The WRI Study 2024: Toyota's Surge, Ford's Decline

[Transcript]

[00:00:00] Jan Griffiths: Welcome to the Automotive Leaders Podcast, where we help you prepare for the future by sharing stories, insights, and skills from leading voices in the automotive world with a mission to transform this industry together. I'm your host, Jan Griffiths. That passionate, rebellious farmer's daughter from Wales with over 35 years of experience in our beloved auto industry and a commitment to empowering fellow leaders to be their best authentic selves.

Stay true to yourself, be you and lead with gravitas, the hallmark of authentic leadership. Let's dive in.

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It's here. The results are in. Yes, we have the results of the 24th Annual North American Automotive OEM and Supplier Working Relations Index. Yes, the WRI is here, that well-known study that we know and love from Plante Moran. And I could think of nobody better to join me in tearing into this study and what it means to you and our beloved automotive industry than none other than Sig Huber and Dave Andrea himself. Now, we all know Sig. Sig has held senior-level positions at both OEMs, which consistently hold the top and bottom scores in this study, none other than Toyota and Stellantis. He is now Chief Commercial Officer for ELM Analytics, a company that sits right at the intersection of technology and supplier relationships. And, of course, Dave Andrea, who is a principal at Plante Moran in their automotive and mobility practice. He is the proud owner of this study and the ambassador for supplier relationships in our beloved auto industry. So, first of all, Sig, welcome back to the show.

[00:02:44] Sig Huber: Thank you very much for having me. It's an honor to be here today.

[00:02:47] Jan Griffiths: Dave needs no more introduction. We all know you in this industry, Dave, and we are waiting to understand your perspective on the WRI. Start us off, Dave, with a macro level of the industry. What have we been dealing with over the past year that's influenced the study?

[00:03:10] Dave Andrea: Absolutely. And it's great to be here, Jan, and I should say it's good to be here with you, as well, since you lived in the supplier sector in the purchasing office, specifically, so you know the topic real well. At the top level, the industry has been dealing with so many issues for a number of years, never simultaneously as they have now. And that's from the electrification, transformation, and the propulsion area. It's looking at new competitors in the marketplace. It's without a doubt, all the supply chain disruptions that have happened in the industry. Cost inflation has hit the industry. As you look at the WRI, it's a measure of how well the vehicle manufacturers can deal with all of those issues. And all of the six basically are dealing with the same issues. They're dealt the same deck of cards, except maybe you could say that GM and Stellantis had one more issue on their plate with the UAW negotiations and the strikes that they managed through last year.

[00:04:22] Jan Griffiths: So, it really is pretty much an equal playing field.

[00:04:25] Dave Andrea: It is, but it comes down to an organizational issue as well. But the other piece of the puzzle that different OEMs have handled over the years here, too, is a reduction in workforce in terms of the overall corporate side, maybe purchasing specifically, different people in terms of retirements, and things like that. New people in leadership positions. It's always dynamic, and it's always dynamic for the suppliers who have to look at three, four, or five different customers and manage those relationships differently because they each have their own nuances and personalities. As they also have to deal with their own supply chains as buyers of a significant amount of purchase parts.

[00:05:19] Jan Griffiths: Dave, let's start off on the positive side, shall we? Where are we seeing some of the gains in this year's study?

[00:05:25] Dave Andrea: It clearly shows that of the six, there's a top tier. There's a top tier with Toyota, Honda, and General Motors. Toyota increased year over year by 30 points of just the WRI index, which is the overall umbrella that really measures the capacities and capabilities here. I think with Toyota, with the 30-point increase, I've described it as maybe getting over their growth spurt. And by that, I mean, looking back over the last four or five years, they've been flat, which is very uncharacteristic of Toyota. It's always about continuous improvement. But if you think about what they've gone through, adding the Mazda Toyota assembly plant here in North America that they took the lead amount of purchasing on, the battery plant, and all the EV programs that they're taking on buying new components, a new bill of material really that they've never needed to purchase before, that was taxing on the organization. And now, you heard it from Mr. Sato, the president of Toyota, that Toyota is going to take a bit of a breath and absorb all of that expansion that they've taken. But it's similar to what he was talking about on the corporate side about what North America was facing. And then, the other big gainer this year was Nissan, as well, that also increased by 30 points year over year. And they really have taken a concerted effort on the WRI, and that comes into play in many different ways.

