New challenges await suppliers

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Remember all those concerns about suppliers? How they were going to have to ramp up production with extra costs for viral safety and without any money coming in for several weeks?

So far, it looks like they’ve made it through. Production ramped up, workers went home safely. The global gears of automaking started cranking again, apparently with enough cash to grease the chains.

Government support, such as the Paycheck Protection Program, helped. But at least as important, according to Martin French, a longtime supplier executive who is now a consultant with Berylls Strategy Advisors, was the value of experience: Managers who suffered through the Great Recession were smarter this time — preserving cash during the wind-down to fund the restart, for instance.

And at the same time, the industry took care of its own: sharing best practices for safety and in some cases providing financial flexibility, said French, who spent about two decades with Webasto, the German sunroof giant.

“Everyone is going to feel the squeeze,” he said. “But the feedback that I’m getting is that everyone’s trying to be really supportive of everybody else.”

That sounds swell, doesn’t it? And it is! But the story is far from over.

So suppliers survived the restart — now they’re off and running, right?


“I think what’s going to be more important is the next 12 months,” French said. “There’s a lot of new model launches coming up.”

Launches are difficult and expensive, even in the best of times. A lot is at stake — new models turn shoppers into buyers and tap big revenue flows. But ensuring success is harder than ever during COVID-19, when many companies — and countries — have restrictions on travel.

“Large Tier 1 suppliers really rely on their international footprint, their international resources,” he said. It allows them to bring people and tools where they are most urgently needed — but now that option is severely limited. “I think a lot of people may be underestimating that — the burden that’s going to put on the supply base in the next 12 months. … They’re going to have to really think about doing things in a different way, because … in the foreseeable future, they’re not going to be able to do that.”

Who you’re working with is important as well. General Motors and Ford each face crucial launches that rely on execution throughout the supply network, and both are working well with suppliers.

After last year’s Explorer debacle, the scrutiny of Ford’s launch of the F-150 and Bronco line “is going to be massive on them and it’s going to be huge for the suppliers,” French said. “But from what I hear, Ford is doing an incredible job with their major suppliers in terms of partnership, sharing lessons learned, helping with payments and payment terms on tooling. Anything like that that’s required to really make sure that they really nail these launches coming up — and that’s so important for the suppliers.”

Because if the launches don’t go well, it can be devastating.

GM suppliers are trying to get over the double whammy of the 2019 strike and the COVID-19 pandemic. But the automaker is very focused on the SUVs coming on the critical T1 full-size truck platform. A smooth launch for the Cadillac Escalade and its siblings “could really help a lot of companies that were hurt with the loss of volumes from the UAW strikes last year,” French said.

Alternately, suppliers tied to Nissan face a lot of challenges as the automaker shrinks its volume ambitions and seeks to find a winning strategy, he said.

Widespread bankruptcies have been avoided, but suppliers being propped up now aren’t going to be given a pass forever. Especially as volumes remain depressed for a year or more, those that are in need of support are likely to be taken over.

French sees an eventual flow of strategic acquisitions, not hostile takeovers, among complementary business or of key suppliers.

“We’re already advising some companies on some key merger opportunities,” he said.

Challenges come and challenges come again.

The first challenge was getting back to work safely. The next is executing perfect launches while many technical experts can’t travel or even gather in a conference room. But on through the economic cycles, the auto industry has proved to be “damn well resilient,” French said.

“They always come together, you know, whether it’s unions, whether it’s the work force. The industry always finds a way … companies find a way to keep coming back. I think it’s something that just doesn’t get said enough about the industry and particularly the suppliers — that they are tough cookies.”

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