FINAL 2009 IRN Pricing Survey Report1

Industry in Transition: The Dynamics of
Supplier-Customer Power
Results of the Seventh Biennial Supplier Survey

December, 2009
IRN Inc.
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Suite A
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www.think-irn.com
1 • Seventh Biennial Survey Results • © 2009 by IRN, Inc. • All Rights Reserved. information decisions RESULTS
Copyright © IRN Inc. All rights reserved. Reproduction in whole
or in part in any form or medium without express written
permission of IRN Inc. is prohibited.
Table of Contents
Survey Background…………………………….….…..4
The Evolving Landscape……………………………..40
Supplier-Customer Dynamics…………………….5 Financial Position………………….…………………………41
Price Reduction Requests………………………………..6 Financial Concerns
Amounts Requested and Given Cost Structure Reduction………..………………….……45
Responsibility for Cost Savings Cost Reduction Methods
Implications………………………………………….………10 Permanent Cost Improvements
Rewards for a Reduction Current Breakeven Point
Consequences of a Refusal Opportunities for Takeover Business………….………53
Strategies Pursued by Suppliers……………………..16 Takeover Business Won
Opportunities for Price Increases…………….………18 Factors in Takeover Results
Raw Material Prices……………………………..….…….21 Certification Process Shortcuts
Expectations of Increases Relative Power……………………………………….……….57
Raw Material Price Relief Power Relative to Customers
Long-Term Agreements……………………………..…..24 Power Relative to Supply Base
New Contract Provisions…………………………………26
Material Cost Indexing Summary and Conclusions……………………....…61
Volume-Dependent Pricing
Liabilities……………………………………………………...28 Appendix……………………………………………………..65
Warranty Cost Sharing Supplier Strategy by Customer
Product Liability Chrysler Suppliers
Logistics Costs Ford Suppliers
Funding for New Products………………………………31 GM Suppliers
Customer Roles……………………………………………..33 New Domestic Suppliers
Competing Bids………………………………………..…..36 Honda Suppliers
Offshore Competition Nissan Suppliers
Toyota Suppliers
Tier One Suppliers
Survey Background
Introduction Survey Statistics – 2009
IRN Inc. has been gathering information from the automotive 211 surveys received from 125 companies
supply base about the dynamics of price reduction requests
Survey questionnaires were completed during
from their customers every two years since 1997.
the months of August - October 2009
The 2008-2009 period has presented an extraordinary set of
conditions for auto industry participants: skyrocketing raw
material prices; plummeting sales and production volumes; Size of Companies in the Survey Sample:
financially distressed companies above and/or below in the Less than $50 million 31.9%
supply chain, and more. $51 million to $100 million 12.6%
$101 million to $500 million 25.1%
To capture a richer understanding of how companies at all $501 million to $1 billion 10.1%
Over $1 billion 20.3%
levels are dealing with this environment, we expanded the
survey to include questions on a broader range of topics Product Areas Represented in the Survey:
surrounding financial health, restructuring, and re-balancing Body Exterior 14.5%
Electrical / Electronics 9.2%
the risks and rewards of the industry.
Interior 18.4%
Powertrain 31.4%
The survey results attest to the persistence of companies in
Suspension 4.8%
searching for ways to hang on through the difficult times and Other 21.7%
be ready to thrive as the industry cycle turns upward. But Primary Materials Used By Survey Participants:
that ‘thriving group’ will be a relatively small percentage of Steel 47.8%
the total (we estimate 20-30%). The remaining suppliers will Aluminum 9.0%
see little change in the historical model of price-based Plastics / Composites 23.1%
competition and are likely to continue to be challenged to be Rubber 5.2%
profitable. Other 14.9%
Supplier-Customer Dynamics
Amounts Requested and Given
Q15. In a typical example, how much of a price reduction on EXISTING business has this
customer asked for, or stated an expectation of, in the past year? Q16. How much, if any, did you
agree to?
As we suspected, annual price givebacks are coalescing around 2% per year. While there is a fairly wide
difference between the various players in terms of the amount requested, the amount given by suppliers to all
OEM customers is within a very narrow band separated by 0.28 percentage points. Tier One customers are
clearly the most aggressive in terms of price concessions asked and received.
2009 Average Price Reduction

Requested vs. Given
Overall Average
5.0% Requested (3.67%) 4.64%
4.5%
4.0% 3.86%
3.62% 3.44%
3.5%
Overall Average
3.0% Given (1.91)%
2.69%
2.40%
2.5%
1.91%
2.0% 1.74% 1.75%
1.63%
1.5%
1.0%
0.5%
0.0%
Chrysler Ford GM New Domestics Tier Ones
Requested Given
Amounts Requested and Given, cont.
Q15. In a typical example, how much of a price reduction on EXISTING business has this customer asked for, or stated an expectation of, in the
past year? Q16. How much, if any, did you agree to?
Key Takeaways
Amount suppliers reported being requested: For the most part, customers have asked
Average Annual Requested less of their suppliers in the recent past,
with the exception of Chrysler (basically
1997 1999 2001 2003 2005 2007 2009
flat), presumably in recognition of the
Chrysler 4.3% 4.2% 5.3% 7.5% 7.2% 3.5% 3.6% industry downturn and macroeconomic
Ford 4.2% 5.8% 4.8% 7.6% 6.1% 5.3% 3.4% conditions.
GM 3.7% 4.9% 5.9% 5.6% 8.3% 4.5% 3.9% Overall, the customers asked for almost a
New Domestics 2.8% 4.1% 5.1% 5.4% 4.4% 3.6% 2.7% full percentage point less than in our last
survey.
Tier Ones 4.0% 5.2% 6.1% 5.4% 5.2% 5.4% 4.6%
Overall 3.8% 4.8% 5.4% 6.3% 6.2% 4.6% 3.7% The biggest difference was with Ford, which
swung from the high end in 2007 to the
lower end this year (a 1.9 percentage point
difference).
Amount suppliers reported giving:
The suppliers reported a level of concession
Average Annual Given that was basically flat with the prior survey,
1997 1999 2001 2003 2005 2007 2009 at 1.9% This is consistent with our
Chrysler 1.4% 3.7% 3.1% 4.4% 3.7% 1.5% 1.6%
observation in 2007 that the band of
acceptable givebacks is around 2%. We note
Ford 2.4% 3.1% 1.8% 3.6% 2.4% 2.1% 1.7% that concessions to the Tier Ones of an
GM 2.2% 4.1% 4.3% 4.0% 4.4% 2.1% 1.9% average 2.4% pulled up the overall result;
New Domestics 1.5% 3.1% 3.0% 3.1% 2.5% 1.9% 1.8%
automakers were given closer to 1.75% in
reductions. Undoubtedly the suppliers are
Tier Ones 2.3% 3.9% 3.0% 2.9% 2.3% 2.2% 2.4% considering the lower production volumes
Overall 2.1% 3.6% 3.0% 3.6% 3.0% 2.0% 1.9% this year.
Amounts Requested and Given, cont.
Q17. Were there any background circumstances or history that would be relevant for us to know?
Key Takeaways
Rationale for not meeting request (selected comments):

Additional Selected Comments
• ‘Low profitability on existing business; complete lack of customer help
with raw material cost increases.’ Chrysler supplier • ‘After volume dropped, we had the
givebacks restored to the price, but not
• ‘Quoted volumes were significantly lower than quoted and impacted
retroactive.’ Chrysler supplier
burden absorption losses due to the lower volume.’ Ford supplier
• ‘Rising raw material prices prohibited any reductions’ GM supplier • ‘Replacement supplier confirmed and
• ‘We have REFUSED all price down requests. We only offer to split sourced… 5% reduction to maintain
(50/50) cost savings we generate. This has worked well, and we have business’ Chrysler supplier
lost no business due to this policy.’ Ford supplier • ‘Have been winning new business for 5
years. We now have 80%+ and pressure is
Rationale for agreeing to a reduction (selected comments): mounting.’ Ford supplier
• ‘It is always a horse trade. Give something
• ‘Commitment was made to support Chrysler’s viability plan prior to on another product and give less in their
filing for Chapter 11 bankruptcy protection.’ Chrysler supplier request.’ Ford supplier
• ‘Better profitability at this account motivated consideration of a token
• ‘GM has been extremely fair through this
giveback’ Ford supplier
crisis.’ GM supplier
• ‘Customer expects reduction – willing to pay back lump sum for raw
materials or monies from other buckets’ Ford supplier • ‘Negotiations are ongoing. We try not to
• ‘We provided Ford price reduction in exchange for 100% material give without getting something in return.’
GM supplier
recovery and new business’ Ford supplier
• ‘Accommodation agreement between customer and our company in • ‘More VA/VE ideas were expected vs. cost
support of Chapter 11 reorganization 18 months ago defines reductions.’ Honda supplier
commercial terms for future periods.’ GM supplier • ‘To maintain spot on new business bid list,
• ‘3% is normal expectation, but this year Toyota accepted unabsorbed reductions were a given.’ Nissan supplier
overhead as an offset to reductions.’ Toyota supplier
• ‘To remain on bid list, conform.’ Tier One supplier
Responsibility for Cost Savings
Q18. Did the customer offer assistance in driving out cost rather than leaving it entirely up to
you? Key Takeaways
Reliance on suppliers to figure out the means of accomplishing a feasible price reduction was a more common course
this year at every customer except the New Domestics, who increased their involvement in joint activity. This measure
has tended to bounce around from year to year, however.
Aftereffects of a Reduction -
Supplier Solutions or Joint Supplier/Customer Activities?
100
20 7
90 38 33 36
21
24
24
23
28
39 32 31 33 30 33 34
80 43 47
37 41 43 41 42
41 54
70 59
69
74
60
% of respondents
79
50
80 90
79
40 62 67 68 76 79 77
72
61 64 69 67 70 67
63 66
30 57
53
59
57 53 57 57
39
46
20
31
19 26
10
0
1999
2001
2003
2005
2007
2009
1999
2001
2003
2005
2007
2009
1999
2003
2005
2007
2009
1999
2001
2005
2007
2009
1999
2001
2003
2005
2007
2009
2001
2003
Supplier Joint
Chrysler Ford GM New Dom. Tier 1

The percentages vary slightly from 100% because there was an “Other” category and some respondents checked multiple answers.
Immediate Rewards of a Reduction
Q19a. What was the IMMEDIATE result based on your response to the request?
Immediate Results of Providing a Price Reduction

100 2 6
0 0 4 2 5 3 8 0 0 0
5 5 10 4
15 17 8 9 14 6 11
90 15 17
80
53 50
70 73 63
59
% of respondents
44 66 68 61 73
80 46 64 62
60 56 65 68
68
62 55 66
63 83 67
64
50
40
30
47 46
38 42
20 28
27 35
41
33 33
22 23 27 30 30 31 30
17 28 28 27
19 22 23
10 11
0
2001
2003
2005
2007
2009
2001
2005
2007
2009
2001
2003
2005
2007
2009
2001
2003
2005
2007
2009
2001
2003
2005
2007
2009
2003

Gain Maintain Lose
Discussion of results appears on page 12.

