Automotive supplier survey: Don’t coddle that 800-lb gorilla

The top responses given by the 126 respondents to that survey included: tightened outstanding receivables collections/shorten payment terms on all customers; requested up-front payment on development, prototype and production tooling; proactively looking to diversify customer base; no safety stock in the supply chain due to cash flow restraints.

A huge bone of contention over the years between automotive OEMs and their suppliers has been down payments and progress payments on tooling programs. OESA asked: If you are a direct production supplier to an OEM, have you negotiated for up-front payment for engineering, development and production tooling? Some 27% of the respondents said they are not direct suppliers, while 40% replied they have negotiated for up-front payment, but unsuccessfully. A third said they have successfully negotiated up-front payments.

Those who did successfully negotiate for upfront payment were asked to share the lessons learned from your strategy. Their responses revealed an interesting array of the frustrations and sometime successes of suppliers as they attempt to negotiate the troubled waters in which they are forced to swim, and included:

•  “We negotiated 50% up-front on tooling.”
•  “Be prepared to give discounts to achieve payment.”
•  “Best results when you have a technology advantage and lower volume programs.”
•  “Explain that they have to pay for these services somewhere. The European-based companies are more open to the up-front   payments.”
•  “For new tooling and particularly testing, we are charging the OEMs” (as opposed to charging the middlemen who contract for the work).
•  “Play hardball.”
•  “Stopped prototype deliveries.”
•  “Have to take a hard line regarding payment or not moving forward.”

Suppliers can adopt a hard-line stance with OEMs if they have a unique niche or a lock on a specific technology. One respondent said, “No negotiations at all. If they want our involvement, this was the condition. We have been threatened with being re-sourced for all future programs, but we have the technology they need so it seems a weak threat.”

Another supplier commented, “We have advised [our customers] that due to liquidity issues we could no longer be the bank on new programs and would give the programs back without progress payments.” One supplier who reported he was successful in negotiating up-front payments, but had to play hardball to get them, said, “We were successful in getting up-front tooling money. We threatened to stop all engineering and design work unless we received tooling money up front to match our outlay of spending.”

Other suppliers are getting pushback from OEMs. “They told us they would market test us. We are not sure if they sourced someone else or not,” commented one. All responses were kept anonymous. —Clare Goldsberry