
Speaker 2 (14:13):
So, Dave, you mentioned CHS, Dion and Delphi. That didn't
work out so well for either of those two companies
going forward.
Speaker 1 (14:20):
No, it it didn't. And I was out of the
analyst role after they really were established through their I
pos and we're standalone companies from that standpoint, And that
was probably because they were staffed managerially with people who
(14:44):
still had the mindset of their parents. Right, they weren't
they weren't the true competitor and for and also the
piece of competition changed, I think from exterior design in
a bit on interior design really heavy to technology. But look,
(15:08):
I think when when I went through the Vistai on
R and D centers and all those things, and you
look at some of the instrument cluster the instrument clusters,
and a lot of that innovation started at Fistian or
with FISTI on. So it wasn't like they didn't have
it or couldn't do it. But I just don't know
(15:30):
why they didn't get the establishedment and to go up
against the other independent, always an independent.
Speaker 3 (15:38):
But remember Dave, they were unionized, and so you don't
only have much higher labor rates. You've got union work rules,
lines of demarcation, threats of strikes. You have to create
a much bigger labor staff. And so I think that
played a key role in why they were not able
to compete. Having said that, several of the spinoffs have
(16:01):
done fantastic. Detroit Diesel, which is now part of Dinler
Truck is healthy and going. American Axle has done relatively
well for itself. On Delco Remy, you know, is still
alive and kicking. So there were operations that were spun
off that you know figured out now. Having said that,
(16:22):
look who their leaders were. Roger Penske is ahead of
Detroit Diesel. Dick dalk is the head of American Axle.
Hal Spurlock former president of Chrysler running Delco Remy. They're
a dynamic personnelity, dynamic executive. So even though they may
have had that OEM mindset, they got it. They knew
exactly what they had to do. Roger didn't have that
(16:45):
OEM mindset. He's always been an entrepreneur, entrepreneur.
Speaker 1 (16:48):
And they had the operations standpoint, and more of an
engineering bent I think for the cost piece of the puzzle. Yeah,
on the union side, I've always have felt that it
was as much, if not more, of the work rules. Yes,
that stemied the flexibility that then you couldn't overcome the
(17:11):
cost differential. It's not so much the wages and beneface.
Speaker 3 (17:15):
You can manage that if but having to manage a
plant along with a union adds a huge layer of complexity.
Speaker 2 (17:25):
So, Dave, I want to I want to ask you
about your findings for this twenty fifth Working Relations Index,
because I think that there are some surprises.
Speaker 1 (17:36):
To me anyway in here.
Speaker 2 (17:38):
Now, what's not surprising is that Toyota leads the pack again, Okay,
But what is surprising is the space between them and
the one of the bottom Stilantis, so on a five
hundred point scale, which I think is absurd because nobody's
ever to get near five hundred, because the top has
only been four fifteen by Toyota back in the day. Okay,
(18:00):
So Toya scores three eight six, Stillantis scores one for one?
How can how can Stillantis compete when its suppliers have
such a low level of respect for the.
Speaker 1 (18:19):
Company out and and we've seen that you have to
take it at least a three year window on that
because if you go now here, this is where I'm going,
Gary is if you go back and when Stillantis was
riding high on well, don't look at don't look at
(18:40):
the w r I number, No riding high on on
the RAM pickup truck sales on the Cherokee, on the
Grand Cherokee. And they were making higher margins than the
other two Big three. Their profitability was and but there's
(19:00):
supplier numbers were down here. If you take that snapshot,
and maybe if your question going forward, how can they
do it? They can't. They need their supply base to
be with them. Because John was pointing out sixty seventy
(19:22):
percent of the value of the vehicle is with those suppliers,
and so Stillantis is providing the design and the integration
and all those other elements. But they need their suppliers.
And that's one where the suppliers are starting to make
choices of where they're lining up. They're constrained resources, both
(19:45):
human resources and financial resources. So is it a case that.
Speaker 2 (19:53):
A supplier is more likely to provide an OA that
they have good relationships with the latest technology versus others
that don't score quite so high in terms of the
relationship index.
Speaker 1 (20:12):
Absolutely, and and that plays out in many different forms.