First off, I think it's top leadership, attention to it, and looking at how to get North America a bit more autonomous in terms of their decision-making and the like of fulfilling Nissan's global plans. They have talked about, too, that they have the WRI in their performance metrics. It keeps it in front of all of the purchasing organization, product development, and supply chain individuals that supplier relations and the supply base are an important part of their success in achieving, as they call it, their ambition 2030.

[00:07:50] Jan Griffiths: Dave, when I look at Toyota, yes, significant gain this year, but they're consistent, and they are consistently at the top of the ratings. Yes, they have spiked with the highest rating since 2014 at 368 out of a possible 400, which is a phenomenal result, but they're consistent. Now, Sig, why?

[00:08:18] Sig Huber: Toyota is a really interesting company due to the culture that they have and that they've fostered for decades, right? They have their internal processes, which they call The Toyota Way, built around two things: number one is continuous improvement, and number two is respect for people. And so, I think that the people who work there really understand that relationships between companies, and in other words between OEMs and their suppliers, are forged at the personal level. They maintain strong personal commitments to the people that they're working with on the other side of the table, and I think they view themselves as being accountable for things that they promise and vice versa. And when you have relationships like that at the personal level, it starts to build trust throughout the organization, but it's built one person at a time, and I think their culture is unique in allowing that to thrive. The other thing about Toyota is that they've had a little bit less turnover than some of the other OEMs on the list. In my experience, when you have a lot of buyer turnover or if you have attrition, and there aren't enough people to cover the necessary decks of workload, then buyers start to get less responsive, and the relationships will deteriorate.

[00:09:41] Jan Griffiths: And Sig, I believe that Toyota fared better than most in the chip crisis.

[00:09:47] Sig Huber: Yeah, I think there's a lot to be said for that when you're delivering on your commitments to your suppliers if you tell them you're going to produce at a certain rate, and you can get close to that, I think that is something that really brings trust in the relationship as well. If you're constantly promising that you're going to be running on the weekends and then cancel the shift 12 hours before the weekend, after they've already scheduled their cruise and everything, those are the types of behaviors that really make it difficult for suppliers. And I think that Toyota tries to avoid that to the greatest extent possible through their longer-term planning process and their understanding that these relationships are long-term and there need to be mutual benefits on both sides.

[00:10:29] Dave Andrea: Just in that example, say you're going to build on Saturday and then cancel the production schedule that adds costs to serving the customer. When you look at the piece price, the piece price may have adequate margins built in and all those types of things, but when you add up the total cost of serving a customer, those types of costs that Sig described can completely overwhelm any type of profit margin in an individual part.

[00:11:01] Jan Griffiths: What I hear you say is consistency and accountability; those are two elements that must come through in the culture and the way we manage relationships with the supply base. And they are also two of the traits of authentic leadership, and in my mind, it all comes back to leadership and culture. But before we go there, let's talk about General Motors. We talked about Toyota. We know Toyota and Honda have seen a nice increase. Talk to us about General Motors, Dave. What's going on with General Motors? We see a few points increase. They're trending in the right direction. What's happening there?

[00:11:44] Dave Andrea: With General Motors, first off, I think one thing that I always point out is that they've had three Vice Presidents of Purchasing within the last five years, right? Because it was Steve Kiefer first, and he really took the WRI personally, he thought it was his scorecard. It's exactly what Sig is talking about; it starts at the top, and that sets the pace for the whole organization. But then, Shilpan Amin came in for 18 months, and now Jeff Morrison and they all took the WRI as a centerpiece of how they want to run the organization. And so, their numbers have continued to go up even with those leadership changes.

