West Michigan / Suppliers Can't Win

DETROIT -- Chrysler purchasing honcho John Campi says his hard-nosed style of supplier relations — which critics say amounts to using the courts to bring companies to heel — is paying off handsomely.
Campi says he'll stick with the strategy. This month Chrysler LLC hauled one of its biggest suppliers into court to resolve a dispute that in the past would have been settled with backroom diplomacy. It is the second time that has happened this year. And Chrysler forced another supplier into bankruptcy instead of helping bail it out.
Why risk bad blood with crucial partners at such a difficult time? Suppliers say a weakened Chrysler has less clout when it comes to making parts makers bend to its will. Disputes are more apt to end up in court.
Indeed, surveys show that Chrysler's supplier relations have deteriorated this year, and a growing number of suppliers aren't sure they want to continue selling parts to the company.
But the strategy also reflects a tough-minded purchasing boss in Campi, an automotive outsider with a decisive style and scant regard for deep-rooted industry traditions.
When troubled Plastech Engineered Products Inc. quietly asked Chrysler and other automaker customers for a third bailout in February, Campi canceled purchase orders and tried to retrieve Chrysler's plastic-making tools.
Ham-Handed?
Suppliers called the reaction excessive, even ham-handed. Plastech rushed into Chapter 11 bankruptcy protection to keep Chrysler's tools and briefly withheld some shipments of plastic parts bound for Chrysler.
But today, Campi says his handling of the Plastech case has been vindicated. He says Chrysler's actions enabled the automaker to pay a fraction of what a bailout of the supplier would have cost.
According to court documents in the Plastech bankruptcy case, Chrysler was looking at a bailout tab of between $60 million and $100 million.
Plastech, with sales last year of $1.4 billion, was busted up and sold off in Chapter 11 this summer.
"I'm not looking to kill suppliers," Campi said after a speech at the Management Briefing Seminars in Traverse City, Mich. "I will work with every supplier I can in a collaborative fashion to help them become profitable and help us.
"But we don't have the wherewithal to prop up a supplier simply to keep them running. I won't do it."
The blunt-talking Campi is playing out supplier disputes in a very public way. Since January, Chrysler has sued two of its largest suppliers over disputes that almost certainly would have been resolved quietly in years past.
This month, Chrysler sued Johnson Controls Inc. for what it says were $15 million in overcharges for materials used in batteries. With a $40 billion annual purchasing budget, that is barely a rounding error at Chrysler.
'It's Hardball'
Yet, Chrysler is publicly taking to task the company that makes seats and interiors for some of its most important models, including the Jeep Grand Cherokee and the redesigned 2009 Dodge Ram pickup. In a court response, Johnson Controls denied the allegations.
In February, Chrysler sued Magna International Inc. over seat recalls that occurred in 2005, two years before Cerberus Capital Management LP acquired a controlling stake in Chrysler.
As Chrysler's largest single supplier, Magna sold $3.33 billion in parts to the automaker in 2007.
Industry analyst Dave Cole says Chrysler is under so much financial pressure from Cerberus that it is willing to risk bad blood with even key suppliers to maintain liquidity.
"It's hardball," says Cole, head of the Center for Automotive Research in Ann Arbor, Mich. "We're in an era where you might have to take some risks that you normally wouldn't want to take."
Chrysler's lawsuits reflect an unrelenting quest for cash, says Fred Smith, an attorney with Warner Norcross & Judd LLP.
Two of Smith's supplier clients have sought help fending off warranty claims from Chrysler. Smith says it is nearly impossible to determine who is at fault in the cases. But Chrysler's position, he says, is " 'we don't care who is at fault, you will contribute; give us money if you want to maintain a parts relationship.' "
Too Costly
A third client is dealing with demands by Chrysler for money back over an engine project for which the automaker thought it paid too much.
Smith did not identify the clients.
Chrysler says it is simply trying to protect its commercial interests.
"Sometimes litigation is a logical course to resolve issues that cannot be resolved in the normal course of business," said Chrysler spokesman Michael Palese.
Chrysler declined to discuss details about how much the automaker saved by not helping bail out Plastech.
But Cole, who sat on an advisory board at Plastech, says the supplier's other customers leaned toward helping the company get through a cash crunch.
But when Chrysler refused to participate, that made it too expensive for those customers to shoulder the full cost, he says.
In the Plastech bankruptcy documents, Chrysler said its response was influenced by the accommodations it had made for Collins & Aikman Corp. after the supplier collapsed into bankruptcy protection in May 2005.
The cost to customers for keeping Collins & Aikman afloat until the autumn of 2007 was more than $700 million, according to an Automotive News estimate compiled from court documents and interviews. Chrysler shouldered the biggest share among automakers of the loans and price increases that were never recovered.
Don't Push Us
Campi, a trusted longtime lieutenant of Chrysler CEO Bob Nardelli who moved into his job in January, says he is trying to improve Chrysler's battered supplier relations. In Traverse City, he said Chrysler and its suppliers would need a "fierce collaboration" to slash $1,000 per vehicle in material costs within three years.
But he pledged "equally shared benefits" and promised Chrysler's procurement office would stabilize scheduling, reduce complexity and streamline change notices to make suppliers' tasks easier.
But in an interview minutes later, Campi warned suppliers not to demand faster payment for parts.
"If a supplier wants to push us because of their fear, then they are violating the contract in place, and I will take the necessary action," he told Automotive News.
He acknowledged some suppliers had threatened to stop delivery of parts to Chrysler.
"And I say, I'm not going to let you shut down production," Campi said. "If you're serious about this, you have to live with the legal consequences."