Responses may not total 100% if some respondents did not answer this question.
Future Rewards of a Reduction
Q19a. What FUTURE result do you anticipate based on your response to the request?
Future Expectations for Providing a Price Reduction

100 6 4 5 7 3
8 3 9 6 0 9 10 7
12 12 12 0 14 3 12 13
90 17 11 8 0
8 0 20 10 4 10 6 7
5 17 19 9 2 14 4 19 3
12 31
80 9 6
34
9 30
8 23 26
23
70 20
37 15 41
16 25 45 25 8
42 42
% of respondents
30 41 39 41
60 28
33
52 19
33
50 24
42
40
61 65
54 63
30 46
61 61 58 57 60
42 42 45 47
43 45 47 45 48
43 44
20 37 38
19 32
10
0
2001
2003
2005
2001
2003
2005
2007
2009
2001
2003
2005
2007
2009
2005
2007
2009
2001
2003
2007
2009
2001
2003
2005
2007
2009
Gain Maintain Lose Unknown

Immediate / Future Rewards of a Reduction
Q19a. What was the IMMEDIATE result based on your response to the request? Q19a. What FUTURE result do you anticipate
based on your response to the request?
Key Takeaways
What does an agreement to a price reduction get you? Suppliers were most likely to observe an immediate
benefit of additional business at Chrysler (38% of respondents) and Ford (46% of respondents), as well as
the New Domestics (41%). At GM (27%) and the Tier Ones (27%), that was true less than one-third of the
time.
• It was fairly rare to lose business immediately following a price reduction, though 15% of responding
Chrysler suppliers had experienced this.
• For the most part (ranging from 46% to 73% of suppliers to the various customers), the immediate
result was to maintain existing business.
As an investment to gain future business, expectations were high (60-65% of respondents) for all customers
except at GM, where only 45% of respondents anticipated this future benefit as a result of their cooperation.
We were surprised by how much this measure had jumped since our last survey. We believe it is further
confirmation of the supplier consolidation happening at the top of the food chain.
• At Chrysler and GM, some (8% at each) respondents still expected to lose business in spite of the price
adjustment they had agreed to.
Immediate Consequences of a Refusal
Q19a. What was the IMMEDIATE result based on your response to the request?
Immediate Results of Refusing to Provide a Price Reduction

100 8
0 0 0 0 0 0 0 0 0
11 8 10 4 9
14 17 0
90 20 17 17 12
17 33 33
80
70
% of respondents
83 75 75
60 85 89
88
71 83
78 89 77 77
100 94 76
50 70 58
67 82
86 82
40 83 83
67 67
30
20
25 25
10 17 17 17 15 15 14
21 17
8 10 11 11 12 11 9
6
0 0 0 0 0 0 0 3
2001
2001
2005
2003
2009
2003
2007
2003
2007
2003
2005
2007
2009
2003
2007
2009
2001
2005
2007
2001
2005
2009
2001
2005
2009
Gain Maintain Lose

Future Consequences of a Refusal
Q19a. What FUTURE result do you anticipate based on your response to the request?
Future Expectations for Refusing to Provide a Price Reduction

100 0 0 0
11 8 12
11 17 17 17 14
90 20 22 26 8 24
30 0 6 33 5 33
33
80 38
22 41 25 8 23 8
10 50 17
17 38 5
70 57
10 22 15 0
% of respondents
50 25 75 38
60 8 0 17 47
30 67 22
46
50 44 29
33 38 21
15
31 22 57
40 17 50 50
40 25
14
67
30 33
50
20 40 43
35 38
29 29 33 33 33 33 31 29
23 25 25
10 22 22 20 17 14 17
8 11
0 0
2001
2003
2005
2007
2009
2001
2005
2007
2009
2001
2003
2005
2007
2009
2001
2003
2005
2007
2009
2001
2003
2005
2007
2009
2003

Gain Maintain Lose Unknown

Immediate / Future Consequences of a Refusal
Q19a. What was the IMMEDIATE result based on your response to the request? Q19a. What FUTURE result do you anticipate
based on your response to the request?
Key Takeaways
Refusing to entertain any kind of concession was not as hazardous as might typically be expected. Only at
GM was there an immediate loss of business (8% of respondents).
We were interested to see that some suppliers still gained business after turning down a price reduction
request (11% of Chrysler respondents, 25% of Ford, 15% of GM, 25% of New Domestics, and 17% of Tier
Ones).
• We believe this supports the trend that OEM decision-making is moving away from the primarily price-
based model in some areas.
As we suspected, the most common scenario was simply to maintain current business, as was reported by a
range of 75% to 89% of the respondents for different customers.
The most interesting result from this question is that in the case of Ford and the New Domestics, no
respondents who had declined to provide a price reduction expressed any concern about losing business in
the future. Generally speaking, the majority of suppliers expect to keep business as usual (38% to 75% of
respondents).
Strategies Pursued by Suppliers
One of the ways that we have looked at the survey results
is to group them by what we refer to as strategies.
• Gave 100% - These companies gave exactly what
Overall Participation
they were asked for. in Price Reduction Request - 2009
• Compromise - Some suppliers granted a price Unknown
0% 2% 100%
concession that was less than what they were asked Participation Participation
for. In some of our analysis we separated this further 22% 24%
according to whether a supplier gave most of what it
was asked for (50+%) or less than half of what the
customer originally had in mind (<50%).
• Gave 0% - Some suppliers completely refused the
price reduction request.
• There are also some cases where the response is
unknown, usually because it is still in the process of
being resolved. Compromise
52%
Key Takeaways
The profile this year returned to the standard pattern,

where approximately half of the suppliers compromise,
one-quarter comply fully with the request, and one 1997 1999 2001 2003 2005 2007 2009
quarter or less absolutely refuse. We noted the shift in
Gave 100% 27% 22% 25% 25% 24% 17% 24%
2007 between Gave 100% and Gave 0% as a sign of
growing supplier confidence in their position relative to
Compromise 45% 44% 49% 54% 51% 54% 52%
the customer. The responses to other questions in the
2009 survey support that this is still the case, but
Gave 0% 16% 18% 23% 11% 19% 25% 22%
customers have been asking for less, some in
conjunction with their own Chapter 11 filing, so it may
Unknown 12% 16% 3% 10% 6% 4% 2%
be more reasonable to comply with 100% of the
request this year.
Supplier Strategies by Customer Group
How suppliers treated requests from customers:

Gave 100% Compromise
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
Chrysler 33% 38% 38% 29% 26% 16% 27% 34% 18% 38% 45% 46% 52% 32%
Ford 10% 9% 9% 9% 23% 6% 15% 67% 66% 56% 64% 52% 48% 59%
GM 31% 25% 38% 31% 26% 18% 18% 46% 48% 46% 53% 55% 52% 56%
New Domestics 43% 20% 21% 26% 24% 17% 33% 28% 43% 54% 61% 60% 62% 52%
Tier Ones 20% 19% 23% 25% 23% 21% 31% 49% 42% 49% 49% 45% 53% 50%
Overall n/a 22% 25% 25% 24% 17% 24% n/a 43% 49% 54% 51% 54% 52%
Gave 0% Unknown
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
Chrysler 17% 22% 21% 13% 20% 24% 41% 16% 22% 3% 14% 8% 8% 0%
Ford 13% 16% 31% 17% 14% 39% 24% 10% 9% 4% 10% 11% 6% 3%
GM 15% 15% 16% 9% 19% 30% 25% 8% 12% 0% 6% 0% 0% 0%
New Domestics 22% 22% 21% 3% 10% 15% 11% 7% 17% 4% 9% 6% 7% 3%
Tier Ones 13% 22% 26% 14% 26% 24% 17% 18% 17% 2% 11% 6% 2% 3%
Overall n/a 18% 23% 11% 19% 25% 22% n/a 16% 3% 10% 6% 4% 2%
Opportunities for Price Increases
Q20a. Have you been successful in obtaining any price INCREASES from this customer on
existing business, given the significantly lower-than-expected production levels in the past 12
months? Q20b. If yes, how much (in percentage terms), and what arguments did you use to
obtain it?
Key Takeaways
Price Increases As a mark of how much things have changed, it

Overall
seemed appropriate in the 2009 survey to ask
whether there were instances in which suppliers
Yes 30.8%
not only held off any suggestion that they should
No 69.2%
be receiving less for their components but actually
won agreements to receive more. Over 30% of the
respondents stated that they had been successful
in obtaining price increases.
Getting Price Increases from Customers
Sixty-five respondents said they had obtained a

Yes price increase. Of the 32 who reported an amount,
16 said 5% or less, and 9 said 20% or above, so
31% there was quite a range. Of the 42 people who
No elaborated on the basis for the increase, 24 cited
69% raw material prices, 15 said it was related to low
production volumes, 2 cited exchange rates, and 2
said the increase was supported by engineering
changes (more than one response was possible).
Additional comments from the surveys are provided
on the next page, followed by data arrayed by
customer.
Opportunities for Price Increases, cont.
Q20b. If yes, how much (in percentage terms), and what arguments did you use to obtain it?
Selected comments:
• 1%; Related to material pass through • Temporary premium payments
• Steel increases of a few % • Hardship
• 4%; Based on copper increases • Put on Automaterials program and materials
• 1-5% based upon engineering changes increased
• 5%; Volume based arguments • Were able to pass material increases along to
• 6%; Reduced volume and difficulty in re-sourcing major customers
relative to the increase • We pass on the cost of increased material as a
• 8%; Component was purchased from LCC, had to surcharge
move to US due to low volume and inventory risk • We received material increases
• 8%; Lower production, higher manufacturing costs • Metal and resin increases
• 10%; Platform loss • Unamortized or unrecovered investments
• 10%; Raw material increases • Current financial condition
• 20%; Volume has been cut in half • Received via “Hardship”
• 20%; Based on volume reduction @ GM • Exchange rate effect on costs
• ~30%. 5-year purchase agreement signed in 2003. • Volume reduction was due to Ford eliminating
New one-year purchase agreement signed in 2009 usage on certain vehicles, not a market-driven
with significant price increases due to volume result
declines and no new business. • Volume sensitive pricing
• Greater than 40% based on material [and] • Yes on future programs – due to amount of ED&D
currency amortization
• 63%. The company inherited the customer and
current program through an acquisition last year.
The product sales price was below COGS. We had
no choice but to increase the price.
Opportunities for Price Increases, cont.
Q20a. Have you been successful in obtaining any price INCREASES from this customer on existing business, given the significantly
lower-than-expected production levels in the past 12 months?
Price Increases
Yes No Yes No Total
Chrysler 36% 64% 9 16 25
Ford 44.7% 55.3% 17 21 38
GM 25.4% 74.6% 16 47 63
New Domestics 34.2% 65.8% 13 25 38
Tier Ones 21.3% 78.7% 10 37 47
Overall 30.9% 69.2% 65 146 211
Key Takeaways
Price increases were reported by the highest percentage of Ford respondents (45%). At the low end, GM
awarded increases to one-quarter of the survey respondents – still a remarkable figure, given the history
of suppliers being squeezed for cost reductions.
At the New Domestics, about one-third of respondents won increases.
Tier Ones were less likely to have made this type of allowance, but over one-fifth of those respondents did
get an increase.
At most customers, the rationale of low volumes and raw material price increases were cited with the same
frequency. Material costs were more prevalent with the New Domestics. This is an indicator of the times.
In our 2007 survey, there was a harder line on material price increases, whereas this was cited as the main
rationale for increases awarded to the 2009 respondents.
Raw Material Price Increases
Q7b. Do you anticipate any significant increase in [your primary material]’s price increases over
the next 12 months?
Key Takeaways
Raw Material Price Increases
Overall Views are mixed as to whether raw material prices
will increase significantly over the next year, just
Yes 38.8%
as it is difficult to find a consensus among
No 28.4%
economists about the state of the economic
Uncertain 32.8% recovery! Thirty-nine percent of the respondents
are braced for a significant increase, while about
one-third are uncertain, and 28% are more
Raw Material Price Increases optimistic.
As the next page shows, respondents have had

Unc good results in approaching specific customers for
Yes raw material price relief. Slightly over half
ertai 39% reported that they recouped some increases, 31%
n were unsuccessful, and 16% did not experience
33% any problems relative to raw material pricing in
No the past year. This suggests that material prices
28% going forward may be a shared burden rather
than resting completely on the purchasing
supplier.
Raw Material Price Relief
Q21a. Have you been successful with this customer in recouping raw material price increases
over the last 12 months? Q21b. What kind of relief did you receive?
Key Takeaways
Overall Suppliers reported a number of methods for material
Yes 52.6% price relief:
No 31.3% • ‘Materials escalation/de-escalation agreement in place’
Not a problem during this 16.1%
period • ‘Most steel on buy program’
• ‘Surcharge recovery’
• ‘Base price increase with surcharge’

• ‘Aluminum is adjusted monthly based on LMM’
No
t • ‘Base price increase and escalation policy for raw materials’
pro Ye • ‘Quarterly invoice adjustment for copper strip and wire’
ble s
m 53 • ‘Reimbursement for increase in copper’
16 % • ‘Offset for steel increase’

No %
31 • ‘Full recovery with scrap sharing’
% More detail by customer is provided on the next page.
Raw Material Price Relief, cont.
Q21a. Have you been successful with this customer in recouping raw material price increases over the last 12 months?