[00:12:29] Sig Huber: And it all started with Steve Kiefer when he came in, and he really, really changed the tone, and I think he also was able to get to the finance organization and even the top of the C-suite overall, and make this a priority for the company. Understanding that having stronger relationships is going to lead to better parts, better quality, and better pricing overall. And when he left, there was concern with some of the suppliers that I talked to saying, 'Can the successors keep up all the great stuff that he started?' And it's clear that they've been able to. I think it's because the overall organization has embraced the importance of doing this, just like Toyota. Whereas, in other organizations, it's fine for the purchasing team to take this on as a goal, but if engineering is not on board and they're asking suppliers to do a lot of engineering changes for free under very compressed timeframes without sharing enough information, if the finance group decides that they want to withhold payables at the end of a quarter for some reason or makes other financial demands that make it very difficult for buyers to be able to provide fair settlements, all of those different elements within the corporation could impact the relationship, but I think it all starts with the global head of purchasing. When I've looked at the data over the years, I found a really interesting trend in who's leading purchasing, and when they change jobs or leave the company, what happens to the scores? I noticed it back in the late 2000s with Toyota. They had just reached the peak, the highest score ever recorded in this survey. They had a very beloved Vice President of Purchasing named Simon Nagata, who left. And the next year, the score dropped in a very significant fashion. Same when Steve Kiefer started at GM. Same when my former boss, Dan Knott, started at Chrysler in the purchasing role right after the bankruptcy and really moved the needle forward. It's happened time and time again, where if you have a dedicated purchasing lead that really gets it and is empowered within their organization to try to instill cultural change. That's the secret to making this work, but it's not easy because it's a person-to-person issue, right? Each person in your company dealing with each person in the other company needs to treat each other with respect, and you need to deliver on things that you're saying you're going to promise to deliver, and that's why this is so hard because it requires a culture change led by one department but has to be embraced by individuals in other departments. So, I remember every year after this survey would come out when I was at Chrysler, and our scores were not so great, it was sort of at the bottom of the barrel; people would come to me and say, 'What is the company doing about this?' Some of these were senior manager-level people in purchasing, and they would say, 'Well, what's the company doing about this?' And I would always say, 'Well, what are you doing about it?' because this is something that you need to take the leadership on with your team and your buyers. You need to treat suppliers in a certain manner and lead by example, and the more people that start doing that, the more you're going to be able to start to effectuate the change, but it's not easy. And I really commend General Motors on what they've been able to do during that time.

[00:15:58] Dave Andrea: One of the challenges of GM to continue moving forward is consistency across all of their buying groups and their individual buyers from that standpoint because it is a big organization without a doubt. And so, getting that consistency, and the other part of the equation here is you can have one supplier who sources into three or even four different commodity groups of the same vehicle manufacturer, and you want that consistency, whether it's one Toyota or one General Motors, that also lowers the cost of doing business so that even serving one customer the supplier doesn't have to have two different systems.

[00:16:48] Jan Griffiths: I have to admit, I am all in on Jeff Morrison. I sat in a presentation that he gave about a month ago at Wayne State, and he had a slide. I took a picture of it on my phone because I was so impressed by it, and it had one tagline: this is what it says: leading change through relationships. General Motors gets it. Their leadership clearly gets it. And not only did they have a pizza party, but he said in this presentation that they had a cake with the number on it with the score on it. Now, if that isn't leading by example and showing people how important this study is, I don't know what is. I was also impressed by his level of authenticity. He is truly an authentic leader, and that comes out; you can feel it; it's palpable when you're in a room with him. So, I would expect to see more gains coming from General Motors in the future.

[00:17:52] Dave Andrea: And those elements, those characteristics, Jan, that you just ran through, we automatically think that those are all externally pointed, but those are internal as well, right? Jeff is also under the gun to have all those personal characteristics, respect, and authenticity, and all those with all of his peer directors across the board. When we went through early on in the study, when Plante Moran took it over, and I was talking about improving trust, the vehicle manufacturers came back and said, 'Well, what is trust, Dave?' That's a pretty amorphous kind of word. So, we went back into the statistics and all the data, and what it comes down to is setting realistic expectations, it's about accountability, and it's about sharing information. And the first time I saw that, I said, 'Well, put that on a little post-it notes for every buyer: expectations, information, and accountability, and everybody would be at the top of the chart.' But as you started to think about that, well, wait a minute, for accountability, I need to have, as Sig just ran through, I need to have finance behind me, right? Information: I need to have product development and marketing and all those other groups behind me on that. In setting expectations for the wild variations in production schedules, I need production scheduling, sales, and everybody behind me to be able to deliver that trust. That's where it comes at; it's really a corporate measure as much as a purchasing organization measure.

