Toyota tops scorecard for auto supplier relations

Five of the six North American auto makers tracked by Plante Moran's annual auto maker-supplier working relations index study improved their scores from a year ago, even as changes in electrification plans and tensions over pricing continue to strain relationships in their supply chain.

Toyota again topped the survey, improving its score by 30 points to 368, its highest score since 2007. That made Toyota the only auto maker to be rated with "good" relations with its North American supply base.

Honda, General Motors and Nissan, which also saw its score jump by 30 points, all rated as "adequate" on the annual report.

Meanwhile, Ford's score fell by 22 points to finish at 197, as changes to its electrification strategy accelerated a five-year decline in its scores from suppliers.

And despite a small improvement this year, Stellantis remained the company with the worst supplier relations score by a significant margin, a reflection of pricing disputes with suppliers that have threatened vehicle production.

Improvements in supplier relations this year, particularly at Toyota and Nissan, were driven not only by more open communications but also by implementing better business practices and working with suppliers to mitigate higher costs for suppliers, which have been weighing down parts maker profits for years.

"Toyota made a concerted effort in working with suppliers to mitigate input cost inflation," said Dave Andrea, principal at Plante Moran's automotive and mobility consulting practice. "That doesn't necessarily mean giving back everything that the supplier was asking for, but what it does reflect is—if a program gets delayed or if a program's volumes didn't pan out—Toyota worked with the supplier to try to accommodate those costs."

Toyota made headlines in February when it said it will pay higher prices to its Japanese suppliers to incentivize faster production and better labor conditions. The company left the door open about whether it would extend the payments to its overseas suppliers.

Higher labor costs, lingering supply chain crises because of the COVID-19 pandemic, volatile raw materials expenses and high costs related to EV programs have dented supplier earnings since 2020. Those factors have caused suppliers to seek pricing concessions to only mixed success.

Andrea said auto makers that are improving the most are working with suppliers to be more flexible on pricing and production planning and are more comfortable with sharing risks and costs equitably. He said auto makers should work to implement a variable price component that will compensate suppliers if, for instance, parts production for an EV model falls short of expectations, and said auto makers should give suppliers ample time to ramp up to full capacity at plants.

"The industry has built a model around high volumes and pretty good predictability for the most part, but it's a new marketplace now," he said. "If car companies themselves believe they need to have new business models to operate, you also have to have a new business model of how you work with your supply base underneath you."

Plante Moran's North American OEM-Tier 1 Supplier Working Relations Index study was conducted between mid-February and mid-April and surveyed 696 supplier executives at 429 suppliers that account for about half of the six auto makers' annual North American purchases. The survey included respondents at 41 of the 50 largest North American suppliers, as well as 69 of the top 100.

It asked them to rate their auto maker customers across the eight major purchasing areas broken into 20 commodity areas. The survey ranks the auto makers based on a point system of multiple issues concerning how their suppliers perceive business dealings with their purchasing departments. Among them: whether auto maker purchasing officials communicate in a timely fashion and whether suppliers believe they are given an opportunity to make a profit.

Ford's decline among respondents was driven in large part by the auto maker's shifting electrification strategy. Ford has scaled back its EV targets, abandoned a goal of achieving 8 percent margins on EVs by 2026 and postponed the launches of some electric models to focus on smaller, more affordable products.

Ford detailed many of those changes in February and March while the survey was being conducted, all amid a broader slowdown in North American EV sales growth.

"This year reflects that turmoil in the marketplace and also reinforced organizational issues within Ford," Andrea said.

When asked about Ford's scorecard on supplier relations last week, Liz Door, the auto maker's chief supply chain officer, told Automotive News that a new program called "Engage" will focus on communication with a wider pool of suppliers.

"Our interactions are so critical to our success model," she said. "It's really focused on ensuring we have mutual goals, that we're listening to our suppliers … and that we're working in collaboration to deliver the best quality, cost competitiveness and delivery on time."

Andrea said all auto makers need to be better aligned internally to make sure their purchasing departments have good relations with suppliers and also to ensure that significant business decisions are made with the ramifications for suppliers in mind.

"The purchasing organization itself can be spot-on and doing everything it possibly can to better communicate and be more accessible and to effectively and efficiently make decisions," he said.

"But if your business decisions and corporate practices are putting more costs into doing business with the customer, that can overwhelm even high-quality buyer characteristics."

Andrea said Nissan has benefited from more open communications with suppliers and better internal alignment on EV targets. He said Nissan did a better job of involving suppliers in that process than it has in the past and has also incentivized its executives to think more about supplier relations.

When making a decision, companies should ask "how that impacts suppliers and what they can do to minimize risk and minimize costs," Andrea said. "And by doing that, you're naturally going to improve your supplier relations scores."

Michael Martinez contributed to this report.