Yes No Not an Yes No Not an Total
Issue Issue
Chrysler 36% 44% 20% 9 11 5 25
Ford 68.4% 21% 10.5% 26 8 4 38
GM 42.9% 38.1% 19% 27 24 12 63
New Domestics 65.8% 13.2% 21% 25 5 8 38
Tier Ones 51.1% 38.3% 10.6% 24 18 5 47
Overall 52.6% 31.3% 16.1% 111 66 34 211
Key Takeaways
Responding suppliers were most likely to receive raw material price relief from Ford (68%) or the New
Domestics (66%). Many of the Ford suppliers mentioned its Automaterials program as the form of relief
that they received, e.g. ‘Resin adjustments through the Automaterials program,’ and ‘Ford Automaterial
steel slide.’ Similarly, Honda suppliers made comments such as, ‘Almost full recovery of steel surcharges in
2008 by going on their steel slide mechanism’ and ‘Full recovery less scrap credit with no markup based on
AMM indicators.’
GM and Chrysler have been less responsive in the area of material prices, although some suppliers noted
index agreements, and surcharge compensation. ‘On some materials, but not on all commodities,’ said one
GM supplier.
For 10% to 20% of the survey respondents, the crisis of raw material prices has passed. With the
economic downturn and collapsing demand for inputs, this has not been an issue for as many suppliers
over the period covered by the 2009 survey.
Long-Term Agreements
Q22a. On NEW programs that you have won from this customer in the past 12 months, have
you been asked for an LTA (long-term agreement)? Q22b. If an LTA was used, did it include
price reductions over the term of the agreement? If yes, how much?
Key Takeaways
Long-Term Agreement
Overall We were very curious whether the massive
Yes 48.3% changes going on in the industry were impacting
No 36%
the contractual relationship between suppliers and
their customers. While half of the respondents
N/A – Have not won new 15.6%
programs reported being engaged with a long-term
agreement, including a specified annual price
reduction over the term of the agreement, 36%
reported new business without an LTA.
Long-Term Agreement
As the detail on the next page shows, GM was
No most likely to have requested an LTA (60%), while
t Chrysler and the New Domestics were less likely
pro Ye (~40%).
No ble s
36 m 48 If an LTA was requested, 85% of those
% 16 % respondents said it included an annual price
85% of these reduction of between 2% and 3%. For those not
respondents said their
% LTA includes price
using an LTA, we believe the volatility in the
reductions over the industry is leading a return to annual vs. long-term
term of the agreement. contracts, or a hybrid between the two
approaches.
Long-Term Agreements, cont.
Q22a. On NEW programs that you have won from this customer in the past 12 months, have you been asked for an LTA (long-
term agreement)? Q22b. If an LTA was used, did it include price reductions over the term of the agreement? If yes, how
much?
Asked for a Long-Term Agreement

Yes No Not Yes No Not Total
Applicable Applicable
Chrysler 40% 36% 24% 10 9 6 25
Ford 44.7% 47.4% 7.9% 17 18 3 38
GM 60.3% 22.2% 17.5% 38 14 11 63
New Domestics 39.5% 50% 10.5% 15 19 4 38
Tier Ones 46.8% 34% 19.2% 22 16 9 47
Overall 48.3% 36% 15.6% 102 76 33 211
Long-Term Agreement Included Price Reduction If Yes, Average Price Reduction

Yes No Yes No Total Year 1 Year 2 Year 3
Chrysler 80% 20% 8 2 10 2.8% 2.7% 2.6%
Ford 82.3% 17.7% 14 3 17 2.0% 1.9% 2.0%
GM 86.8% 13.2% 33 5 38 2.5% 2.5% 2.5%
New Domestics 93.3% 6.7% 14 1 15 2.0% 2.3% 2.5%
Tier Ones 81.8% 18.2% 18 4 22 2.9% 2.9% 2.9%
Overall 85.3% 14.7% 87 15 102 2.5% 2.5% 2.5%
New Contract Provisions
Q23. Has this customer been introducing new contract provisions in the following areas and if
so, do you feel these provisions are reasonable? Material cost indexing; Volume-dependent
pricing
Key Takeaways
Material Cost Indexing Two of the key issues for suppliers in recent years
If yes, have been the challenge of dealing with volatility in
In New Contracts? Reasonable? material prices and in unit volume production. When
Yes 35.7% 89.2% we asked whether those issues were being addressed
No 64.3% 9.5% in contracts, the answer was generally no.
This was definitively the case with volume-dependent

pricing, where only 17 of 205 supplier respondents
Volume-Dependent Pricing
indicated that their customer had introduced this
contract provision. The 17 respondents were spread
If yes,
In New Contracts? Reasonable? across all customers, as shown in the detail on the
next page.
Yes 8.3% 82.3%
No 91.7% 17.7% Material cost indexing has been included as a
provision in new contracts for over one-third of
respondents. The customer detail on the next page
shows that this was more likely to occur for suppliers
to Ford and the New Domestics than the other
customers in this survey.
New Contract Provisions, cont.
Q23. Has this customer been introducing new contract provisions in the following areas and if so, do you feel these provisions
are reasonable? Material cost indexing; Volume-dependent pricing
Key Takeaways
Included Material Cost Indexing in Contracts The respondents who responded Yes to
Yes No Yes No Total these questions were also asked whether
Chrysler 29.2% 70.8% 7 17 24 the new provisions were reasonable. The
Ford 47.4% 52.6% 18 20 38 response was a strong positive.
GM 29% 71% 18 44 62
For material cost indexing provisions, the
New Domestics 43.2% 56.8% 16 21 37 percentage of suppliers who felt they
Tier Ones 32.6% 67.4% 15 31 46 were reasonable ranged from a low of
Overall 35.7% 64.3% 74 133 207 83.3% at Chrysler to a high of 94.4% at
GM and an overall average of 89.2%. A
couple of respondents pointed out that
Included Volume-Dependent Pricing in Contracts the material cost indexing was initiated
Yes No Yes No Total on the supplier’s behalf, not the
customer’s.
Chrysler 8.7% 91.3% 2 21 23
Ford 10.5% 89.5% 4 34 38 The volume-dependent pricing,
GM 6.6% 93.4% 4 57 61 infrequent though it was, was also
New Domestics 8.1% 91.9% 3 34 37 deemed reasonable by most suppliers,
Tier Ones 8.7% 91.3% 4 42 46
82.3% overall. One supplier to Ford
commented, ‘Volume pricing is the next
Overall 8.3% 91.7% 17 188 205
issue. We are enforcing this provision
wherever we can, but our own contract
review in the past was not as strong as it
is now.’
Liabilities
Q24. Have you been asked to assume greater potential liability or a larger share of costs in any
of these areas? Warranty cost sharing; Product liability; Logistics costs; Other
Key Takeaways
Greater Cost Sharing?
Warranty Costs Product Liability Logistics Costs Approximately one-third of the
Yes 33.2% 17.9% 19.9% suppliers responding to the survey
No 66.8% 82.1% 80.1%
have been asked to assume greater
responsibility for warranty costs.
One-fifth are sharing to a larger
degree in logistics costs, and product
Being asked to assume greater liability/costs? liability risk is also a larger factor for
90
82.1 18% of the suppliers in the survey.
80.1
80 Detail by customer appears on the
66.8
following pages.
70
60
50
ntage of Respondents Yes
40 No
33.2
30
17.9 19.9
20
10
0
Warranty Costs Product Liability Logistics Costs
Liabilities, cont.
Q24. Have you been asked to assume greater potential liability or a larger share of costs in any of these areas? Warranty cost
sharing; Product liability; Logistics costs; Other
Key Takeaways
Greater Share of Warranty Costs
Yes No Yes No Total
Ford has been the most active in
pressing greater liability for warranty
Chrysler 33.3% 66.7% 8 16 24
costs onto suppliers, according to the
Ford 40.5% 59.5% 15 22 37
survey. The Tier Ones are less likely to
GM 34.9% 65.1% 22 41 63 be doing so, which may be an instance
New Domestics 32.4% 67.6% 12 25 37 of the delayed waterfall effect, where
Tier Ones 25.5% 74.5% 12 35 47 the Tier Ones eventually begin to
Overall 33.2% 66.8% 69 139 208 institute requirements onto their
supply base that mirror the changes
that their own customers expect of
Greater Share of Product Liability them.
Yes No Yes No Total
Product liability is less of a factor for
Chrysler 12.5% 87.5% 3 21 24
suppliers to most of the automakers. A
Ford 16.2% 83.8% 6 31 37
range of 12% to 19% of responding
GM 19.3% 80.7% 12 50 62 OEM suppliers reported being asked to
New Domestics 16.2% 83.8% 6 31 37 take on a greater share of this form of
Tier Ones 21.3% 78.7% 10 37 47 liability. The Tier One suppliers in this
Overall 17.9% 82.1% 37 170 207 case had the highest rate of
experience with being asked to assume
a greater share of product liability.
Liabilities, cont.
Q24. Have you been asked to assume greater potential liability or a larger share of costs in any of these areas? Warranty cost
sharing; Product liability; Logistics costs; Other
Greater Share of Logistics Costs Key Takeaways

Yes No Yes No Total
It is in the area of logistics that Tier
Chrysler 16% 84% 4 21 25
Ones have been most forceful in
Ford 14.3% 85.7% 5 30 35 spreading cost sharing to their supply
GM 19.3% 80.7% 12 50 62 base. Almost 30% of respondents
New Domestics 16.2% 83.8% 6 31 37 supplying to Tier Ones said that they
Tier Ones 29.8% 70.2% 14 33 47 have been asked to assume a greater
Overall 19.9% 80.1% 41 165 206
share of logistics costs, compared to
an overall response rate of 20%.
Other Areas of Increased Liability or Cost-Sharing
• ‘Packaging costs up front’ Ford supplier

