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Hondarsquos Tom Lake says automaker is weighing how upcoming regulations and customer vehicle preferences might affect suppliers Joe Wilssens
<p><strong>Honda&rsquo;s Tom Lake says automaker is weighing how upcoming regulations and customer vehicle preferences might affect suppliers.</strong></p>

Flexibility Key for Suppliers Managing Downturn

A Management Briefing Seminars panel of two automakers (Honda and Volkswagen) and supplier Yazaki indicate the key to coping with lower volume will be increased flexibility.

TRAVERSE CITY, MI – Most auto-industry forecasters anticipate a downturn or plateau for U.S. light-vehicle sales arriving around 2018 after a string of record years, so what will be the impact on suppliers?

A Management Briefing Seminars panel of two automakers (Honda and Volkswagen) and supplier Yazaki indicate the key to coping with lower volume will be increased flexibility.

Tom Lake, Honda North America Purchasing vice president, says the automaker is focusing on capacity management to allocate production over its North American plants based on long-term (over three years), midterm (one to three years) and short-term volume expectations.

“When we see changes coming in the market, we want our suppliers to know what our plans are,” he says. Besides a sales slowdown, Honda is weighing how upcoming regulations and customer vehicle preferences can affect the supplier pipeline.

Mahesh Kodumudi, chief purchasing officer of VW’s North American Region and executive vice president, says if the slowdown hits 20% he’s “pessimistic” about the impact on smaller suppliers.

Offsetting the concern is the fact that during the post-2009 recession sales surge, most suppliers large and small have pocketed solid earnings and improved their balance sheets.

Unlike semi-independent Honda North America, VW product development and global purchasing remain based in Germany.

“We don’t know how the market is going to go,” he says. But VW – despite its diesel-emissions scandal – still is committed to North America and its supplier base, he says. VWA has bolstered its product-development capabilities and has hired 100 engineers at its Chattanooga, TN, facility as a start.

Nigel Thompson, president and CEO of Yazaki North America, says his company has in place a series of strategies to deal with lower OEM production, including what he terms “threats” from internal, external, historic and environmental sources.

“We’re learning to grow smart,” he says. “It used to be just ‘grow.’” Although growing market share traditionally has been every supplier’s target, Thompson says it may not be now “because the risk is larger” in an industry facing huge changes.

Asked if OEM-supplier relationships might deteriorate during a potential downturn, HNA’s Lake says: “We have a history of good relations, and we think they (suppliers) trust us because long term we think we’ve been fair in tough times.”

Kodumudi encourages stronger ties between automakers and suppliers as the industry heads into a potential sales pause. “We want to strengthen our partnerships as the industry accelerates into electrification and as regulations” take hold, he says.

While VW Group has been labeled a “commodity buyer,” Kodumudi says the term doesn’t fit these days. “VW can’t be the most innovative auto company in the world – or be a technical trendsetter – and also be only a commodity buyer,” he says.

Yazaki’s Thompson puts it succinctly: “If relationships are good on both sides in good times, that pays off in bad times.”

The panelists also allude to how Silicon Valley’s entry into the automotive scene is challenging the industry’s way of doing things.

Yazaki, for example, has created what Thompson calls a “West Coast strategy. We’re seeing new customers who disdain the industry’s legacy way of manufacturing. We’ve grown up with certain ways of validating, for example, but they want speed in both hardware and software development and implementation.”

Thompson says one company even has added software that has no current application but will be available later as needed.

“We have a lot to learn from Silicon Valley,” says VWA’s Kodumudi. “Our legacy is not going away, but (because of Silicon Valley’s influence) we’re going from evolutionary to speed. We want to blend our capabilities with the Silicon Valley guys.”

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