DETROIT (Jan. 29, 2009) — Chrysler L.L.C.'s purchasing chief is demanding a new round of price cuts from suppliers as the auto maker faces a Feb. 17 deadline to justify its federal bailout money.
Scott Garberding has ordered price cuts from all suppliers effective April 1. Those would be in addition to annual price decreases required contractually of suppliers, according to a Jan. 26 Chrysler letter obtained by Automotive News.
Garberding did not specify the magnitude of the cuts. A supplier executive who asked to remain anonymous said they would be determined on a case-by-case basis.
So far, Chrysler has received $4 billion in U.S. government loans and is asking for another $3 billion from the Obama administration. Chrysler also is planning to sell a 35 percent stake to Italian automaker Fiat SpA.
Garberding said Chrysler would not grant price increases in 2009 related to increases in raw-material costs. All nonproduction parts suppliers will see a continuation of a 5 percent price reduction enacted last year, the letter states.
"We recognize that the financial crisis which has brought hardship to Chrysler has created similar challenges for all our constituents, including our suppliers," the Garberding letter says. He promised one-on-one discussions with suppliers before making the plan final.
Chrysler spokesman David Elshoff said he was reviewing the document, but had no immediate comment.
To meet bailout requirements, all of Chrysler stakeholders, including investors, executives, employees, dealers, lenders and suppliers are required to contribute to the company's cost-cutting efforts and restructuring.
Suppliers have been tapped for savings by automakers for more than a decade. The supplier executive says the supply base has no more to give. "How do you get blood from a stone?" he asked.
In his letter, Garberding offered suppliers a carrot in the form of a 90 percent share of any cost-reduction ideas they initiate. But such efforts require a long-term process of testing and evaluation.
The supplier executive said Chrysler's mass layoffs have stripped much of the staff needed to run that program.