Many automotive suppliers consider a parts delivery failure that results in an OEM (Original Equipment Manufacturer) line shutdown as the most serious offense imaginable. Some may argue the most serious offense involves shipping parts at unprofitable price levels but nonetheless, in better times, a line shutdown represents the worst case scenario. And according to this article from Reuters, a Chrysler supplier, Transcast Precision Inc who makes aluminum die cast parts (specifically brackets for engines and transmissions) shut down the auto-maker’s line due to part shortages. We realize it seems crazy right now that any supplier can not meet a production schedule for an automotive OEM, but alas, this case involves, surprise surprise, a dispute between the two parties.
Specifically, the supplier, Transcast Precision Inc who had purchased the assets of the now defunct Vannatter Group, asked for a 2.5x price increase along with a request that Chrysler purchase all current finished goods inventory. Besides a refusal, Chrysler asked the supplier to move both the tooling and parts to its own plants. When Chrysler went to collect both, it said it was taken by surprise to learn both had been moved and were no longer at Transcast Precision’s plant. Apparently the parts were moved to six other locations.
No big deal, some might say but actually as custodian of an OEM’s tooling (most automotive tooling is owned by the OEM), any supplier changes to a part must be documented in a PPAP process. The courts agreed with Chrysler and forced Transcast to ship the parts as well as hand over tooling to Chrysler. Both parties will be back in court to resolve issues around pricing and supply for future orders.
This story reminds me of one a friend told me back in 2004 when he encouraged a Tier 1 automotive parts supplier to either fire GM or get a price increase (GM agreed to pay more for the parts). These suppliers aren’t not-for-profits, he told me. Perhaps the difference in result however between the two cases, involved the negotiation approach. The problem with the reliance on the courts is that ultimately, blanket purchase orders with no volume commitments aren’t worth the paper they are written on. But now that GM and Chrysler face desperate economic times, they’ll take these cases to the brink. After all, there is not much to lose.