Chrysler's Dangerous Game

Posted by: David Welch on February 7, 2008

The new Chrysler is playing a dangerous game. When the carmaker’s new management decided to cancel contracts with troubled Plastech Engineered Products—which makes dashboard and cabin parts for Chrysler and others—it sent the company reeling into bankruptcy. Chrysler CEO Robert Nardelli told reporters at the Chicago Auto Show this week that when a supplier has trouble in any aspect of their business, the company has to react to protect its interests. And in this case, Chrysler is done with Plastech, says a report in the Detroit News.

Detroit’s auto makers have long paid a price for being too harsh on their suppliers. When they squeezed the blood out of them with price cuts, suppliers cut corners to make the cost demands and quality suffered. Parts makers have said for years that they would shop the latest technology to the domestic car companies last because they feared that the Big Three would shop it out the back door to a competing parts firm and give away their edge. Chrysler, whose supplier relations made huge strides under former company President Thomas T. Stallkamp in the late ‘90s, risks turning the clock back. The word around town already is that suppliers are watching Chrysler’s move with Plastech and viewing it as a harbinger of things to come.

Now let’s be fair. It’s easy to see why Chrysler is leery of bailing out struggling parts companies. A source close to the company said Chrysler spent some $150 million last year helping suppliers in need. And for the most part they didn’t see a return. A big chunk of that money went to helping bankrupt Collins & Aikman. The bailout didn’t work and Chrysler ended up having to pay more costs to get a new parts company to make many of those pieces anyway.

With a cash-minded owner like Cerberus Capital Management, doling out cash for someone else’s problems may seem less palatable. Finding a new parts company may even make sense. But in the case of Plastech, Chrysler could have kept the existing contracts until the company finished its plan to stay out of bankruptcy court. Suppliers may start thinking that Chrysler is more interested in cold-blooded costs than building relationships. And the parts makers will react in kind.

Reader Comments

Noz

February 7, 2008 2:15 PM

My thinking is that whatever negative thoughts suppliers have regarding Chrysler are more likely justified than otherwise and getting clear of the sinking ship is their sole means of surviving. Nardelli has his own interests FIRST and foremost, namely the funding of yet another golden parachute. Actually, the man might do well in Congress where so little beyond an endless supply of bullshit is required for many years of loyal service.

I hesitate to think how uncomfortable Walter Percy Chrysler must be at about this time...

George Clooney

February 7, 2008 11:19 PM

Hi i really am impressed.

http://www.modifiedcarforums.com

Karl

February 8, 2008 3:40 PM

There is something called KARMA! Perhaps everyone will 'Google' the two words SLUDGE POEM and read it. It's about Toyota's former CEO who is now at Chrysler. Toyota's former CEO quit his position with Toyota exactly two weeks after SLUDGE POEM was posted on ripoffreport.com! Write a poem. You'll all know him! Make sure to go to the 9-7-07 post on ripoffreport.com at the Toyota page. That post made the FRONT PAGE, FEATURED STORY! Power to the PEOPLE!! Go BusinessWeek!

Quite Plastech employee

February 8, 2008 4:18 PM

If Chrysler would paid for the millions of dollars worth of parts that they have already received there wouldn't be any problem. There trying to get their parts for free.

Joel A

February 8, 2008 6:45 PM

Good point. It can also be argued, though, that Chrysler had already planned for this situation and has secured other companies to cover Plastech, namely outside the U.S.

DB

February 8, 2008 10:21 PM

No sane person would by anything made in Detroit. Let the SOBs bash each other's brains out...

george bailey

February 9, 2008 3:58 PM

It's A Wonderful Life, Mr. Nardelli.

Bob Nardelli is not interested in building vital relationships with suppliers, he's pandering to the impatient Cerberus investors. The end game for Chrysler is to idle plants, reduce inventories ('right size' their excessive supply of unsold vehicles), and conveniently blame the 'shaky' suppliers for plant shutdowns.
To quote a brilliant leader, "United we stand, divided we fall". If Chrysler continues this 'dangerous game' the only winners will be the millionaire Cerberus investors. Where's Clarence when we need him?

Rick

February 15, 2008 11:23 AM

Plastech is just reaping what it sowed. After working with JCI to screw their suppliers over the last few years, the chickens are coming home to roost.

The shoe is on the other foot now.

Haris

February 22, 2008 11:06 PM

Damn that's pretty crappy for them to cut their suppliers off...You can't demand quality and cut costs at the same time; just seems counter productive. Even though I'm a gamer nerd I enjoy the new Chrysler models but that's a tough pill to swallow.

Brian

March 17, 2008 6:30 PM

Chrysler has been screwing over suppliers for years by putting immense pressure on them to offer products at lower costs threatening to not do business with them. They are even more aggressive in reducing parts costs than GM and Ford are.

Visit http://www.daimlerchryslervehicleproblems.com and http://www.dontbuydodgechryslervehicles.com for more information about "The New Chrysler".

jame

May 29, 2008 12:41 PM

great article

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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