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OEM Trust, Collaboration Key to Supplier Success

The continued globalization of the auto industry, including the troubled supplier sector, will necessitate vast operational changes for both suppliers and OEMs.

DETROIT – To successfully navigate through an increasingly complex and global business climate – one filled with bankruptcies, private equity takeovers and a growing number of young, techno-savvy car buyers – automotive interiors suppliers must learn to work more efficiently with each other and their OEM customers, a leading industry executive says.

In a keynote address at the 2007 Ward’s Auto Interiors Show here, Jim Orchard, president of Faurecia SA’s North American unit, outlines several concepts of change for stabilizing the supplier sector following years of Chapter 11 filings and consolidation by private-equity firms.

Collaboration and trust building between suppliers and auto makers, Orchard says, will be key to surviving continued globalization, as well as improving technical innovation and creating value for shareholders.

In addition to his duties at French-based Faurecia, one of the world’s largest automotive suppliers, with $15 billion in sales last year from various interior systems, exhaust systems and front-end modules, Orchard serves as vice chairman for the U.S.-based Original Equipment Suppliers Assn.

Citing a recent supplier brainstorming session conducted by IBM Corp. and OESA, Orchard says core challenges facing the industry include knocking down barriers between suppliers and OEMs, improving supplier cooperation and competition and re-imaging the industry for the next generation of workers.

During the industry’s transition to a new paradigm of operation, one where the vehicle interior is a primary selling point for customers, greater levels of trust must be created through the rebuilding of personal relationships, at all critical levels, between OEMs and suppliers.

Further breaking down existing barriers, while also unleashing greater value of interior systems, would be a operational shift towards OEMs empowering suppliers and regarding them as equal partners of innovation, as opposed to mere component providers, Orchard says.

Some of this change already has started, evidenced by General Motors Corp.’s improved ranking in Planning Perspective Inc.’s recent Working Relations Study between suppliers and OEMs.

Taking the collaboration model to extremes, Orchard envisions suppliers taking on a greater role in vehicle development, fostering innovation by co-locating near development centers and sharing profits with the auto maker.

Orchard notes suppliers, in general, use many of the same production standards and models. Because of this, sharing unused production capacity between companies, along with adopting a common platform of development software, could lead to a better use of assets and a stronger bottom line.

In addition, suppliers must continue to tap into government and academic resources for research and development, while also considering sharing unused patents (similar to the computer industry) as a means to generate additional income and improve the competitiveness of the industry overall.

“Between 80%-90% of patents stay dormant,” Orchard says, suggesting a patent portal, where unused patents could be posted for sale or licensing, could speed development of new technologies, reduce costs and provide an additional revenue streams.

Meanwhile, engaging the next generation of workers, many of whom view the auto industry as a troubled, unattractive career path, is critical, Orchard says, noting China graduates some 500,000-600,000 engineers annually vs. the 60,000 in the U.S.

Overall, Orchard believes the auto industry will continue to grow globally, with emerging markets such as China and India accounting for much of the increase.

The market share of the Detroit-based Big Three will continue to slide in the U.S., he adds, but their increased sales overseas will keep their output relatively flat.

“(In the future) it will be the Global 10, not the Big Three,” Orchard says, referring to the 10 largest auto makers from the U.S., Europe and Asia.

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