It does come back to the cost to serve, which
has been a big theme for us this year and
in the in the w r I roll out. So
think of it from this standpoint. You have a history
of getting paid for that innovation, uh, for the volumes
(20:37):
on that intervation. You know, is it going to be
exclusive exclusivity or can you sell it to all of
those other elements. So when the tech fares happen and
the other types of innovation fares happen, without a doubt,
the innovation gets shown to your better customers. But more
(21:01):
equally important is every day to day operation. So there's
a problem in the assembly plant on a warrant, a
potential warranty issue, and they call is the supplier, and
particularly if they get two or three calls, is a
supplier going to send out the team to the assembly
(21:24):
plant of their best engineers, their best workaround experts to
the customer they had the most difficult relationship with, or
the one with the best And that may not be
just the pure profitability piece. It's just all the friction
that goes into the relationship, and the suppliers will say
(21:48):
that well, while contractually they have to provide production to
all of their customers, it doesn't mean that you can't
respond quicker or better to an issue with the people
you have a better working relationship with. That's that's what
(22:10):
this shows. And I think back to your point about
how why the range is this year really points to
how difficult it is to be a supplier today because
typically the suppliers supply at least four, you know, or
(22:31):
even sometimes five or six of those OEMs, So you
have to have your own systems set up to fit
what a Stilantis. You know how to work with a
Stilantis as well as how to work with the Toyota.
And that's a tremendous amount of complexity.
Speaker 5 (22:51):
Hey, what's your sense in looking at the supply base
you interviewed, any differences of feeling to there's the OEM
comparing say hard parts suppliers and soft software and electronics suppliers,
which the ladder being a major major cause of customer
(23:12):
dissatisfaction today.
Speaker 1 (23:14):
Yeah, so that's one area where as John mentioned, I'm
going to be retiring at the end of this month,
Angela Johnson will be taking over for me and we're
we're working with a group of suppliers right now to
change around the questionnaire because it was developed up for
(23:37):
the hard parts, stamping, foraging, casting and volume. Yeah, you
know high production parts too. So we're going to integrate
more things like over the air updates. How does that happen?
Progress payments progress payments for tooling for hard tooling is
completely different than progress payments for software.
Speaker 2 (24:01):
Sure, john from what he was saying about the situation.
Say with Stilantis and we were talking earlier before the
show started about the RAM EV pickup truck, and you
were suggesting that it may not come out. I wonder
how much of that might be predicated on technology issues
(24:24):
with the supply base.
Speaker 3 (24:26):
Look, I'm speculating that ram will not and then Speculation
will not come out with its BEV pickup. Why because
BEV pickups are not selling very well. I mean the
Ford Ranger or the Ford Lightning excuse me, is now
outselling the cyber truck. The Silverado is less than that,
(24:47):
the Rivian's less than that, the GMC Sierra is less
than that. None of them. If you look at their
sales through the first five months. None of them will
crack thirty thousand sales this year. You can't make mone
me at that. So why would you bring a new
truck to the market knowing it's dead on arrival. You're
just going to lose money on it. I think the
(25:10):
Stalantis has got a lot of issues to solve right now.
Why would you bring a product to market that you
know you're going to lose money on it. I think
it's better bite the bullet right off. The investment in
that go to the e REV the extended Grange GV
version of that truck, which I think happens to have
a much better fighting chance than a pure BEF does
(25:32):
because you can toe with it, you can haul heavy
loads and the like. I don't think it's a technology issue,
except as technology is such with evs right now that
they're really not conducive to towing or hauling heavy loads.
Speaker 1 (25:46):
The use cases aren't there. But flip around everything you
just said about Stilantis in terms of the volume, the profitability,
all those things. It's the same for the suppliers, right right, Yeah,
So why would the supplier go and put in a
lot of investment certainly in new innovation that's bespoke to
(26:12):
one vehicle manufacturer, and certainly to one nameplate or one platform.
Let me go there. If they don't believe there's going
to be a return on that investment, So okay.
Speaker 2 (26:26):
But if I'm a supplier, I mean, my existence is
predicated on my being able to.