• ‘GM pushes us hard on warranty issues in terms of root causing the problem and correcting it. No
attempts YET to drive warranty cost back to us directly.’ GM supplier
• An example of greater potential liability – ‘Volume changes. Jobs are quoted at volumes significantly
higher than the volumes that materialize. Customer reaction is “we do not guarantee volumes”
although supplier MUST capitalize to the quoted volume.’ Tier One supplier
• ‘DDU [delivered duty unpaid] shipping and warehousing’ Tier One supplier
• ‘Logistics into Mexico – they are paying for, but have added that to the piece price for us to
administer and manage’ Tier One supplier
• ‘Extended credit terms’ Tier One supplier
Funding for New Products
Q25. How have you received funding for future new products in the following areas?
Engineering; Tooling; Capital
Key Takeaways
Funding for Future Products As a general rule, piece price continues to be the
predominant method of recouping funding for
Engineering Tooling Capital
engineering and capital, while tooling is funded through
Upfront 10.7% 50.5% 1.9% upfront payment at least half the time. We do not have
Partial 19.6% 18.7% 7.7% trend data since this is a new question for our survey,
but it is possible that alternative approaches (e.g. partial
Piece Price 61.9% 12.1% 84.5%
payments) are a response to the particularly difficult
Other 7.7% 18.7% 5.8% 2008-09 circumstances. Red ovals are used to highlight
where respondents reported that customers significantly
diverge from the overall averages in the detailed data
below and on the next page.
Funding for Engineering on Future Products

Upfront Partial Piece Price Other Upfront Partial Piece Price Other Total
Chrysler 9.5% 28.6% 57.1% 4.8% 2 6 12 1 21
Ford 11.4% 25.7% 57.1% 5.7% 4 9 20 2 35
GM 12.5% 10.4% 68.7% 8.3% 6 5 33 4 48
New 15.1% 21.2% 60.6% 3% 5 7 20 1 33
Domestics
Tier Ones 3.2% 19.3% 61.3% 16.1% 1 6 19 5 31
Overall 10.7% 19.6% 61.9% 7.7% 18 33 104 13 168
Funding for New Products, cont.
Q25. How have you received funding for future new products in the following areas? Engineering; Tooling; Capital
Funding for Tooling on Future Products

Chrysler 47.6% 23.8% 4.8% 23.8% 10 5 1 5 21
Ford 58.3% 11.1% 16.7% 13.9% 21 4 6 5 36
GM 50% 19.2% 7.7% 23.1% 26 10 4 12 52
New 44.4% 22.2% 13.9% 19.4% 16 8 5 7 36
Domestics
Tier Ones 51.3% 18.9% 16.2% 13.5% 19 7 6 5 37
Overall 50.5% 18.7% 12.1% 18.7% 92 34 22 34 182
Funding for Capital on Future Products

Chrysler 0 0 100% 0 0 0 19 0 19
Ford 3.3% 6.7% 83.3% 6.7% 1 2 25 2 30
GM 0 6.7% 84.4% 8.9% 0 3 38 4 45
New 3.4% 6.9% 89.7% 0 1 2 26 0 29
Domestics
Tier Ones 3.1% 15.6% 71.9% 9.4% 1 5 23 3 32
Overall 1.9% 7.7% 84.5% 5.8% 3 12 131 9 155
Customer Roles
Q26. Have you observed any instances of this customer changing its role in the following
areas? Design & development; Parts manufacturing; Designating tooling sources; Designating
sub-suppliers
Changing Role of Customer
Design & Parts Designating Designating sub-
development manufacturing tooling sources suppliers
Greater role 17% 15.1% 12.7% 16.5%
Lesser role 21.8% 14.6% 9.3% 7.8%
No change 61.2% 70.4% 78% 75.7%
Design & Development Designating Tooling Sources
G G
L
reL re
N N e
ate at
o
erss o erss
c c er
r er r
h h r
olr ol
a a ol
e ol e
n n 1e
g 1e g 9
3
e 72 e %
%
Designating Sub-Suppliers
6 %2 Parts Manufacturing
7
G G
% 8
1
reL reL
% N % N ates
o ate
erss o erse
c c ror
h r er
olr h lero
a a 1le
n e ol
1e n 78
g g %%
e 72
%2 e
6 7
1 % 6
% %
Customer Roles, cont.
Q26. Have you observed any instances of this customer changing its role in the following areas? Design & development; Parts
manufacturing; Designating tooling sources; Designating sub-suppliers
Customer Role in Design & Development

Greater Lesser No Change Greater Lesser No Change Total
Chrysler 8% 48% 44% 2 12 11 25
Ford 24.3% 27% 48.7% 9 10 18 37
GM 13.1% 23% 63.9% 8 14 39 61
New Domestics 24.3% 5.4% 70.3% 9 2 26 37
Tier Ones 15.2% 15.2% 69.6% 7 7 32 46
Overall 17% 21.8% 61.2% 35 45 126 206
‘With reduction in white-collar staffing, customer pushing design/development to supplier where allowable.’ GM supplier
Customer Role in Parts Manufacturing

Chrysler 16% 16% 68% 4 4 17 25
Ford 10.8% 13.5% 75.7% 4 5 28 37
GM 13.1% 14.7% 72.1% 8 9 44 61
New Domestics 13.5% 13.5% 73% 5 5 27 37
Tier Ones 21.7% 15.2% 63% 10 7 29 46
Overall 15% 14.6% 70.4% 31 30 145 206
‘Customer also has molding capabilities and are bringing more molding in-house.’ Tier One supplier
‘In general, [customer] is bringing more items in-house though this has not yet affected our parts.’ Tier One supplier
Customer Roles, cont.
Q26. Have you observed any instances of this customer changing its role in the following areas? Design & development; Parts
manufacturing; Designating tooling sources; Designating sub-suppliers
Customer Role in Designating Tooling Sources
Chrysler 8% 20% 72% 2 5 18 25
Ford 13.5% 5.4% 81.1% 5 2 30 37
GM 13.3% 6.7% 80% 8 4 48 60
New Domestics 13.5% 13.5% 73% 5 5 27 37
Tier Ones 13% 6.5% 80.4% 6 3 37 46
Overall 12.7% 9.3% 78% 26 19 160 205
‘With Chrysler being purchased by Fiat, we will see a greater designation of tooling sources by this OEM.’ Chrysler supplier
‘We manage our tooling and supply base. The customer stays out.’ Ford supplier
Customer Role in Designating Sub-Suppliers

Chrysler 16.7% 12.5% 70.8% 4 3 17 24
Ford 23.7% 5.3% 71% 9 2 27 38
GM 19.7% 8.2% 72.1% 12 5 44 61
New Domestics 16.2% 8.1% 75.7% 6 3 28 37
Tier Ones 6.5% 6.5% 87% 3 3 40 46
Overall 16.5% 7.8% 75.7% 34 16 156 206
‘GM likes to source in low-cost countries, then direct the Tier 1 to manage the risk and logistics with little or no
opportunity to recover these added costs.’ GM supplier
Competing Bids
Q28. Has the number of competitors bidding on business with this customer changed in the
past 12 months?
Key Takeaways
Trend in Number of Competitors Bidding How has the downturn in the industry affected the
Overall competitive landscape? It is easy to formulate
Increased 11.9% opposing hypotheses: a) the number of competing
Decreased 40.5% bidders could increase as suppliers scramble to fill
No change 38.1% idle plants by going after every order and
customers consider replacing at-risk sources; or b)
Unknown 9.5%
the number of bidders could decline either because
some firms have already gone away or because
customers are employing more sophisticated
approaches to supply chain management, and so
Trend in Number of Competitors Bidding on.
Un In The results of the survey show that, in fact, the
kn cr largest proportion of respondents experienced a
Noow eaDe decrease in the number of bidders. This was
ch n secr followed closely by those who perceived no
an 10 d ea change. Approximately 12% of respondents were
ge % 12se finding more numbers in their competitive pool.
38 %d
% 41
%
Competing Bids, cont.
Q28. Has the number of competitors bidding on business with this customer changed in the past 12 months?
Number of Competing Bids

Increased Decreased No Unknown Increased Decreased No Unknown Total
Change Change
Chrysler 12% 52% 28% 8% 3 13 7 2 25
Ford 15.8% 47.4% 31.6% 5.3% 6 18 12 2 38
GM 9.7% 41.9% 37.1% 11.3% 6 26 23 7 62
New 15.8% 21.1% 60.5% 2.6% 6 8 23 1 38
Domestics
Tier Ones 8.5% 42.6% 31.9% 17% 4 20 15 8 47
Overall 11.9% 40.5% 38.1% 9.5% 25 85 80 20 210
Key Takeaways
Looking at the results by customer, Chrysler suppliers responded with a higher percentage saying the
number of bidders had decreased (52% compared to 40.5% overall). At Ford, both the Increased and
Decreased categories showed respondents that were higher than the overall average. GM paralleled the
overall averages rather closely. The New Domestics showed far more suppliers in the ‘No Change’
category, in keeping with the long-standing tradition of those companies to adhere to greater stability in
their supply chain management. And lastly, the suppliers to Tier Ones were less likely to be able to gauge
the situation, with more of those respondents landing in the ‘Unknown’ category.
Offshore Competition
Q29. Have you experienced increasing competition from OFFSHORE competitors recently with
this customer? If yes, from where? (specify country/countries)
Key Takeaways
Increasing Offshore Competition
Overall Along with the issue of the sheer number of
Yes 35.1% competitors, we were curious as to the current
No 58.8%
experience of survey respondents with offshore
competition. In our 2005 and 2007 surveys, 21-
Unknown 6.2%
25% of respondents characterized themselves as
‘very concerned’ by the threat of replacement by
a source in a lower-cost country, while 55-57%
were ‘somewhat concerned’ and 15-18% were
Increasing Offshore Competition
not concerned at all.
Unkn
In the current environment, 35% of respondents
own
Yes are observing more bidders from overseas, while
6% 59% are not. We believe this is further evidence
35%
No of the globalization of the auto industry and the
59% likelihood that the threat of off-shoring is highly
commodity-dependent.
Offshore Competition, cont.
Q29. Have you experienced increasing competition from OFFSHORE competitors recently with this customer? If yes, from
where? (specify country/countries)
Increasing Competition From Offshore Competitors

Yes No Unknown Yes No Unknown Total
Chrysler 32% 68% 0 8 17 0 25
Ford 31.6% 57.9% 10.5% 12 22 4 38
GM 50.8% 44.4% 4.8% 32 28 3 63
New Domestics 31.6% 65.8% 2.6% 12 25 1 38
Tier Ones 21.3% 68.1% 10.6% 10 32 5 47
Overall 35.1% 58.8% 6.2% 74 124 13 211
Regions Represented
• Of the respondents citing increased foreign competition, 68% noted that the competitors were from
Asia. China was cited most frequently, followed by Korea. There were single mentions of Taiwan and
Thailand.
• Eastern Europe was the home country of offshore competition for 9% of the participants, who
specifically mentioned Poland, Romania, the Czech Republic, with single mentions of Uzbekistan and
Kazakhstan.
• South America followed at 7% of the responses for offshore competitors. Brazil was cited in
particular.
• And finally, 15% of the offshore competition fell into the ‘Other’ regional category, with respondents
noting instances of bidding from Germany, other countries in Western Europe, India, Israel, and
several in Mexico.
The Evolving Landscape
Financial Position
Q3. How would you characterize your company’s current financial position compared to two
years ago? (pick the answer that best applies)
Key Takeaways
Current Financial Position
Total Suppliers responding to the 2009 survey are
strained from the effects of the industry downturn
Stronger 11.8%
over the past two years. Half of them characterized
Moderately weaker 50.4%
their financial position as moderately weaker, while
Significantly weaker 31.8% another third are significantly weaker.
At risk of Chapter 7 or 11 1.5%
Chapter 7 or 11 bankruptcy was not named as an
Other 4.4%
imminent risk by many of the respondents, so it
appears that most companies are comfortable with
the steps they have taken to weather the
Financial Position downturn.
AtOthe Str
ris
r
4% on Interestingly, 12% of the survey respondents find
Si
gn k ge themselves in stronger financial condition. These
of Mr companies vary greatly in terms of company size
ifi od
ca Ch er12 and product area (e.g. 31% of these respondents
ntl ap ate % have less than $50 million in sales and 18% are
y ter ly over $1 billion; primary product is spread pretty
we7
ak or ak
we evenly across exterior, interior, powertrain, and
er 11 er electrical/electronic). This suggests that strength is
32 1 50 not related to scale or position in the supplier food
% % % chain.
Financial Position – By Company Size
Q3. How would you characterize your company’s current financial position compared to two years ago?
Current Financial Position Company Sales