[00:19:46] Sig Huber: You know, something I've always been interested in is regional differences. So, for example, in Western Europe, the approaches towards supplier relations may be different than those in North America, which may be different than those in Japan. I've always been interested in seeing some further global type studies around this and understanding whether the expectations of each side are also different in each of those regions. Are the OEMs expecting different things from their suppliers, and are the suppliers expecting different things from their OEMs depending on what region you're in? So, I've always wondered how that would weigh on these results from a more global perspective because I think the holy grail that everyone's trying to achieve is basically one common culture globally. And it's so hard for these big companies to be able to achieve that because they have so many employees in so many regions and so many different laws that apply, and it's really hard to do that, but I think that's what companies are striving to do.

[00:20:48] Dave Andrea: And that's the exact same thing on the supplier side, as well, when you look at the mega global first-tier suppliers with it, too.

[00:20:56] Jan Griffiths: I would agree. Okay. Let's go to the bottom of the chart, Dave. What is happening at Ford Motor Company? Oh, my goodness. We've gone from 2020, they have deteriorated and now a significant drop down to 197.

[00:21:13] Dave Andrea: With Ford, it is an organizational issue. Their strategy was to split the organizations one, to really focus in the Model E on the electric propulsion side of the industry to put a different clock speed in place, to put different skills and capabilities in place with that group than with the legacy blue oval ICE-engined vehicles and platforms there. And so, the supplier wants to know it's one company that they're dealing with, here were two organizations within Ford and who's making decisions, and what about parts that go over platforms like the F-150 that could be going into two of the different models. And then, certainly, last year, with the slowdown in the growth of EV sales and production, then there was the pendulum swing back into the middle with the growth of hybrids, which they had, they had those in their product plans, but they weren't being emphasized as much as they are now. From the outside looking in, I put a lot of it on that aspect of it, but we see when we look at the buyer characteristics, just the interpersonal relationships of closing out issues, the timeliness of that dealing with the buyers, those numbers are dropping year to year, and some of that is the way they're doing decision making within the company and where those decisions are being made and executed. But then, on business processes or business practices, those are dropping as well, and that's another one that takes more than just purchasing to deliver. So, if there are sunk costs in investments that a supplier is not going to make a return on investment on, somehow, you have to make some type of recovery on that, or it's going to reflect specifically back into our numbers.

[00:23:28] Jan Griffiths: Yeah, I think that Ford is employing more of a command and control style in purchasing, and that's going to hurt them. And I'm scared because I want Ford to succeed. I want to see them turn this around and turn it around quickly. And I'd like to see Liz Door do that. But boy, does she have a work cut out for her now. They need to recover from this quickly. What do you think, Sig?

[00:23:55] Sig Huber: I agree, and I think the challenges are going to be even more difficult this year because, with the conclusion of the UAW negotiations, labor rates obviously have been impacted for The Detroit Three, but also with their suppliers, as this starts to ripple down through even nonunion suppliers are voluntarily increasing wages. Labor rates are rising, and this year, they're going to continue to rise, and we haven't seen the end of that. In fact, we're probably just at the very beginning of it. So, those headwinds are going to be strong. The other thing, specifically for Ford and all of them, is that the EV adoption rate is a lot slower than expected. And I know Ford recently came out with a request for suppliers, requesting for all they can do as far as cost reductions, value engineering, and things like that to start to take some cost out of the electric vehicles to get through this period of a slower launch curve than everyone was anticipating despite the fact that there's been so much invested in the R & D for these programs. So, I think that for the whole industry, there's going to be a challenge with respect to those two issues. And I think it's important that Ford really gets a handle on it this year because they're going to be facing those, and they've got to turn around their momentum from where they've been the last two years.