Speaker 1 (26:31):
Sell stuff to someone else.
Speaker 2 (26:34):
Wouldn't I just be interested in trying to sell to
whomever I possibly can to keep my business going.
Speaker 1 (26:43):
But as long as you know you can sell, whether
it's fitment specifications, all of those other elements to those
other customers, yeah, because if it's to a Stillontis design,
then I locked in. And that's where it's interesting watching
(27:06):
or reading the analysts and everything now of you still
have to keep it ev investment stream going because that's
where the industry ultimately will be. We just don't know when.
Like the all the four billion dollars of GM investment
(27:28):
that they just announced, some new, some old, but you
know it four billion.
Speaker 3 (27:33):
Dollars, don't you think they they threw everything in the
kitchen sink to make that number look as big as possible.
Speaker 1 (27:40):
Well, there's there's a bit of public relations there, sure,
but what that's but that's you know, maybe going also
back to how things have changed. It's, you know, back
thirty years ago, the industry government relationship was all about
regulation or about regulation, and now it's about the business conditions.
(28:08):
It's about tear trade and tariffs, it's about all the
elements of the business case, not necessarily about the product.
It's although you know, the terrorists are on the product,
but it's about the business versus about hard regulations.
Speaker 5 (28:28):
What sense you did you get from the study on
how suppliers feel about the newcomers TESLA, I mean you
have data on that, and even the byds. I mean,
I've heard just a lot of guys saying we can't
sell it to you know, the Detroit three we're going
to We've got business growing in China, and are those
(28:49):
companies they are they learning from all the data year
to year from the study.
Speaker 3 (28:55):
You know what it takes.
Speaker 1 (28:57):
So the other the other vehicle manufacturers outside we continually
talk with trying to get them into the study. My
step is even for the supply base, an intermediate step
of saying, let's do a proprietary study. You don't have
to be in the public what first. So that's another
(29:22):
one that's queued up for after Dave. After Dave leaves. No,
from this standpoint, I we we've we've surveyed, we've gotten data.
But the thing is, I was never comfortable that we
got a sizeable sample across all of the different systems
(29:47):
to be able to say that this is representative, you know,
without a doubt. I mean people have argued, you know,
if a number goes up or a number goes down,
or maybe what the absolute number, But nobody's ever argued
that our ranking is off the Toyota, Honda, General Motors
(30:08):
on Forward and Stilantis. They don't argue the ranking. So
we just have to get the right sample to be
able to do that.
Speaker 5 (30:18):
Do you think those companies will want to come into it?
What sense you have?
Speaker 1 (30:23):
No, not not yet because they the supplier. Well it's interesting,
I mean, John, going back to your portrayal of how
some of the arrogance might be of those you know,
like with Tesla. No, but for the you know, they
(30:50):
owned that market, yeah, right, and so they could put
their specs out, they could change, they could go back
and forth until you know, Job One all those others
that you know the suppoint. But and they did that
because they were TENESLA. Now that their market share is
starting to go down, they have more competition across different
(31:13):
segments all of those types of things with their product portfolio.
Time will come when they they will care, not necessarily
right now.
Speaker 2 (31:26):
So you know, getting back to this ranking means it's
been fairly consistent. But Ford has been taking a tumble
over the last few years. Why do you think that's
the case or why what did your data show you?
Speaker 1 (31:40):
Yeah, so I think it's a combination of a couple
of things. One is well, actually they all point back
to one thing, organization and and I pointed back to
organization to two ways though. First is when they split up.
I think for the Model Model E and the Ford
(32:04):
Blue piece, that confused internally, you know, engineering, purchasing, all
those types of things. It confused the external with the
suppliers to who was making decisions and things like that
that we see with the Japanese companies about is it
(32:26):
North America or Japan making decisions. We saw that just
within Dearborn. The other element that they structurally over the
last couple of years have done is to move a
lot of purchasing activity both first to Mexico and then
(32:46):
it was to India that they moved centers to. And
in a time when the industry has a lot of uncertainty,
a lot of you know, just leave it at that.
