|
An article in today's New York Times crystallized
for me the way in which Tier One auto suppliers have now become
the most powerful (and pivotal) gatekeepers in the new global
economy. The article describes how the French auto parts maker,
VALEO, balances the demands of its end-user market -- the
example cited was a demand by Chrysler for price reductions
on parts averaging 5% -- and the risks & opportunities in
its own supply chain, particularly "shifting manufacturing
out of high-cost regions like North America and Western Europe
and into Asia and Eastern Europe." The NYT article alluded
to a "trickle-down effect" -- from automaker to Tier One supplier
to subcontractors.
Trickle-down
-- Three observations need to be made up front. First, there
are no good guys or bad guys in this situation. The "trickle-down
effect" really starts with the consumer; in the auto industry,
everything people do is aimed at getting a consumer to buy
a car. Chrysler, with its demand for 5% reductions, as well
as its mergers and layoffs and whatnot, is just trying to
put itself in a position to deliver cars at a profit. And
if anyone needed a reminder that juggling the consumer demand
situation is tricky, reports of new car sales, announced yesterday,
showed sales sharply UP in December, 2000!
Consumer-Driven
-- It's the consumer's prerogative to buy in fits and starts;
automakers and parts suppliers have the prerogative to choose
their mode of response. Which brings us to the second point:
auto components makers are pretty good at choosing responses
that help them maintain and increase profitability, in good
times and bad. The article on Valeo made this quite clear:
Valeo is eliminating 1,000 jobs. It eliminated 1,500 jobs
LAST year as it shifted production to lower-cost regions.
In 2000, Valeo's net income fell 35%. YET VALEO'S PROFITS
ROSE IN 2000 -- UP 18%!
Gatekeepers
-- Finally, it should be observed that the auto industry is
far from the first to be placed in this gatekeeping position
by the consuming public. It really all started two decades
ago, when discount merchandisers of light consumer manufactures
-- e.g. Walmart -- responded to consumer demand by searching
out "good" quality products at "value" prices from suppliers
across the globe. They began sourcing everything from beach
balls to CD players -- in effect becoming the gatekeepers
of a historically unprecedented transfer of value, in ALL
directions, among world countries.
Value-Add --
Of course, beach balls are one thing, and ball joints are
another. Sourcing "good" quality at "value" prices is an immensely
more complex undertaking in the auto industry than in discount
merchandising. (Related news item: AP reported today that
Mitsubishi Motors "acknowledged that it had hidden complaints
about possible defects, like failing brakes, fuel leaks, and
malfunctioning clutches, for more than 20 years.") But that's
a topic for another day. The point is: you get to be a gatekeeper
in today's economy by an unwavering focus on one mission:
ADDING VALUE. Dealer and retailers have to bring value to
consumers. Automakers have to put maximum value into the cars
they deliver to dealer lots. Tier Ones have to scramble to
provide the best value in each module. And so on up the line,
with their subcontractors.
So . . . did YOU add value today?
|
