Published on August 19, 2014

Chrysler CEO is envious of supplier profits

TRAVERSE CITY, Mich. (Aug. 19, 2014) — For five years, Chrysler Group L.L.C. has been slowly rebuilding its once-tattered relationships with suppliers.

Then, in about three minutes last week, CEO Sergio Marchionne called that hard-won trust into question.

Discussing the auto maker’s second-quarter results, Mr. Marchionne cast an envious eye on his suppliers’ healthy profits.

He said their rich profits in contrast to Chrysler’s modest earnings “makes my blood pressure go up.” Then the chief executive vowed that the auto maker would speak with suppliers “to find a way that we can at least participate in their well-being.”

It’s hard to say how Mr. Marchionne’s comments will affect Chrysler’s relations with suppliers, who developed and supply many of Chrysler’s most important technologies, such as the Uconnect infotainment system and eight- and nine-speed automatic transmissions. Mr. Marchionne is well-known for making provocative comments that can blow over.

But the comments echoed the bad relations with suppliers that dogged Chrysler and its Detroit 3 counterparts for years.

One top executive of a Tier 1 Chrysler supplier said it takes money and engineers to develop technology, and suppliers can pick and choose which auto makers receive their best work.

“We have learned to say no,” said the executive, speaking anonymously because he had not heard Mr. Marchionne’s comments directly.

Neil De Koker, who retired last year as president of the Original Equipment Suppliers Association, said: “Sergio needs to run his company as well as his suppliers are running theirs. He wants to be the customer of choice for suppliers. He wants them to bring their best technology to them, and it will take supplier profitability to develop the technology Chrysler needs to reach the 54.5 mpg fuel standards.”

He spoke at the CAR Management Briefing Seminars being held at Traverse City.

'Naive' comments

Chrysler’s single-digit profit margin followed a series of buoyant second-quarter earnings reports this month from major Chrysler suppliers such as Delphi Automotive, BorgWarner Inc. and American Axle & Manufacturing Holdings Inc.

Chrysler reported its “modified operating profit” in the second quarter was 4.8 percent of net revenue. Mr. Marchionne did not identify which suppliers’ profits were raising his blood pressure.

His comments were in direct contrast to efforts of the late Dan Knott to improve Chrysler’s woeful supplier relations under former owners Daimler A.G. and Cerberus Capital Management.

After Chrysler emerged from bankruptcy in 2009, Mr. Knott, head of Chrysler purchasing, won praise from suppliers for restoring trust and a sense of common purpose.

Mr. Marchionne’s comments were “naïve” and dangerous to Chrysler’s continued success, argued John Henke, a longtime supplier consultant and head of Planning Perspectives Inc.

“If Chrysler takes a single step toward looking into supplier profits, as Mr. Marchionne’s comments suggest might happen, history indicates that suppliers will shut down providing Chrysler the benefits Chrysler so badly needs to improve its profits,” Mr. Henke told Automotive News.

Mr. Marchionne’s remarks were reminiscent of the distrust that permeated the relationship between suppliers and their Detroit 3 customers for years before the 2009 industry collapse—which the Chrysler CEO acknowledged last week, despite his provocative comments.

“I think we need to be very careful not to repeat the kind of aggressive behavior that happened here the last couple of decades where people went around trying to inflict—or at least extract—phenomenal concessions from the supplier base,” Mr. Marchionne said.

This report appeared on the website www.autonews.com of Automotive News, a Detroit-based sister publication of Tire Business.

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