The last thing you want to do is extend decision
(33:09):
making authority, to extend the timeliness of decisions. And that's
what they've done. I mean even from like looking at tooling,
uh tooling payment disputes that a decision has to go
over to the Indian group. Take a look, information may
(33:30):
or may not be there, to be missing, has to
come back, has to go back over. And you're you're
looking at talking about terror just you know, uh, cost
pressures and you're delaying the payment to a supplier. Well, yeah,
(33:51):
that's going to impact your numbers dramatically because your cost
to serve is going up. It's a reverse relationship to
your wr I know.
Speaker 2 (34:03):
So, Okay, I'm a supplier and I'm based in Allen Park,
which is right next door to Deerborn, right right across
ninety four.
Speaker 1 (34:10):
I've got a problem.
Speaker 2 (34:11):
Yeah, I've got to deal with India rather than the
guy who's like literally across the street.
Speaker 1 (34:16):
Depending upon what it what it is. Yeah, and and
let me just say this that it's also difficult when
the Ford organization itself doesn't know the process. Two. So
if a supplier needs an answer and they can't get
(34:40):
a quick answer, yeah, you know that's again it's an
inverse relationship. So so that those would be the two things.
And so I pointed directly back to the organization.
Speaker 3 (34:55):
Yeah, we saw some news break in China this week
where they're has been a move to essentially compel the
automakers to pay their suppliers within sixty days. And you know,
this has been a complaint here in the US. I
know it's been in year Rope two that when times
get bad, when money gets tight, automakers starts stretching out
(35:17):
the time it takes to pay. You know, the horror
cases have been ninety days. Well in China it was
way worse than that. It was one hundred and forty days,
it was one hundred and sixty days, it was one
hundred and eighty days. I think byd was over two
hundred days and paying and the government through different ministries
now it's starting to crack, the government's starting to get
(35:38):
worried about the Chinese autoway. The Chinese government is getting
worried about the Chinese auto industry, and you know, we're
seeing none of them are making money. Maybe three automakers
are making money. There, dealers are going out of business
by the thousands, and so three different ministries sort of
(35:59):
it looks like joled these automakers into saying you've got
to pay within sixty days. And literally just yesterday, almost
every Chinese automaker came out and said, we've got a
new policy.
Speaker 1 (36:11):
Now we're going to.
Speaker 3 (36:11):
Pay within sixty days. Where do we stand in this country? Now?
What do you think of the move in China?
Speaker 1 (36:17):
Well there, and before that, the Japanese government made the
same request out of their top to their top two
vehicle manufacturers as well, because they were worried about how
fragile the supply base was. And some of those decisions
(36:38):
there ended up coming over here because that's the thing
going back to you want to try to be one
Toyota or one Ford, you know, back in the Malal days,
and so that that transfers over here. Payments have pretty
(37:01):
well stayed the same over the last i want to say,
three years, four years type of of peace there. It
was interesting with one of the vehicle manufacturers it was
last year when I was reporting out to them, I
made a statement saying, look, one way you could improve
(37:26):
your numbers. I know it's costly, but it's to shorten
your payment terms. And that wasn't a popular thing to
say in the in the purchasing staff meeting because what
they came back, well, who's saying, you know how big
of an issue is that all those other kinds of things,
And and my point was, wait a minute, we know
(37:52):
you could you have all the financial numbers on your
supply base. You know how fragile it is, so the
last thing you want to do is extend those payment terms.
That's the type of thing going back to what we
see in the in the survey and things is where
(38:12):
I guess this is going to sound like I'm picking
on finance. But if finance says no way, in a minute,
we need a little more cash on our balance sheet
and not on the supplier's balance sheet, so we're going
to extend it, That's where I think the survey has
served a good purpose over the years. Then purchasing can
(38:35):
go to finance and say, look, this is what you're
causing us. And it goes back to innovation. Slowing down
and it goes back to and they know the stories
about the customer support and things like that.
Speaker 5 (38:53):
Speaking of gripes, a neighbor who works at a Tier
one said to me this morning, ask Dave Andrew about
an ongoing He called it a generational issue and that's.
Speaker 1 (39:04):
Late engineering change.