[00:25:15] Jan Griffiths: Yeah, absolutely. Now, somebody who is starting to turn it around just a little bit is Stellantis because last year we were all about, 'Oh my gosh, what is happening with Stellantis?' And the supply base practically revolted against them when they came out with their new terms and conditions two years ago. But we're seeing some improvement there, Dave.

[00:25:37] Dave Andrea: Yes. And the thing is, when we show that their numbers went up by seven points off of the bottom, we're gonna get one of two reactions. There are suppliers who are going to say, 'Yeah, that reflects their relationship.' There's going to be others because when we split that increase out, they still have well over 70 percent of the responses in the poor, very poor range, right? So, their numbers are starting to trend up, which is positive. And let me just say one thing because we're recording this with the headlines of the legal aspects of what's going on with suppliers and Stellantis here, too. If we break out the increase, they had this year and look at business practices and how the suppliers are working with the corporate side, those numbers went down. On the buyer characteristic side that actually stayed the same, that was level. And part of that has been, without a doubt, back to our conversation about how leadership plays down through the organization with Marlo Vitous and the changes that Marlo has made first off in communication, right? In terms of getting out and being accessible, without a doubt, the suppliers recognize her for that, and she's driving that with her buyers to get out. But the business practices that are the ones that she's going to need to continue to improve.

[00:27:24] Jan Griffiths: I'm with you. Marlo, that was a great move for Stellantis to put Marlo in that role. But the question remains: how successful can she be in the Stellantis, the overall Stellantis culture? My gut tells me that Tavares maybe doesn't even know what the WRI is, let alone care about it. But that's my personal opinion, I stress my personal opinion. How much do they really care about this? Who knows?

[00:27:54] Dave Andrea: Yeah, and that's the issue with all of the changes that, you know, Stellantis to FCA, before that to Chrysler and Chrysler's ownership between Daimler and Cerberus. You have to live up to those expectations, right? Of the corporate ownership side. And so, we'll see how they continue to roll out. I want to make sure that doesn't happen. You can always exclude or treat the suppliers who are coming at you with lawsuits or feel that all other options except for a stop shipment have been expended, and they have to pull the trigger on a stop shipment. But it's difficult to have that kind of tone with just a handful of suppliers and not have that permeate through the rest of your relationships. And just a real quick story that I think will illustrate that when we first took over the WRI 6 years ago, and we looked at the comments, I've said this in public forums before for Nissan, and there were comments in there from suppliers who said, ' I know my buyer knew what the right thing to do was. But they didn't have organization support, so they didn't do it.' And so, that shows me that it's in there, the companies, and it's inherent; they can do the right thing. As Sig was saying, going back to Chrysler and with Dan Knott and things like it but that generation of buyers that worked with Dan, right? Are all retiring out right now, and so those memories fade.

[00:29:47] Jan Griffiths: Yeah. Sig, you've worked during the FCA times. What's your perspective?

[00:29:53] Sig Huber: Yeah, I think Marlo has done a really nice job. She is someone who has a lot of respect within the organization, not just within her organization but, I think, with leadership around the world actually. And I think that's helpful for starting to drive this momentum, even though they've had so many obstacles. They've had so much more attrition than other OEMs. It's really been difficult to run as an organization. They've had so much attrition, and the buyer's workloads are really, really high right now. And that's been very difficult for the buyers to be responsive, and being responsive is a key part of building trust within that buying-supplying relationship. It's been very challenging for them. I think she's leading by example. Lisa Clark, who works very closely with her in a supplier relations role, is excellent, and she also has the respect of everybody throughout the organization. So, I think between the two of them, they're doing a very nice job. But I mentioned earlier about this concept about are there different expectations in different regions of the world. And she's running up against a leadership in Europe that may have a different approach to supplier relationships. And it becomes a very difficult thing to try to balance because the organization's performance is measured by certain things. And, of course, cost reduction is one of them. And when you're in a situation where the right thing to do is to give some pricing relief due to input and cost going up, you can't always do it because you're in a conflict situation with your own management team. And so, that's why this needs to become an issue that's embraced by the entire company globally, like General Motors has done.

