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GM and Delphi Tensions Come to Light

Destiny Baker3 years ago

According to a report by The Detroit News, General Motors' had a reputation of being difficult to work with before its 2009 bailout, and relations between the automaker and Delphi, the company that manufacture GM’s defective and now recalled ignition switches, were among the worst in the automobile industry’s history.

Tensions Between GM and Delphi

“If you were a Delphi engineer and you worked with GM, you didn’t want to get out of bed in the morning.” – John Henke, president of Planning Perspectives Inc. as published by Detroit News

Planning Perspectives Inc. is a company which tracks relations between automakers and their suppliers, and according to the company’s president, John Henke, relations between GM and Delphi were among the worst in the industry.

Delphi had been a parts subsidiary of GM’s up until 1999, when the automaker let go of the supplier in a bid to capitalize on the initial public offering market. Delphi, however, remained dependent on GM’s business which in turn allowed the automaker to put increased pressure on the supplier to keep parts’ costs at a minimum.

Henke suggests that in lieu of addressing company inefficiencies and an uncompetitive business model, GM tried to cut costs by squeezing suppliers like Delphi for pricing concessions in order to compete with foreign competitors.

Such practices resulted in caustic relationships between GM and part suppliers to the point that GM was consistently rated the worst company to do business in annual surveys issued by Planning Perspectives Inc. between 2002 and 2007. Even worse, Henke claims that these practices resulted in the shipment of substandard parts which were then used in GM vehicles.

Suppliers had to be “Creative” to Meet GM Targets

“Suppliers were threatened with loss of business if they didn’t reduce the cost of their components. They had to be incredibly creative to meet GM targets.” – John Henke as published by Detroit News

According to former chairman of the Center for Automotive Research David Cole, times were difficult for Delphi after being released from GM. Though the parts company still relied on GM for the majority of its business and had a similar cost structure to what they had had under GM, GM was not willing to pay them as much for parts as before.

Among the lowest cost targets set by GM at the time were those for entry-level vehicles such as the Chevrolet Cobalt and Saturn Ion – Delphi was called on to supply ignition switches for both vehicles.

During the process of setting these low cost targets, GM would often send purchasing representatives to obtain the lowest figure estimates from different suppliers, then challenge competing suppliers to beat the lowest quote. This process would continue until none of the suppliers were willing to go any lower.

According to Henke, the process would sometimes result in biddings that were so low, suppliers had to cut corners to cut corners in order to meet the promised price projections. He claimes that this is why GM sometimes received parts that did not meet specifications – like the recalled ignition switches.

General Motors claims that it no longer uses such tactics and promised that the New GM is dedicated to maintaining positive relationships with suppliers and is introducing an initiative called Strategic Supplier Engagement with the goal of bringing innovation, quality and value to customers.

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