Speaker 5 (39:07):
And I remember doing reporting on this years ago, you know,
and talking to people and they're no longer we're freezing it,
we're not budgeting.
Speaker 1 (39:16):
And we still hear this from the supply base.
Speaker 3 (39:18):
What's your data?
Speaker 1 (39:20):
Yes, so we do ask about actually, in three different ways,
are late or excessive engineering changes impacting cost, timing and quality.
And if you look at Toyota's over the last couple
(39:42):
of years, some of their numbers have worsened on that
and you think, well, but then you look at the
situation of like when they were putting out the new
Toyota architecture, generation architecture, on the new camera and those
(40:02):
types of things they're laid, engineering changes spike up because
most of that, of not all that was being done
in Japan. So it's an issue. That's the one thing
I keep saying to the OEA, use this data to
try to convince product development and marketing. Now I am
(40:25):
picking on those two functions to simplify your product mix.
We've heard over and over again from many of the
OEMs the old eighty twenty rule. You know, eighty percent
of our sales comes from twenty percent of our part
numbers are skews. You know, however you want to define it,
(40:49):
but we never We don't reduce that complexity. And by
not reducing that complexity, we still have all the engineering
changes that go along with way that.
Speaker 3 (41:01):
But there's a new dynamic in the industry now too
that Tesla started and the Chinese are copying, and that's
engineering changes on the fly. And part of it is
to get to market faster, not wait until you have
one hundred percent development, launch the product, and with over
the year updates and other improvements along the line, catch
(41:22):
up so to speak. Also getting to market faster. You know,
it's very obvious in the industry. First US with the
mostess is going to gain market share. And you know,
if it's the worst, no, that's absolutely true.
Speaker 1 (41:40):
It doesn't catch up with but in terms of warranty
and others, right, keep going.
Speaker 3 (41:46):
No, you're right, So I mean, uh, the Silicon Valley
model is essentially what Tesla adopted. And now that the
Chinese startups maybe not necessarily the stain enterprises in China,
but it's you know, break things fast, iterate, iterate, iterate,
you know, uh, don't wait until everything's perfect, get an
(42:07):
eighty percent of the way there and go with a launch.
And you know, Alex Partners even came out with a
study on this is you know, the the Western companies
and I'll throw the Japanese and the Koreans into that
want to have the absolute last piece of envh of
write in handling, acceleration and breaking absolutely perfect before they
(42:31):
launch a car. And so they hit the market at
a later date with higher cost and are losing market share.
So how do you reconcile with what you're saying, Yeah,
with this new imperative to go fast and break things.
Speaker 1 (42:46):
So I'm going to reconcile it by saying, what's your
what your go fast and break things that are absolutely
rooted in safety validation, on engineering validation and all those things.
(43:06):
And then what is what are the excessive engineering changes
based on we're trying to get that last feel for
the vehicle dynamics or you know, types of things and
and that was one where I go back to more
(43:28):
things change, the more they sing. How Titang from Ford
was on that at least six years ago, seven years ago,
and we haven't gotten there, you know, because because that
the engineer wanted to get it perfect, which is an
engineering mindset without a doubt, and what would the customer
(43:50):
pay for? But so that that's where I would I
would separate out kind of the hardcore vehicle functionality versus
coming up with the last five percent of to get
it perfect in the vehicle dynamic. The other thing we're seeing.
Speaker 3 (44:15):
Chin doing is buying a lot of off the shelf parts.
They're there, they're engineered, they're validated, they're six sigma, they're
ready to go.
Speaker 1 (44:24):
Why reinvent the wheel? Which is huge because the supply
base can provide that without a doubt. But this comes
back to some of the vehicle manufacturers having to have
their own design, having to have their own engineering or
(44:45):
it's not right.
Speaker 3 (44:47):
And how do you break that mindset? Yeah, well, I'll
give you a couple of examples. Well, higher pressure monitor systems.
It's a little thing that tells you what the pressure is.
Every car company's got a different one. Why you know,
a windshield wiper actuators. It's under the you know the call.
Nobody ever sees it as long as it works. But
(45:08):
they all have different ones. Why the fillernet where you
stick the nozzle in to fill your tank up, they're
all different.
