Monday, April 11, 2005


GM To Suppliers - Push Prices Lower

In a totally-expected act of futility, GM has requested that suppliers push prices lower. Sure, they pay lip service to things like quality, technology, and responsiveness, but despite signs to the contrary just after Lutz took the reigns, Purchasing still rules over Engineering in the world of GM - and that means that price is the only thing that counts.

The first issue is that the vast majority of GM suppliers are already running on razor-thin margins. That's bad in itself, because that leaves suppliers in a precarious short-term situation (which means that a single vendor could put a big hurt on their customers).

But worse yet is that thin or non-existant profits mean that there's no money to roll back into R&D or capital improvements, which means that GM might be getting the same technology now that they were getting years ago - or at the very best, they'll be getting the leftovers of OEMs who actually pay suppliers for hard work and innovation.

The final issue is that GM's somewhat-unspoken requirement that suppliers meet "world-class" prices usually means one thing - moving work to China. That actually presents two problems. First is that work moved to China means fewer people employed in the US - that means fewer jobs for domestic workers, and thus fewer potential customers for GM (while workers in the US may not be able to afford many new-car purchases, I assure you the situation is much worse outside of the US - which is why so many economies are dependant on exports). The second problem with this is that foreign components erode the perception that GM cars are "American", and I've got a strong feeling that many GM sales (and of the Big 3 in general) can be attributed to little beyond where people think they're built. Destroy that, and I think you destroy the Big 3.

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