[00:31:37] Dave Andrea: Yeah, and see on that example because if you give cost relief, that gets booked in an accounting way, that gets booked in this quarter. You don't say that you're buying the goodwill for a good launch, right? Six months from now from that same supplier, or that you're depending upon that supplier for a new technology or innovation.

[00:32:01] Sig Huber: The financial aspect of our industry right now is also going to be a difficult challenge moving forward because if you look at the percentage of suppliers that have low liquidity, it's quite high. Our company has a database where we track this type of information, and with respect to privately owned suppliers right now, about 30 percent of them have critically low liquidity, meaning their current assets are less than their current liabilities. And that is a real challenge because we're going to start to see more insolvencies and the need for some suppliers at tier two and tier one levels to be going back to their customers asking for price increases. At the same time, the customers are trying to deal with labor issues, sunk costs, and all those other things. So, it's going to be a really interesting time over the next year or two in the industry because there are so many pressures all coming to bear, and that's when trust is most important, and it's also when trust is most easily broken.

[00:33:02] Jan Griffiths: All right. Closing comments.

[00:33:04] Dave Andrea: I think going forward for the industry we do have to change the way the industry does business and in the business practices. And by that, I mean, the industry is going to be in an environment of uncertain technology trends, looking at uncertainty and regulatory issues in terms of looking at customer demand. I think the industry has to restructure how it contracts for components, and that could be even just separating out the contracts for engineering, development and tooling, fixed costs, fixed investments from being amortized into the piece price because we don't know that of what the volumes are going to be or even the industry practice of capacitating on job one for the maximum amount of a program that may never occur. And the supplier sits there with empty capacity and sunk costs. And so, can the industry ramp up just if it needs 50,000 units this year, just capacitize for 50,000, and in years two, three, and four, if it gets to 150, that the suppliers can get there too,

[00:34:32] Jan Griffiths: Yep. Yeah. Sig?

[00:34:34] Sig Huber: I think this is a really exciting time for our industry, and I'm impressed all the time by how resilient this industry is. There are problems that come up every day, every week, every year, and the industry find ways to solve those problems. The best way to solve those problems is through collaboration and trust, and I believe that the corporations that are able to get this right and create new ways to build cooperation and trust with their suppliers are going to be the ones that survive because even though the change is exciting, there are a lot of headwinds right now. We've got the financial stress in the supply chain; it's building to a point that it hasn't seen in many, many years. We have the delay of the EV programs and the shift toward more hybrid production, and you've got foreign competitors possibly coming into the game here in North America. So, the landscape is shifting; there are a lot of headwinds. I think that those companies that are able to adapt and treat this with seriousness are going to have a competitive advantage over those who continue to have adverse relationships with their suppliers.

[00:35:43] Jan Griffiths: Yes. It is clear to me that Ford and Stellantis, who sit firmly at the bottom of the chart, just don't get it. This industry is going through a massive transformation, as we've said time and time again. And to your point, Dave, it is going to require a complete redo of the processes that we know and love in this industry. But it comes back to leadership and culture, and it is time to move this industry to AutoCulture 2.0, and that's a complete revamp in how we view suppliers, how we view leaders, how we view buyers, how we view their role. And it really does come back, Sig, to a point that you made earlier on, which is about personal accountability. What is the role model for leadership in this industry, and how do we disseminate that through this complicated network of suppliers that we have on multiple continents, all the way down to the buyer level? So, there's a lot of work to be done, but this survey is foundational. It gives us the information we need. It's our scorecard to let us know what we need to do for the future. And we have history, and we have trends, and we have data. So, gentlemen, this has been a wonderful experience tearing into this study with you today. Dave, thank you for joining us.

[00:37:18] Dave Andrea: Absolutely. You're most welcome, Jan.

[00:37:20] Jan Griffiths: Thank you, Sig. Always good to have on show.

[00:37:23] Sig Huber: Thank you so much.

[00:37:24] Jan Griffiths: Thank you for listening to the Automotive Leaders Podcast. Click the listen link in the show notes to subscribe for free on your platform of choice, and don't forget to download the 21 Traits of Authentic Leadership PDF by clicking on the link below. And remember stay true to yourself, be you, and lead with Gravitas, the hallmark of authentic leadership.