Speaker 1 (45:15):
Why? Well, going back to an old story, I was
at a dinner at the at the Henry Ford Museum
and I was, you know, you start conversation with the
guy next to you, and I said, you know, what
do you do? And he said, oh, I design uh
(45:36):
ty rods And I said, oh really, and he gave
me the there was for a hybrid vehicle that and
I mean, I'm going back fifteen years so you kind
of probably guess who the hybrid was.
Speaker 6 (45:50):
But and I said, oh, I'm not an engineer, but
is that because different do you weight that you have
to have a different tirod end than the base one, uh,
the internal combustion.
Speaker 1 (46:05):
Engine and not the hybrid or And he said, no,
it has nothing to do about functionality. We got the
budget to do it, so we're gonna do it. And
and that's a chief engineer. Yeah problem. So I didn't
solve that problem for you, but I explain maybe why
(46:29):
it's there when your point about Okay, so when does
it end good bankruptcy or two will do that, that
will end it. Unfortunately, there's a lot of collateral damage
that comes along with that. But sometimes unfortunately you have
(46:51):
to hit that proverbial wall.
Speaker 3 (46:53):
What you're saying to wait is they have too many resources,
you know, because when you have limited resources, you you
think your way through the problems. You don't buy your
way out of the problem.
Speaker 2 (47:07):
Yeah.
Speaker 1 (47:07):
Well, and wasn't that kind of the American Motors Chrysler.
Speaker 3 (47:13):
Absolutely right, Absolutely, you know, American Motors had limited resources.
They did brilliantly with the resources they had. Chrysler coming
out of the first bang Rum see, based everything on
the K car and it did actually rather well. They
really came out with some innovative product off a common platform.
Speaker 2 (47:35):
Yeah, but doesn't doesn't every company think they have limited resources?
Speaker 1 (47:41):
Uh h? Every person was I was going to try
to flip it around Gary something clever. Every individual, Yes,
within those organizations, and so then collectively there's never enough,
right And and that's yeah, if that's an American thing, No, no.
Speaker 3 (48:10):
It's not, you know, because I don't mean to pick
on Mercedes and BMW but they have you want to
reduce complexity. Boy, they have a complexity issue to start.
They have way too many models, too many variants of
those models, separate all those name plates exactly, and and
(48:31):
and they recognize that they have too much, but they
can't seem to stop themselves.
Speaker 2 (48:36):
Yeah, so they want to go back to as an example,
we were talking earlier about the General Motors four billion
dollars for the three factories Orion, Fairfax, and Spring Hills.
And and this is in the context of suppliers.
Speaker 1 (48:53):
So Orion was going to.
Speaker 2 (48:55):
Become a plant where they're going to be building full
size evs, right, and now they're basically going, we should
put ice products in there because people are buying ice products. Okay,
but you're a supplier and you've been talking to them,
and you've been having your people work on projects that
would serve this full size EV SUV, which is now
(49:21):
not applicable at all to what they're gonna beople. So
over the last few years, haven't supplier has been faced
with having to do this in this and.
Speaker 1 (49:32):
Still be able to make money money doing it. Yeah,
And that's where I've tried to convey that profitability is
not the piece. You know that you look at each
individual program and say, yeah, they keep going with GM.
(49:53):
Is GM is it a profitable business for you? Because
it's not on each of those peace prices. It's about yeah,
I've invested tens of millions sometimes ofcity and capacity or
in tooling that's sitting idle. And so if I look
(50:18):
at my GM business now, all of a sudden, my
radar return goes down dramatically on my current business and
I have to try to figure out how to get
it back on my future business. And that's one where
I think, with the shifts in product plans and product
(50:41):
cadence and all those types of things, purchase it's not
a purchasing alone decision. It's got to be with your manufacturing.
