New contracts give automaker clout to change terms
The new language enables Ford to effectively change the terms and conditions
of supply agreements during the life of the accords, critics charge, and could
damage already strained relations between the automaker and suppliers. “You
make a deal, you live with the deal,” said Gerry Fedchun, president of the
Automotive Parts Manufacturers Association. Based in
The new language gives Ford the right to charge a supplier for half the cost
of a product recall and collect that money before the two sides negotiate
liability.
Ford now bears 100 percent of such costs while negotiations over liability
can take several years.
Of Ford’s 13 recalls in 2003, five can be traced to suppliers. And they had
implications for about 2 million vehicles.
Another provision allows Ford to deduct money from the accounts payable of a
supplier if, during the course of their agreement, the automaker deems the
supplier is somehow liable for more than the agreed-upon cost.
This can be done without notice, but Ford promises to give three weeks’ written
notice if such action is ever taken.
There is also an escape clause that allows Ford to end a relationship within
30 days, but the automaker views this as a last resort.
No supplier likes all the terms and conditions of an agreement, Fedchun
said. But “terms and conditions should be reasonable. And if they’re
reasonable, then people can live with that.”
Ford defends its move as it seeks to reduce costs through programs such as
Team Value Management.
Commonly called TVM, it involves collaboration with suppliers to identify
and eliminate spending waste and was touted as a major money saver for Ford.
The revisions to its contract language involved supplier input, Ford
spokesman Paul Wood said.
“They’re not really new,” he said. “They’re revised. Many of them were
arrived at after consultation.”
Even so, relations between Ford and its suppliers appear to be worsening,
said John Henke, president of Planning Perspectives Inc. and marketing
professor at
Planning Perspectives is studying more than 1,250 supply contracts and he
expects his findings will show supplier-automaker relations are declining at
Ford.
“What suppliers told us, however, is Ford used all the data they were
getting as a hammer to get (supplier) prices down — which is unfortunate
because (TVM) is a brilliantly conceived idea,” Henke said.
“We’ve heard from and talked to a number of suppliers about this, so we know
it wasn’t isolated.”
Henke said he doesn’t know why TVM is not working because it has the support
of Ford’s top two executives.
“There is a big disconnect,” said Henke, whose study of the North American
auto industry is due out next month.
“If things could be done the way (President) Nick Scheele and (CEO) Bill
Ford think they should be, Ford would be much better
off.”
Bill Ford has said he wants to improve Ford’s relations with suppliers.
Ford defends TVM and the new language saying it’s too early to judge the
effectiveness of either.
You can reach Eric Mayne at (313) 222-243 or emayne@detnews.com.