Total <$50 million $51 to $100 $101 to $500 $501 million Over $1
million million to $1 billion billion
Stronger 11.8% 11.6% 5.6% 8.8% 26.7% 12%
Moderately weaker 50.4% 51.2% 44.4% 47.1% 60% 52%
Significantly weaker 31.8% 34.9% 50% 32.4% 13.3% 24%
At risk of Chapter 7 or 11 1.5% 2.3% 0 2.9% 0 0
Other 4.4% 0 0 8.8% 0 12%
100% 100% 100% 100% 100% 100%
Key Takeaways
Looking at the results arrayed by the size of the respondent in terms of company sales:
• Companies in the $51 to $100 million range fell most heavily in the significantly weaker category (50%
of companies in this size, vs. 32% overall).
• Companies in the $500 million to $1 billion size range were better represented among those who said
their financial position is now stronger (27% vs. 12% overall) and among those who said it was only
moderately weaker (60% vs. 50% overall).
• Companies in the smallest and largest categories of size closely paralleled the overall results.
Financial Position – By Primary Product Area
Q3. How would you characterize your company’s current financial position compared to two years ago?
Current Financial Position Primary Product Area

Total Body Electrical/ Interior Powertrain Suspension Other
Exterior Electronics
Stronger 11.8% 18.2% 16.7% 16.7% 11.9% 11.1% 0
Moderately weaker 50.4% 54.6% 16.7% 54.2% 42.9% 55.6% 69.2%
Significantly weaker 31.8% 22.7% 58.3% 25% 38.1% 33.3% 23.1%
At risk of Chapter 7 or 11 1.5% 0 8.3% 4.2% 0 0 0
Other 4.4% 4.6% 0 0 7.1% 0 7.7%
100% 100% 100% 100% 100% 100% 100%
Key Takeaways
Looking at the results arrayed by the primary product area of the respondent:
• Companies in the Body Exterior, Electrical/Electronics, and Interior product areas modestly beat the
overall average for being in a stronger financial position now than two years ago.
• The Electrical/Electronics respondents were also more highly represented in the ‘significantly weaker’
and ‘at risk of Chapter 7 or 11’ categories. We believe this may be because of the highly global nature
of this segment.
Financial Concerns
Q4. What is your biggest financial concern for your company over the next 12 months?
Key Takeaways
A general theme in the responses around topics of cash flow, banks,
financing, and credit was very prominent in the list of concerns. • ‘Sustainable profitability’
• ‘Managing the significant number of
• ‘Cash position’ launches with a reduced budget and level
• ‘Cash flow due to new programs launching’ of resources due to the downturn’
• ‘Finding a suitable banking relationship’ • ‘Ability to make company cost structure
• ‘Line of credit with our bank HAS to be renewed!’ variable to respond to customer volume
• ‘Breaking covenants due to Capex spending’ volatility’
• ‘Interest rates and bank practices’
• ‘Obtaining financing with comparable rates
Some of the respondents framed their answer in terms of volumes, indicating when the current package expires’
that they are carefully watching sales and production figures as the source • ‘Successful introduction of products from
from which all other concerns flow. assets where significant investments have
been made’
The third general area cited was the fallout from financial problems of other • ‘Recovering acceptable “financial rating”
companies, whether suppliers or customers. with some major customers to assure no
future program opportunities are lost’
• ‘Other suppliers going bankrupt and shutting down entire market’
• ‘Level of additional cost to support financially stressed suppliers is hard • ‘Cost recovery of product relegated into old
GM’
to predict.’
• ‘Price pressure from desperate competitors offering very low prices on • ‘Uncertainty regarding industry volumes
our business’ and the viability of General Motors’
• ‘Customer financial health’ • ‘Maintaining and increasing sales to keep
core group of people together’
And finally, a small number of respondents cited concerns about prices for • ‘The stability of prices for raw materials’
raw materials.
• ‘Customer diversification’
Cost Structure Reduction
Q5. Given the significant downturn in the industry in 2008-09, how successful were you in
reducing your cost structure?
Key Takeaways
Reduction in Cost Structure We have been hearing anecdotal evidence that a
Overall number of suppliers have been very successful in
Less than 10% 4.4% ‘not letting a good crisis go to waste.’ Faced with the
10-20% 36.3% need to re-make their organizations for an 8 million
20-30% 37.8%
light vehicle production year in 2009, suppliers have
clearly been digging deep to find cost savings of all
30+% 21.5%
types.
Almost 96% of respondents cut at least 10% from

their cost structures, but most did even better. Ten
Reduction in Cost Structure percent cost structure reduction might be considered
‘pocket change’ by the one-fifth of respondents that
<1 were able to cut more than 30%.
0 10
% A little over one-third of respondents reduced their
- cost structures 10-20% and another 38% achieved
30 20 4 20 levels of 20-30%. Considering the 40+% decline in
+ - % % vehicle production year-over-year, these levels are a
% 30 36 necessity and not a luxury. Responses arrayed by
21 % % size of company and primary product area appear
% 38 on the next two pages. Measures that the
% companies utilized to make these gains can be found
on page 48.
Cost Structure Reduction – By Company Size
Q5. Given the significant downturn in the industry in 2008-09, how successful were you in reducing your cost structure?
Cost Structure Reduction Company Sales

Overall <$50 million $51 to $100 $101 to $500 $501 million Over $1
Less than 10% 4.4% 0 11.1% 5.9% 13.3% 0
10-20% 36.3% 41.9% 27.8% 29.4% 13.3% 56%
20-30% 37.8% 34.9% 33.3% 38.2% 46.7% 40%
30+% 21.5% 23.3% 27.8% 26.5% 26.7% 4%
100% 100% 100% 100% 100% 100%
Key Takeaways
Looking at the results arrayed by company size:

• The smallest companies in our sample featured a slightly larger percentage achieving great cost savings
of 30+%, but they generally fell more into the 10-20% range. At the other end of the size spectrum,
the large companies were less represented in the extreme savings category and were most likely to be
in the 10-20% range of savings.
• In all the size categories except for the largest, companies beat the overall average by having a larger
proportion of respondents in the 30+% savings category, with from 23% to almost 28% of the
respondents reducing their cost structures by more than 30%.
Cost Structure Reduction – By Product Area
Q5. Given the significant downturn in the industry in 2008-09, how successful were you in reducing your cost structure?
Cost Structure Reduction Primary Product Area

Overall Body Electrical/ Interior Powertrain Suspension Other
Less than 10% 4.4% 0 8.3% 0 7.1% 0 7.7%
10-20% 36.3% 22.7% 50% 37.5% 38.1% 11.1% 46.1%
20-30% 37.8% 45.5% 41.7% 33.3% 38.1% 33.3% 34.6%
30+% 21.5% 31.8% 0 29.2% 16.7% 55.6% 11.5%
100% 100% 100% 100% 100% 100% 100%
Key Takeaways
Looking at the results arrayed by the primary product area of the respondent:
• Respondents in the Body Exterior, Interior, and Suspension product areas were particularly successful
in finding ways to change their cost structure. Their percentages of respondents in the highest cost-
cutting category exceeded the overall average.
• In the category of 20-30% savings, Body Exterior and Electrical/Electronics suppliers also did well.
• A larger than average percentage of respondents in the Electrical/Electronics and Other product
categories reported cost savings in the 10-20% range.
Cost Structure Reduction Methods
Q6. What were the top three things that allowed your company to reduce costs?
Key Takeaways
As is evident from the unemployment levels in Michigan and
• ‘Proper advanced planning in anticipation of
elsewhere, workforce reduction has been a key tool for reducing the downturn (inventory reductions, facility
costs. Detailed survey comments cite salaried and hourly labor, consolidations, staffing reductions, in-
wage and salary reductions (some temporary, some permanent), sourcing of purchased components when
mandatory time off / furloughs, reduced medical insurance and possible)’
other benefits, eliminating bonus plans, no 401K match, cell • ‘Major spending discipline’
phone and car allowance reductions or eliminations – in short, all • ‘Restructure loan payments, reduced capital
aspects of costs associated with people. expenditures’
• ‘Plant consolidations, 20% reduction of
Other measures: SGA, elimination of 40% corporate
structure. Only minor adjustments to selling
• Cut marketing; elimination of outside sales reps; reduced SGA and purchase prices beyond commodities
curves.’
by cutting entertainment and travel budgets;
• ‘Flexed variable costs faster than volume
• Shut down unprofitable foreign operation; writedown of change’
assets; sold / closed / consolidated some plants; accelerated • ‘Upfront ED&D’
shutdown of assets; • ‘Material index pricing’
• ‘Negotiated lower lease expense’
• Focused on lean manufacturing principles; production
efficiencies; total business restructure; facilities reorganized • ‘No interest expense’
around manufactured value streams; kaizen, kaizen, kaizen! • ‘Outsourcing at attractive rates’
• ‘Won new business (within and beyond
• Moved production to Mexico; utilization of LCC; remoting automotive)’
functions to lower cost countries; moved equipment to lower
cost countries.
Permanent Cost Improvements
Q8. When industry production begins to return to more normal levels (13 million or greater)
how much of your cost improvements do you believe are permanent?
Key Takeaways
Percentage of Improvement That is Permanent
It is clear that many of the measures taken to reduce cost
Overall structure are related to vehicle production volumes, so the
1-15% 28.1% majority of respondents, over 56%, expect less than one-
16-25% 28.1%
quarter of their savings to be permanent (e.g. re-hiring as
production returns to normal).
26-50% 17.8%
51-75% 19.3% Perhaps more interesting is the fact that 26% of respondents
expect at least half of their cost improvements to be
Over 75% 6.7%
permanent even when the market recovers. We checked to
see whether this group consisted of companies that had been
on the light side in their cost reductions, but that was not the
case. Of the 51-75% permanent savings, for example, 46%
Permanent Improvement had reduced their cost structures by more than 30%, and
Over 27% had savings in the 20-30% range. In the group
75% 1- expecting more than 75% of the savings to be permanent,
51 7% however, two thirds were in the 10-20% cost reduction
- 15 category, so their savings levels were somewhat less
26
75 % dramatic to begin with. Nevertheless, these findings provide
16
-
% 28 support for the conclusion that suppliers are very serious
- about institutionalizing cost structure improvements.
50
19 %
25
%
% The tables on the next page show the results arrayed by
% company size and product area of the respondents, with the
18
28 points where each category significantly diverges from the
%
% overall average circled in red.
Permanent Cost Improvements – By Size and Product
Q8. When industry production begins to return to more normal levels (13 million or greater) how much of your cost improvements
do you believe is permanent?
Permanent Cost Improvement Company Sales