It's got to be with your engineering and finance to
say and maybe bye, you have to it's easy to
(51:01):
meet for me to say, bite the bullet. And maybe
there's a special payment schedule that you do to help
the supplier cover their empty capacity that they have. Maybe
(51:22):
there you and this is not the old we make
it up on volume. Right, We're losing on this product,
but you know, we make it up on it and
and it really gets down to realistic production volume estimates. John,
going back to what you were going through on the
(51:45):
EV pickup trucks. You know, we've been through it so
many times before that I think any of the vehicle
manufacturers can really take a step out and show they're
different if they stabilize their well. And that's where Toyota
(52:08):
and Honda we're golden for all those years because you
know they will proverbial piece where you designed it, the
production for one less than you thought you were going
to sell, and you might give up some volume, you
might give up some sales. But I think you know
(52:28):
that's the mindset you have to get into to put
your competition out of business. Because you get the right
supply base A and then B, you can you can
price your product more competitively because you're not carrying that
burden around even though you may be selling fewer vehicles.
(52:49):
And the industry has talked about that for all. You know,
we're going about margins, we're not going about volume. But
it's an easy trap to fall back in to try
to get the volume.
Speaker 2 (53:03):
It goes back to the beginning of it's it's talked
about then it's.
Speaker 7 (53:09):
Yeah, and and and so the industry I think without
a doubt. I mean I got into it because I.
Speaker 1 (53:20):
Love the designs, I loved the engine, even if even
for the business economists and corporate finance guy, I love
the product. And there's still a love for that product.
So it's still there, It can still be there. It's
(53:42):
going to be a different cast of characters, both on
the vehicle manufacturer side and I think on the supplier side.
And some of that also that Lindsy goes back to
your question about the software providers and some of those
and and that, yeah, the soft cy versus the hard
part side is going to change dramatically.
Speaker 5 (54:06):
Well in that realm too. Recently we've seen two German
suppliers that were heading from the traditional industry transmissions with
ZF and tires with Kanti, into tech tech companies.
Speaker 1 (54:19):
They were tech companies.
Speaker 5 (54:20):
Just exploding with self driving technology, interior technology, radars, et cetera.
Speaker 3 (54:28):
And now they're.
Speaker 5 (54:28):
Splitting off and kind of heading back into you know,
it's like Johnson Controls makes thermostats now, you know, I mean,
they're all kind of reverting to that. And then today
we saw or yesterday we saw Morelli, you know, following
chapter eleven. So what happens in that scenario where we
had these giants that were really kind of scooping up
(54:52):
smaller companies and really leading in technology.
Speaker 8 (54:54):
And now with this uncertainty over EVS and uncertainty over avs,
know what happens to that to those who were wanted
to play in that realm.
Speaker 9 (55:04):
It's no different than the vehicle manufacturers, right, who grew
in what you described, rather than a lot more vertical integration, that.
Speaker 1 (55:15):
Was much more on the horizontal side that they wanted
to be in all those mobility pieces. And that's one
where I've seen the industry go back and you know,
these pendulum swings where we have to have massive change
(55:37):
to have something to talk about. One but the Toyota
case of incremental improvement, right, you know, kind of the chaison.
It's boring, but boy do you make a lot more
money over the course of the year rather than acquiring
(55:58):
and then splitting up, and then acquiring and then splitting
up again. So I think we'll end up with a
supply base that it's it. It requires greater ability to
partner and versus ownership, and I think that's that's the end.
(56:25):
Even with the vehicle manufacturers, I think that's where we go.
I mean there's these little rumblings out there about powertrain
partnerships and things like that. Gary as you smile like
he's like, yeah, that'll be the day that I see that.
But it's my favorite subject. No, but we get to it. Yeah,
I mean eventually the economics will force it, because you
(56:50):
just you can't. In going back twenty years the studies
on the industry, we've destroy more capital than we've created.
I mean, you know, if you do the pure math.
I'm not saying if you don't, if you look at
you know, what we've built around and what the our
(57:13):
communities are built on and all those things. I think
if you take that into account, we've created more capital.
But if you just take a pure basis, that's Sterns
and Sterns and Stewart. If I remember, right from my
U of M days math, Yeah, we were, and Sergio
(57:35):
Marchion right pointed that out and as capitalist confessions of
a capital capitalist, right, capital junkie.
Speaker 3 (57:45):
Yeah right, No, I I completely agree with you. Finance
is going to force the industry to do things differently.
