Ford Asks Suppliers to Help it Cut Costs
Ford has reported significant losses on its EV business, and a letter obtained by Crain’s Detroit Business/Automotive News shows that the automaker is looking to cut costs with its suppliers. The Blue Oval asked its partners to help lower materials costs, saying “we have all invested heavily in the success of the EV business, and we will all win or lose together.”
Ford’s memo included mention of Ford’s current EVs, including the F-150 Lightning, Mustang Mach-E, and E-Transit, as well as two new ones, the P800 electric truck and large electric SUV. The automaker wants any and all cost-cutting ideas from suppliers, even if it had previously rejected the suggestion. “Everything is on the table,” the letter said.
The request targets suppliers of all sizes, including small ones that are less able to weather the ups and downs of the EV business. Some suppliers have been burned by Ford’s EV plans, which were scaled back after the company realized customers weren’t as hot on electrification as hoped.
Large suppliers have long cited EVs as being a big problem for their operations, with Magna’s CEO saying that changes in production volumes have been a drag. They also noted that some automakers have been paying up front to help mitigate some of the risk of investing in the business. To be fair to Ford, it’s far from the only automaker slashing costs. Automotive News noted that Stellantis and GM have also been on a tear, with the former suing some suppliers for their prices and business practices.
[Image: Shutterstock]
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Chris grew up in, under, and around cars, but took the long way around to becoming an automotive writer. After a career in technology consulting and a trip through business school, Chris began writing about the automotive industry as a way to reconnect with his passion and get behind the wheel of a new car every week. He focuses on taking complex industry stories and making them digestible by any reader. Just don’t expect him to stay away from high-mileage Porsches.
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If you've ever been a supplier to a Big 3 automaker, this is just another Thursday. Manufacturers use their clout to pressure suppliers to extract every nano-cent of profit possible and have that ability as they usually have a line of potential vendors waiting to take your place. It can be profitable business if you manage expenses very tightly and volume meets or exceeds expectations. But if it doesn't, like in a year with significant strike-caused production stoppages, profitability for the year is likely out the window.
volume meets or exceeds expectations......................... But, they always give you high annual volume to quote so they get a cheaper price. You have to tool up to that volume (costing you extra$) because if that part number reaches that volume and you cant meet it? Whao unto you. After getting burned by gm 10 yrs ago, we moved to heavy truck and agriculture products only. Steady volumes. More profits. 30 net payment. The vampire is up to 90-120 days now? Never big 3 work. Ever !
Automakers have traditionally squeezed their suppliers. Japanese suppliers are part of the design team (and interlocking ownership) and build in economies. Chrysler tried that, viewing suppliers as partners, but Mercedes put a stop to it, and went back to squeezing suppliers down to razor thin margins.
Henry Ford assured quality parts at a low price by making his own parts. Anti-trust laws forced Ford to spin off parts divisions and buy parts from independent suppliers. Maybe Ford should work to get the anti-trust laws changed, and put the Rouge complex back in business.
Keep in mind some of these suppliers are not just supplying parts, but assembled components (easy example is transmissions). But there are far more, and the more they are electronically connected and integrated with rest of the platform the more complex to design, engineer, and manufacture. Most contract manufacturers don't make a lot of money in the design and engineering space because their customers to that. Commodity components can be sourced anywhere, but there are only a handful of contract manufacturers (usually diversified companies that build all kinds of stuff for other brands) can engineer and build the more complex components, especially with electronics. Every single new car I've purchased in the last few years has had some sort of electronic component issue: Infinti (battery drain caused by software bug and poorly grounded wires), Acura (radio hiss, pops, burps, dash and infotainment screens occasionally throw errors and the ignition must be killed to reboot them, voice nav, whether using the car's system or CarPlay can't seem to make up its mind as to which speakers to use and how loud, even using the same app on the same trip - I almost jumped in my seat once), GMC drivetrain EMF causing a whine in the speakers that even when "off" that phased with engine RPM), Nissan (didn't have issues until 120K miles, but occassionally blew fuses for interior components - likely not a manufacturing defect other than a short developed somewhere, but on a high-mileage car that was mechanically sound was too expensive to fix (a lot of trial and error and tracing connections = labor costs).
What I suspect will happen is that only the largest commodity suppliers that can really leverage their supply chain will remain, and for the more complex components (think bumper assemblies or the electronics for them supporting all kinds of sensors) will likley consolidate to a handful of manufacturers who may eventually specialize in what they produce. This is part of the reason why seemingly minor crashes cost so much - an auto brand does nst have the parts on hand to replace an integrated sensor , nor the expertice as they never built them, but bought them). And their suppliers, in attempt to cut costs, build them in way that is cheap to manufacture (not necessarily poorly bulit) but difficult to replace without swapping entire assemblies or units).
I've love to see an article on repair costs and how those are impacting insurance rates. You almost need gap insurance now because of how quickly cars depreciate yet remain expensive to fix (orders more to originally build, in some cases). No way I would buy a CyberTruck - don't want one, but if I did, this would stop me. And it's not just EVs.