1-15% 28.1% 37.2% 22.2% 14.7% 26.7% 36%
16-25% 28.1% 30.2% 38.9% 23.5% 40% 16%
26-50% 17.8% 13.9% 16.7% 20.6% 6.7% 28%
51-75% 19.3% 13.9% 22.2% 29.4% 26.7% 8%
Over 75% 6.7% 4.6% 0 11.8% 0 12%
100% 100% 100% 100% 100% 100%
Permanent Cost Improvement Primary Product Area

1-15% 28.1% 13.6% 41.7% 33.3% 23.8% 22.2% 38.5%
16-25% 28.1% 27.3% 25% 20.8% 33.3% 33.3% 26.9%
26-50% 17.8% 18.2% 25% 20.8% 19% 11.1% 11.5%
51-75% 19.3% 27.3% 8.3% 16.7% 19% 33.3% 15.4%
Over 75% 6.7% 13.6% 0 8.3% 4.8% 0 7.7%
100% 100% 100% 100% 100% 100% 100%
Current Breakeven Point
Q9. What is your company’s current breakeven point as measured in North American light
vehicle production?
Key Takeaways
An impressive 80% of respondents can now break

Breakeven Point – NA Light Vehicle Production
even at 10.5 million units of vehicle production or less,
Overall and 69% at 10 million or less. The corresponding
8 million units 11.3% percentages for 9 million or less and 8 million or less
8.5 3% are 32.3%, and 11.3% respectively. This marks a
9 18.1% dramatic change from years past where a 14 million
9.5 10.5%
unit production year was considered a significant
downturn.
10 26.3%
10.5 10.5%
11 6.8% Breakeven Level – NA Production
11.5 6.8% 30
12 4.5% 25
12.5 0.8% 20
13 0.8%
Percentage of Respondents
15
13.5 0
10
14 0
Over 14 million 0.8% 5
0
8 8.5 9 9.5 10 10.5 11 11.5 12 12.5 13 13.5 14 >14
NA Light Vehicle Production (millions)
(point at which the supplier can break even)
Breakeven Point – By Size and Product
Q9. What is your company’s current breakeven point as measured in North American light vehicle production?
The tables below show cumulative results by company size and primary product area. So, for example, among companies in the
sales range of less than $50 million, 66% said they could break even at 10 million units or less of vehicle production, but if we
raise that benchmark to 10.5 million units or less, an additional 5% of respondents can break even. Noteworthy variances from
the overall averages are circled in red.
Breakeven in Annual Production Volume Company Sales

Respondents answering… million million to $1 billion billion
10.5 million units or less 79.7% 70.7% 72.2% 82.3% 53.3% 92%
10 million units or less 69.2% 65.9% 66.7% 73.5% 46.7% 64%
9 million units or less 32.3% 26.8% 27.8% 26.5% 26.7% 36%
8 million units 11.3% 17.1% 0 11.8% 13.3% 8%
Breakeven in Annual Production Volume Primary Product Area

Respondents answering… Exterior Electronics
10.5 million units or less 79.7% 95.2% 75% 91.7% 73.5% 88.9% 76%
10 million units or less 69.2% 81% 58.3% 75% 56.8% 88.9% 72%
9 million units or less 32.3% 38.1% 25% 37.5% 28.6% 33.3% 32%
8 million units 11.3% 4.8% 0 20.8% 7.1% 22.2% 16%
Opportunities for Takeover Business
Q10a. How much opportunity has your company had to quote takeover work in the past 12
months?
Key Takeaways
Opportunity for Takeover Business Over the past year, there has been anecdotal
Overall evidence of increased takeover quote activity by
More than 25 quotes for 37%
automakers. This is primarily the result of two
takeover business things: 1) concern over the financial stability of the
10-24 quotes 26.7% supply chain, and 2) a proactive method to
Fewer than 10 quotes 29.6%
consolidate their supply base.
None 6.7% It appears that the survey respondents fall into
three groups, with roughly equal numbers
experiencing a high level of takeover opportunity, a
Number of Takeover Quotes reasonable amount, or relatively little. There are a
No number of factors that enter into the incidence of
<1 ne 25 takeover work, such as the size of the pool of
0 7 + potential suppliers for a given product, the amount
qu %10 qu of distress that commodity group has experienced,
ot - ot and the number of viable alternatives open to an
es 24 es OEM. We suspect that some of the discrepancy
30 qu 37 between those who get a lot of quotes to look at
% ot %
and those who don’t is a function of the sorting of
es the supply base into winners (who are asked to
27 quote heavily) and many suppliers that are being
% left behind.
Takeover Business Won
Q10b. What percent of the quotes for takeover business has your company won?
Key Takeaways
Percentage of Takeover Quotes Won
Overall In terms of the actual benefit that respondents
None 21.8% have received as a result of their takeover
Less than 25% 53.4% quoting, we were surprised at how many suppliers
26-50% 17.3% actually won new business. Only one-fifth of the
respondents reported that they had won no new
51-75% 3.8%
business, while slightly more than one-half were
76-99% 1.5%
successful in at least one out of four quotes.
100% 2.3%
The comments provided by respondents provide
their view of why the percentage won is not even
greater (see next page), but the predominant
% of Takeover Quotes Won
explanation is that the takeover quoting is still
51 76-
99%
10 primarily driven by trying to find a lower price vs.
26 - 2% 0 a strategic consolidation decision.
- 75 %
No When respondents were successful in winning
50 % 2 takeover work, they said the most common
% 4 <2 ne
% impact on their business was to reduce or
17 %5 22 eliminate at least one competitor. We believe this
% % % is further evidence of a consolidation of suppliers
53 at the top of the food chain.
%
Factors in Takeover Results
Q10c. Why do you think your company is winning or not winning takeover business?
Key Takeaways
Explanatory Comments from Companies
A frequent observation from survey respondents was that a high
Winning Takeover Business
percentage of the takeover quoting activity is not resulting in
movement of the work at all. The most common reason cited for winning is ‘price’;
other factors mentioned include:
• ‘The majority of these inquiries are contingency plans in the
event of a supplier failure.’ • ‘We still have a strong balance sheet with little or no
long-term debt. Support by lender. Access to
• ‘In some cases the auto companies are simply not able to move
capital/equipment.’
the business. They want to but there is no money for validation
or a closedown of a supplier.’ • ‘Significant global spread and low-cost structure’
• ‘Some OEs have a clear strategy to consolidate the supply base • ‘We are winning because we are the “last man
and reduce exposure to financially weak suppliers – these OEs standing.”’
follow through on re-sourcing. Other OEs are looking for a • ‘We are winning because of consistent business
cheaper deal, not a true risk mitigation.’ practices and working with customers.’
Companies that have not been winning takeover business give a • ‘Strong financial background, competitive pricing
variety of explanations. (new business), global footprint, commitment to
meet their new target (actual business).’
• ‘Prices required to win takeover business are too low; parts are • ‘We have a strong balance sheet and our quote
older that have had significant pricedowns and profit erosion over model is competitive.’
the years.’ • ‘Customer relationships, proven process, success
• ‘Competitors are quoting at or below cost to gain any work.’ breeding success’
• ‘Customers are consolidating with their current suppliers.’
• ‘Stability, quality, technology’
• ‘The parts we quoted are not a good fit for our manufacturing
capabilities.’ • ‘We are one of the few survivors within our niche.’
• ‘We need our salespeople more focused on that specifically.
Tends to go to larger companies.’
Certification Process Shortcuts
Q10d. Have you seen your customers shortcut the process of certification out of concern about
interruption in the flow of parts from existing suppliers?
Key Takeaways
Certification Process Shortcuts
In situations where automakers have taken
Overall proactive steps to ensure the flow of critical parts,
Yes 43% there are anecdotal reports that these customers
No 57% have found it advisable to shortcut the process of
certification in order to make these supply chain
changes happen. Over 40% of respondents agreed
that this had taken place, a surprisingly high figure.
Shortcutting Certification Process
The answers were similar across all company size
and product area categories, with the following
exceptions:
Yes
• Respondents from companies in the $500 million-
No 43% $1 billion sales range were more likely to have
57% seen shortcuts – 53% vs. the 43% average.
• Companies making Electrical/Electronics and
Suspension parts reported less likelihood of
shortcuts – 33% vs. the 43% average.
Power Relative to Customers
Q11. Compared to three years ago, do you feel the power of your company relative to that of
your CUSTOMERS has: increased; stayed the same; decreased?
Key Takeaways
Power Relative to Customers Over the twelve years that we have been conducting
Overall this periodic survey, the power pendulum has been
Increased 57% tilted heavily in the direction of the customer.
Stayed the same 35.6%
In our last survey (2007), there was evidence that
Decreased 7.4% customers were tapering off in their aggressive
requests for givebacks and price reductions. We
asked suppliers how they currently see the balance,
and were pleasantly surprised to find that 57% of
respondents perceive that their power relative to that
Power Relative to Customers
of their customers has increased.
De
cr Why would this be the case? It could be the natural
St ea In conclusion to the ‘cycle of abuse’ – having been
ay se cr pushed as far as they will go, perhaps suppliers are
ed d ea rising up and reclaiming some balance. Or perhaps
sa 7 se customers are concerned enough about supplier
m failure, given the severity of the industry downturn,
% d
e that they are setting aside the iron fist for the kid
57 gloves. Or maybe they have finally concluded that
36 %
% win-win is the most productive approach.
Power Relative to Customers – By Size and Product
Q11. Compared to three years ago, do you feel the power of your company relative to that of your CUSTOMERS has:
increased; stayed the same; decreased?
Power Relative to Customers Company Sales

Increased 57% 53.5% 66.7% 50% 53.3% 68%
Stayed the same 35.6% 30.2% 27.8% 47.1% 40% 32%
Decreased 7.4% 16.3% 5.6% 2.9% 6.7% 0
100% 100% 100% 100% 100% 100%
Power Relative to Customers Primary Product Area

Increased 57% 59.1% 66.7% 45.8% 69% 55.6% 42.3%
Stayed the same 35.6% 36.4% 25% 45.8% 28.6% 44.4% 38.5%
Decreased 7.4% 4.6% 8.3% 8.3% 2.4% 0 19.2%
100% 100% 100% 100% 100% 100% 100%
Power Relative to Suppliers
Q12. Compared to three years ago, do you feel the power of your company relative to that of
your SUPPLY BASE has: increased; stayed the same; decreased?
Key Takeaways
Power Relative to Suppliers In terms of how suppliers treat each other, the past
Overall survey results regarding Tier Ones as customers have
Increased 36.3% indicated that they are as ready as the automakers to
Stayed the same 51.1% be extremely demanding with price reduction
expectations.
Decreased 12.6%
In the 2009 survey we asked all the respondents to

characterize changes in their power relative to their
supply base, and found that more than half are
Power Relative to Suppliers
experiencing stable relationships, while 36% feel
more power and 13% feel less.
De
cr In If the industry is truly on a path of consolidation,
ea cr then good suppliers at every level of the chain are
St se ea likely to be able to form balanced relationships both
ay d se
ed 13 above and below.
d
sa % 36 It would seem that suppliers should have a good
m % sense for the most productive way to deal with each
e other. Those that have adopted best practices in
51 supply chain management may have an appreciation
%
for the value of mutual accountability.
Power Relative to Suppliers – By Size and Product
Q12. Compared to three years ago, do you feel the power of your company relative to that of your SUPPLY BASE has:
increased; stayed the same; decreased?
Power Relative to Suppliers Company Sales