It's already started and you're you're seeing uh, suppliers merging,
not of their own volution. It's usually venture capitalists buying
up distressed companies and forcing the merger. You're hearing more
(58:07):
and more car companies talking about the need to partner
with another car company and buy and large. That hasn't worked,
and so that's why I think they're a little bit
gun shy about it. But you know, the days of
easy capital are over. This fact thing ran its course,
interest rates are high. The investment community has seen that
(58:32):
all this autonomy and electric vehicle stuff is not going
to happen in this decade, and they're taking their money elsewhere.
The industry is going to have to figure out how
to get things done on a much more capital efficient basis.
Speaker 1 (58:49):
Yeah, it's interesting to watch what Toyota has been doing
on the on the product side on their truck truck
portfolio and then also bringing in from their curretsy right
to vertically integrate to see. It's an interesting study to
(59:09):
see how do they manage those assets that way. I
guess if you'll allow me to put my sae ad
on see, I think that's where standards come into play.
Back to your off the shelf, whether that's about off
(59:30):
the shelf parts or if it's talking about partnerships and
things like that that we can we can standardize. We
got the standards for the part and for the software
and for the validation processes and all those things. We
have to get more standards about the business operations of
(59:52):
how those partnerships work and then we can put the
power training folks together.
Speaker 5 (59:59):
Is that difficult to do though?
Speaker 1 (01:00:01):
Yeah? Yeah, then that's why it hasn't been done. But yeah,
I guess John, as you're saying, you know that there's
not the capital markets anymore to feed this beast. So
(01:00:22):
that's no different than what we're talking about over here
with the suppliers. There's not enough of them to go
around to feed the beast. So they're going to be
selective too, and that forces you to to focus on
maybe those top three in the in the in the
(01:00:42):
in the survey, and maybe the other vehicle manufacturers start
looking at what do they have that we need to
put in place to be a customer choice to you
guys have been.
Speaker 2 (01:00:57):
It's just like they don't know.
Speaker 1 (01:01:00):
And I did want, no, it just a little sarcastically.
I did want, you know, all those OEMs to be
in that you know, at least in the average group
right before I left, but didn't get there, did I.
Speaker 3 (01:01:16):
Well, look, we're gonna have to wrap this up. But Dave,
I think you hit the theme perfect for the discussion
that we've had here today. The more things change, the
more they stay the same.
Speaker 1 (01:01:29):
Yeah, and and and that's the thing that always frustrates
me is if you talk to individuals, they know they
like even within the vehicle manufacturers, the executives, they know
those issues. And here, look, I mean the one that
(01:01:52):
I think kind of shook Nissan up several years back
was when they hit the bottom and we went in
with the the comments and there was you know, three
or four wasn't overwhelming. But that said, I know my
buyer knew what the right thing to do was, but
(01:02:15):
wouldn't do it because the organization wouldn't support it. And
that's not an individual. It's not that they weren't competent
that they you know, it's because of leadership. It's because
the organization systems that there are probably good people in
(01:02:36):
bad systems.
Speaker 2 (01:02:38):
To be fair to thee some before we go, though
they weren't at the bottom. General Motors was the bottom.
Oh well yeah, and you go, yes, so they hit
the all time low back in twenty ten. Yeah, and
now they have gone way, way way up.
Speaker 1 (01:02:56):
Yeah, because they it shook them up well. And then
plus Nissan with number three right, number four not going
back all that many years, so it's possible. And then
gumb came in. The proverbial train went off of the tracks,
(01:03:16):
didn't it.
Speaker 2 (01:03:17):
So I found it funny that when Ford was doing
its best within the last ten years, Heckett was in charge.
Speaker 3 (01:03:24):
Of course, those might have been a result of policies
that Malali put in place, so who knows. But like
I said, we're gonna have to wrap it up. Dave Andrea,
thanks so much for coming on. You'll have to let
us know what the next chapter of your career might be.
Speaker 1 (01:03:39):
I'll still be around town, yeah, Muse Brooke, great having
you here too, and Gary will keep on doing it.
Speaker 3 (01:03:46):
And thank you to all of you for having watched.
And please excuse the technical difficulties we had with today's show.
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