Increased 36.3% 30.2% 38.9% 41.2% 33.3% 40%
Stayed the same 51.1% 51.2% 38.9% 47.1% 66.7% 56%
Decreased 12.6% 18.6% 22.2% 11.8% 0 4%
100% 100% 100% 100% 100% 100%
Power Relative to Suppliers Primary Product Area

Increased 36.3% 45.5% 33.3% 50% 33.3% 33.3% 23.1%
Stayed the same 51.1% 45.5% 58.3% 37.5% 57.1% 44.4% 57.7%
Decreased 12.6% 9.1% 8.3% 12.5% 9.5% 22.2% 19.2%
100% 100% 100% 100% 100% 100% 100%
Summary
Summary/Recap of Key Points
The expanded format of the survey has given us a great window into the significant changes taking place in the automotive
supplier environment. Macroeconomic conditions took an already-tense auto industry to a new level of challenge and weakened
suppliers (over 80% of our respondents). It is a testament to the savvy of many in the supply base that 50% were only
‘moderately’ weakened by the industry downturn, and 12% have actually found ways to improve their financial position. As we
will discuss in our final observations, this survey gives further weight to our belief that the better-performing suppliers are
separating themselves from the rest of the industry and that this trend will continue.
The survey responses suggest that companies in the $51-100 million range have had more trouble dealing with industry
conditions than larger or smaller companies. This is probably the result of having a higher cost structure than a smaller, more
tightly-focused supplier but not being big enough to be considered a key player in their segment.
Even as the industry begins to recover, the day-to-day reality for suppliers will be difficult, as evidenced by the number of
concerns expressed about cash flow, credit, and banking relationships.
Years of dealing with aggressive demands for, or expectations of, lower pricing have put suppliers firmly in the mode of ‘cost
awareness.’ In the downturn of the industry, survivors have been quick to activate an array of measures to reduce their cost
structures (58+% cut at least 20%, 20+% cut at least 30%). Two particularly striking points from the survey results are:
1) Almost 70% of respondents can now break even at NA light vehicle production levels of 10 million units or less.
2) 26% of respondents expect at least half of their cost improvements to be permanent even when production begins to
return to more normal levels.
In other words, many companies have positioned themselves to be more profitable going forward. They have not ‘let a good
crisis go to waste.’
There will certainly be companies that do not fare well even as the industry moves forward. A high level of takeover quote
activity has been reported. Although industry participants have found it to be largely precautionary on the part of their
customers, we believe that more of this movement of existing business will be consummated as some companies weaken
further over the coming months. In fact, a significant number of respondents (40%) said that the number of competitors they
are up against has already decreased.
Summary, cont.
Summary/Recap of Key Points, cont.
One of the most interesting aspects of this year’s survey results is the message about how companies up and down the supply
chain are perceiving their relative power. The burden of low vehicle demand has caused a focus on profitability vs. market share
by suppliers and has helped level the playing field between suppliers and their customers.
The data on the central issue of price reduction requests further illustrates the change in supplier-customer dynamics, since
customer expectations are lower (3.7% on average vs. 4.6% in our 2007 survey and 6.2% in 2005). Supplier responses have
stabilized at 2% or slightly less, indicating that this is the level that will be considered doable, absent unusual circumstances.
The fact that 31% of respondents obtained price increases indicates a greater strength of some suppliers and a willingness on
the part of customers to show a new flexibility based on specific circumstances, often raw material price volatility.
All this is not to suggest that the punitive history of the past fifteen years could not return. Some of the circumstances this year
have been unique, we hope (e.g. the Chapter 11 filings of two of the largest automakers), and it could easily be the case that
pressure on the supply base migrates to new forms. We explored some of that with the new questions in this year’s survey, as
well as areas we have looked at in the past. Some summary points are:
• The burden is heavily on suppliers to figure out the means of accomplishing a feasible price reduction.
• Raw materials remain a wild card in future planning, and although customers have been receptive to assisting suppliers in
covering material price changes, there is no guarantee that they will continue to do so. The appearance of material cost
indexing in some new contracts (36% of respondents) may be helpful in smoothing out the risk, however.
• Most customers (according to 48% of respondents) still want long-term agreements including commitment to price
reductions, so notwithstanding the new volatility of the industry, an expectation of regular price reduction continues.
Risks to watch for: So far, the incidence of these changes is much less than 50%, but areas where at least some suppliers have
faced greater liability or cost are for warranty costs (33%), product liability (18%), and logistics costs (20%). There is also some
occurrence of customers pushing design/development to the supply base where possible. These means of shifting costs can be
used as a ‘back-door’ approach to changing the pricing equation.
Conclusions
It was a fascinating year to be conducting this survey. With the catastrophic drop-off in demand in the first half of the year and
the bankruptcy of General Motors and Chrysler over the summer, suppliers were challenged as never before just to survive let
alone prosper. Coming out of this ‘near death experience,’ most suppliers had to completely re-visit their business model and
basically change the rules for how they will compete in the future. Out of this crisis, there were a series of lessons/messages
that all suppliers should heed:
Success Still Equals Differentiation - If you cannot articulate why your customers should work with you (in terms that are
meaningful to them not you), you will continue to compete solely on price. As the survey supported, there are suppliers winning
new business even when they say no to price concessions and ask for price relief if warranted. They can do this because, as the
strategist Adrian Slywotzky puts it, “The customer will allow you to make a profit because what you provide them is valued.”
Too many suppliers cannot successfully answer that question. And failure to articulate your position will become more
dangerous as the supplier landscape changes dramatically over the next few years.
Necessity Really is the Mother of Invention – If most suppliers were asked in the summer of 2008 whether they could
survive an almost 50% drop in production with virtually no notice, they would have said it was impossible. The speed with
which suppliers met this crisis in 2009 was truly remarkable and is a testament to the creativity of many leaders in this industry.
The challenge, as pointed out by our survey results, is how to make these changes and this mindset permanent. Laying off
people and closing facilities is relatively easy. Re-designing your business model to change the cost basis on which you compete
is a different matter.
Flexibility is Key – Suppliers need a fixed cost structure that can make money at the low end of the cycles and a variable cost
structure that allows them to cope with the peaks. We believe that increased volatility is here to stay, and that the automotive
market in the early decades of the 21 st century will be more like that of the ‘70s and ‘80s. Suppliers must become accustomed to
dealing with greater swings in production. The survey results indicate that a good number of companies think they have
achieved that flexibility. As North American production increases by 40-60% in 2010-11, they will have an external environment
that really tests those beliefs.
Love Thy Banker – While some suppliers are accustomed to feeling at the mercy of their customers, commercial banks are
looming larger as the new competitive control point. The cost and availability of credit lines, size of loans, interest rates, and
commercial loan covenants may have been seen as somewhat external to the core day-to-day work of running the company,
but no longer. Keeping in a good cash position and managing your banking relationships will be a key to success for the
foreseeable future.
Conclusions, cont.
Don’t Wait for Industry Consolidation to Solve Your Problems – While many suppliers have not survived the economic
meltdown of 2009 (and there will be a few more demises to come), the percentage decline is nowhere near what the pundits
always claim. There are multiple reasons for this, including the fact that customers and financial institutions have a vested
interest in keeping many marginal suppliers alive because they do not want the company to expire on their watch (thus
artificially sustaining companies that should go away). While there clearly will be consolidation at the Tier One level, those that
do not make that cut will not go away, they will merely move down a level in the chain. The message? Supplier positioning is
going to be a lot messier in the next few years. Again, clear articulation of your optimum strategic position will be key.
The New Competitive Differentiator – Execution – While it is too soon to suggest that the price-based competitive model
that has dominated this industry for the last twenty years is dead, it is clear that for the top 20-30% of the supply industry,
price is much less important than whether the customer believes they can rely on you for flawless execution. With the industry
returning to ‘normal’ levels over the next few years, the massive organizational downsizing at the OEM and Tier One levels that
took place in 2009 (and this includes many of the New Domestics) means they will have a tough time marshalling the resources
to execute all the new programs that will be launched during this period. Since new program launches in 2010-2012 are a “bet
the farm” situation for several OEMs, aggressively leveraging this competency will be a key to success. Any supplier that has and
maintains a reputation of reliability and flawless program launch will win business and, in most instances, be highly profitable.
Solid performance in difficult circumstances has been the underpinning of the gradual accrual of power to successful suppliers.
Average Performance =Sub Average Financial Return – If our theory that the supplier industry is rapidly separating into
the clear winners and everybody else, if you consistently ranked yourself at or below the median on many of our survey
questions, you should be worried. While we believe there will still be thousands of suppliers now and in the future, only the top
performers will break out of the cycle of price-based competition. So the good news is most suppliers are likely to survive. The
bad news is, they just won’t ever make any money.
IRN has always been a strong believer that the automotive industry is big enough that most companies should be able to carve
out a successful strategic position. What this report has demonstrated is that defining the characteristics of success and gearing
your organization to effectively execute this strategy will be the key to whether or not you are on the winning side of the
supplier equation.
Appendix
Chrysler Suppliers
Supplier Responses to Reduction Requests Key Takeaways
Respondents who answered based on a Chrysler example

50
41 most often had sales to Chrysler of 15% or less of their
38 38 business, so for most of them, Chrysler may not be a do-
40 34
% of respondents
33 32 or-die customer. This could be one reason that they

29 27 27
30 26 26 24 tended to turn the automaker down in higher numbers
18 2221 20 this year. It is also likely, however, that the company’s
16 17 18 17 18 17
20 14 14
13 Chapter 11 filing disrupted some of the normal
9 12 9 commercial discussions, as the comments below indicate.
10
0
100% 50+% <50% 0% % of Total Business with This Customer
1997 1999 2001 2003 2005 2007 2009 1-15% 16-25% 26-50% 51-75% >75%
Chrysler 72% 12% 16% 0 0
Average Amount Requested & Given By

Chrysler Suppliers in 2009
Profile of Amount Amount Selected Comments from Chrysler Suppliers
Responses Requested Given
‘Contracts cancelled in advance of Chrysler’s bankruptcy filing
Gave 100% 27% 3.0% 3.0% and productivity discussions averted through the cure process.’
Gave 50+% 14% 7.0% 4.5%
‘Customer has not requested price reduction on new sourcing.’
Gave <50% 18% 3.1% 1.6%
‘The bankruptcy issue; they just wanted us to stick around.’
Gave 0% 41% 3.1% 0
How to read this table: Of those who gave more than 50%, for example, the average amount that
was requested of them was 7% and the average amount that they agreed to was 4.5%.
Ford Suppliers
The Ford suppliers who responded to the survey were

50
43 pretty evenly spread in terms of the amount of their total
45
39 business resides with this customer in the 1-15%, 16-
40
25% and 26-50% categories. So, Ford is clearly an
% of respondents
35
35 32 32 34 35 35
29 29 29 31 important customer to many of these respondents, but
30 27
25 23 24 24 that did not necessarily win it a higher level of
20
19 cooperation, as evidenced by the small percentage that
15 13 16 1714 completely complied with its request.
15 10 9 9 9 9
10
6
5 % of Total Business with This Customer
0 1-15% 16-25% 26-50% 51-75% >75%
100% 50+% <50% 0% Ford 28.9% 34.2% 26.3% 10.5% 0
1997 1999 2001 2003 2005 2007 2009

Selected Comments from Ford Suppliers
Ford Suppliers in 2009
Profile of Amount Amount ‘Reductions necessary to gain new business.’
‘Negotiated accommodation agreement due to past material
Gave 100% 15% 4.0% 4.0% cost increases and drastically reduced volume as part of
Gave 50+% 24% 3.0% 2.5% refinancing of the company.’
Gave <50% 35% 3.9% 1.4% ‘Majority of savings through technical changes, previously
agreed-upon LTAs.’
Gave 0% 24% 3.1% 0
‘Three-year pricing agreement was established with this
customer in 2005 to get to ZBE pricing. We renegotiated our
How to read this table: Of those who gave more than 50%, for example, the average amount that
was requested of them was 3.0% and the average amount that they agreed to was 2.5%. 2005 sourcing agreement to a lower giveback percentage.’
GM Suppliers
40 38 GM looms fairly large in the customer base of the

respondents, but their methods of handling the requests
35
31 31 32 31 30 were across the board.
28 28
30
% of respondents
26 27
25 2524 25 25 25 25
23 23 % of Total Business with This Customer
25 22
1818 18 19 1-15% 16-25% 26-50% 51-75% >75%
20
151516 GM 36.5% 39.7% 22.2% 0 1.6%
15
9
10
5 Selected Comments from GM Suppliers
0 ‘GM counts cost reduction in a unique way, giving credit for

100% 50+% <50% 0% various margin neutral actions.’
1997 1999 2001 2003 2005 2007 2009
‘GM did not ask for any reductions in our meeting. Discussion
focused on financial health and our ability to pick up work from
ailing suppliers.’
GM Suppliers in 2009 ‘No assistance in run-up in material costs in 2008 and now we are
Profile of Amount Amount just catching our breath.’
‘The pre-bankruptcy GM appeared in the past to be MOST
Gave 100% 18% 4.8% 4.8% interested in us being the lowest priced supplier AT THE TIME OF
THE QUOTE. The LTAs factored into the NPV of the quote but
Gave 50+% 25% 3.0% 2.0% there was tremendous price pressure in the NOW time frame.’
Gave <50% 31% 4.4% 1.7%
‘We negotiate a project price at the beginning, no more price
Gave 0% 25% 3.3% 0 givebacks over time. The only element which got a lot tougher to
achieve is the recuperation of changes to the original contract.
That is the case for all customers, not only GM.’
New Domestic Suppliers
50 Respondents who reported on their work with one of the

45 43 44 New Domestics were typically not overly dependent on
4040 this customer, since more than half of the respondents
40
have less than 15% of their total business with this
% of respondents
33 33
35 32 customer and more than three-quarters are reliant on the
28 28
30 26 27
customer for less than 25% of their total sales. As might
25
24 be expected, these relationships were favorably inclined
21 22 22 2221
20 toward giving more than half of what the customer
20 17
14 141515 15 requested.
15 11
8 10
3
5 1-15% 16-25% 26-50% 51-75% >75%
0
New 51.3% 27% 13.5% 2.7% 5.4%
100% 50+% <50% 0% Domestics
1997 1999 2001 2003 2005 2007 2009

New Domestics Suppliers in 2009 Additional information on each of the Japanese Big Three
covered in our survey appears on the next pages.
Profile of Amount Amount
Gave 100% 33% 2.1% 2.1%

Gave 50+% 44% 3% 2%
Gave <50% 8% 2.7% 1%
Gave 0% 11% 2.7% 0
Honda Suppliers
Compared to the New Domestics overall, per suppliers to

70 Honda who responded to the survey, Honda falls below
63
60 56 the average in the percentage of suppliers that gave
48 100% of the request (33% overall vs. 22% of Honda
50
respondents). Similarly, they are above the average in
%of respondents
41 39
40 stout refusals – 22% of suppliers vs. 11% overall.
26
30 26 Generally speaking, however, these suppliers work with
24 22 22 22 18 18 22 Honda to determine reasonable means of reducing costs,
16 16
20
6 and thereby reduce price.
10
0 0 0
0
100% 50+% <50% 0% Selected Comments from Honda Suppliers
2001 (19) 2003 (27) 2005 (17) 2007 (18) 2009 (9)
‘Cost down agreement was negotiated with customers for the
first three years.’
‘More VA/VE ideas were expected vs. cost reductions.’

Honda Suppliers in 2009 ‘Started taking extra scrap in late 2008. Gave cost down to
enhance chances of new business award at plant located close
Responses Requested Given to us.’
Gave 100% 22% 2.5% 2.5% ‘Their cost formula for new sourcing includes a factor related
to amount of productivity given on existing business, in
Gave 50+% 56% 2.7% 1.8% previous 3 years.’
Gave <50% 0 n/a n/a
‘We have received moderate price increases due to the
Gave 0% 22% 2.5% 0 commodity price changes over the past few years.’
‘We leveraged material escalation in 2008.’
Nissan Suppliers
60 Nissan suppliers are more likely to compromise and less

50 50
likely to refuse to cooperate with a reduction at all,
50 judging from the responses of the Nissan-related survey
43 participants.
% of respondents
41
38 38
40
33 33
29
30 Selected Comments from Nissan Suppliers
24
19 17 17 ‘To maintain a spot on new business bid list, reductions were a
20
14 12
13 given.’
10 5 5 ‘VA/VE was a big portion of reductions.’
0 0
0
100% 50+% <50% 0%
2001 (17) 2003 (21) 2005 (21) 2007 (16) 2009 (7)

Nissan Suppliers in 2009
Gave 100% 33% 2.5% 2.5%

Gave 50+% 50% 3% 2.1%
Gave <50% 17% 3% 1%
Gave 0% 0 n/a n/a
Toyota Suppliers
50 Compared to New Domestics overall, more of the Toyota

44
suppliers responding to the survey fell into the category
37 of complete cooperation (44% for Toyota vs. 33%
40
% of respondents
35 33 overall). The average amount requested, 1.5%, is

33 29
30
24
undoubtedly part of the explanation for this, since it was
25 25 24 24
18 18
21 21 a more modest amount than requested by the other New
17
20 Domestics. It is also reflective of the nature of Toyota’s
11 12 11 approach to working with its suppliers.
10
0
0
100% 50+% <50% 0% Selected Comments from Toyota Suppliers
2001 (24) 2003 (24) 2005 (17) 2007 (17) 2009 (10)
‘Annual price review process with Toyota is a review of how
the business case is doing on each part. If something can be
shared, then they expect it. If it cannot they work with the
supplier on it.’
Toyota Suppliers in 2009 ‘Price reductions offset by allowed material increases.’
Profile of Amount Amount ‘Toyota negotiates each year versus built-in LTA commitments
Responses Requested Given so each year is different from the rest. In addition to
Gave 100% 44% 1.5% 1.5% manufacturing improvements, Toyota is also paying material
cost changes due to market conditions.’
Gave 50+% 33% 2.3% 1.1%
Gave <50% 11% 3% 1%
Gave 0% 11% 3% 0
Tier One Suppliers
35 Suppliers were on the generous side with their Tier One

31 customers, with 31% of respondents having given 100%
2828 29
30 27 27 of what was requested, notwithstanding the fact that
26 26 26
25 25
24 these customers typically comprise less than 15% of total
% of respondents
25 23 23 23
21 2222 22 22 sales.
20 2020
19 19
17
13 14 1-15% 16-25% 26-50% 51-75% >75%
15
Tier Ones 46.8% 29.8% 17% 4.3% 2.1%
10
5
Selected Comments from Tier One Suppliers
0
100% 50+% <50% 0% ‘Reductions are “priced in”, thus increasing the initial price.’
1997 1999 2001 2003 2005 2007 2009
‘Reductions are for “value-add” and not against the full price.’
Average Amount Requested & Given By ‘Large amount of takeover business that was underpriced at
Tier One Suppliers in 2009 previous supplier. Trying to get back to old prices.’
Responses Requested Given ‘No pricedown demands & little new business activity due to
the uncertainty of Delphi’s future.’
Gave 100% 31% 3.3% 3.3%
‘We have typically met our customer expectations in order to
Gave 50+% 28% 3.7% 3.1% maintain a positive relationship.’
Gave <50% 22% 8.2% 2%
‘Mature products generally. Cost downs in some cases have
Gave 0% 17% 3.7% 0 been given (or negotiated away) in the past.’
‘The product produced for this customer is highly engineered.’
Presented by IRN, Inc.
IRN, Inc.
2680 Walker Ave. NW, Suite A
Grand Rapids, MI 49544
616.785.5175 / phone
http://www.think-irn.com

FINAL 2009 IRN Pricing Survey Report1

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Industry in Transition: The Dynamics of

Results of the Seventh Biennial Supplier Survey

2009 Average Price Reduction

Rationale for not meeting request (selected comments):

Chrysler Ford GM New Dom. Tier 1

Immediate Results of Providing a Price Reduction

Chrysler Ford GM New Dom. Tier 1

Discussion of results appears on page 12.

Future Expectations for Providing a Price Reduction

Gain Maintain Lose Unknown

Discussion of results appears on page 12.

Immediate Results of Refusing to Provide a Price Reduction

Discussion of results appears on page 15.

Future Expectations for Refusing to Provide a Price Reduction

Chrysler Ford GM New Dom. Tier 1

Discussion of results appears on page 15.

The profile this year returned to the standard pattern,

How suppliers treated requests from customers:

Price Increases As a mark of how much things have changed, it

Sixty-five respondents said they had obtained a

At the New Domestics, about one-third of respondents won increases.

As the next page shows, respondents have had

• ‘Base price increase with surcharge’

16 % • ‘Offset for steel increase’

% More detail by customer is provided on the next page.

Raw Material Price Relief

Asked for a Long-Term Agreement

Long-Term Agreement Included Price Reduction If Yes, Average Price Reduction

This was definitively the case with volume-dependent

Greater Share of Logistics Costs Key Takeaways

Other Areas of Increased Liability or Cost-Sharing

• ‘Packaging costs up front’ Ford supplier

Funding for Engineering on Future Products

Funding for Tooling on Future Products

Funding for Capital on Future Products

Design & Development Designating Tooling Sources

Customer Role in Design & Development

Customer Role in Parts Manufacturing

Customer Role in Designating Sub-Suppliers

Number of Competing Bids

Increasing Competition From Offshore Competitors

Current Financial Position Company Sales

Current Financial Position Primary Product Area

Almost 96% of respondents cut at least 10% from

Cost Structure Reduction Company Sales

Looking at the results arrayed by company size:

Cost Structure Reduction Primary Product Area

Permanent Cost Improvement Company Sales

Permanent Cost Improvement Primary Product Area

An impressive 80% of respondents can now break

Breakeven in Annual Production Volume Company Sales

Breakeven in Annual Production Volume Primary Product Area

Power Relative to Customers Company Sales

Power Relative to Customers Primary Product Area

In the 2009 survey we asked all the respondents to

Power Relative to Suppliers Company Sales

Power Relative to Suppliers Primary Product Area

Respondents who answered based on a Chrysler example

33 32 or-die customer. This could be one reason that they

Chrysler 72% 12% 16% 0 0

Average Amount Requested & Given By

The Ford suppliers who responded to the survey were

1997 1999 2001 2003 2005 2007 2009