Long time industry observers will tell you that the automotive market in North America is a highly cyclical industry and that the car companies and suppliers are built to handle the rigors of these ups and downs. This latest recession (2007 to present) deflates that theory. Over 100 suppliers have declared bankruptcy since 2007 and several OEMs have too. Why you ask? Many of these companies believed that the production volume heydays of the early 2000's would continue and that any future cyclical behavior would be marginal. Other companies were highly leveraged due to ill conceived acquisitions and did not have the available credit to survive. Some companies were saddled with a highly unionized workforce and did not foresee the effects of high labor costs on the competitiveness of their pricing in the market.
What lessons can be learned from the survivors of the worst economic recession since the Great Depression? In a recent survey of OEM decision makers, Valient Automotive Market Research uncovered some interesting revelations for Tier 1-2-3 supplier executives:
Lesson #1 -- Consistency is important -- Supplier companies that are constantly changing their sales, engineering and platform support teams risk losing current and future production contracts. Decision makers like to see the same people and build long lasting relationships with them. Transferring sales representatives from one OEM account to another or laying off whole departments of support staff should be avoided due to its' effect on OEM relationships. Companies that have a revolving door of employees are seen as unstable and unworthy of important assignments and contracts.
Lesson #2 -- Do your homework -- When bidding on new production contracts, you had better do your homework ahead of time. Do you plan on submitting your bid package to your OEM customers without having conducted any independent market research that verifies your company's competitive advantage over the incumbent supplier and the rest of the bidders? Shooting from the hip with a know-it-all attitude can backfire badly. A supplier VP of sales recently told me that he submitted a production contract bid that included the results of an independently conducted product clinic and several online surveys with that vehicle brand's owners and target car buyers to validate his company's product acceptance, appeal and desirability. Guess what? His company was awarded a $125 million production contract for five years. The purchasing buyer stated that the independent research they conducted was a factor in this decision because the other bidders did not provide this. Yet another supplier had tried this approach with another OEM customer but had decided to go the cheap route, save some money and conduct the research internally with their own employees and designed their own do-it-yourself survey on SurveyMonkey.Com. Guess what? The OEM customer tossed the report in the garbage due to its' biased and unprofessional methodology. The lesson here -- if you are going to conduct research, do it with an independent third-party research organization that is highly credible and uses a scientifically proven research methodology that will stand up to intense scrutiny of your customers. Going cheap by surveying your own employees and using a product with the word "Monkey" in it is strongly discouraged.
Lesson #3 -- Stick to what you know -- If you are a supplier that excels in one product or system area, do not try and expand into new product areas where you have little or no expertise. Purchasing decision makers lament when established suppliers suddenly announce expansion into new product areas without a solid plan or the necessary investment to pull it off. Some suppliers try this strategy with bolt-on acquisitions of failing suppliers trying to diversify into other system or component areas, this has a very high failure rate. Some of the major reasons behind this strategy not working include failure to retain top engineering and sales talent post-sale from the acquired company, moving production from a long-standing, reliable site to a new site in a low cost region and changing the brand name from a trusted name to a completely new one.
Lesson #4 -- Listen carefully to your customers -- This sounds simple, but it is a practice that many suppliers do not follow. How do you know if your customers are satisfied? A supplier CEO told me recently that "my salespeople tell me their customers are happy and I believe them since they talk to them everyday and continue to bring in new contracts." According to our interviews of OEM decision makers, supplier sales, engineering and product personnel do not communicate OEM dissatisfaction to their supplier management bosses for fear of judgment and the associated repercussions. In other words, only good news gets communicated to senior management and bad news is contained to avoid conflict. OEM executives also stated a hesitancy to openly communicate dissatisfaction directly with their supplier contacts due to fears that it will disrupt the relationship between the decision maker and the individual supplier representative. In other words, "don't rock the boat."
ISO certified suppliers (almost all suppliers are ISO certified in the U.S. these days.) are required to conduct annual customer satisfaction surveys of their OEM customers to retain their compliance with their certification. Many suppliers self-administer this process and do not realize that by doing so, they are introducing a fair amount of respondent bias and are skewing the results. Having a supplier salesperson hand an OEM decision maker a paper survey and then stand and watch while he/she fills it out is not the most effective way of conducting unbiased research. Another approach is when supplier quality departments administer this process and selectively send surveys to certain decision makers but not all of them. Having an independent third-party market research company administer this process eliminates bias, provides direct and unfiltered feedback from OEM decision makers and allows for outside interpretation and competitive benchmarking against best-in-class industry performance metrics. So in a nutshell, do not drink your own Kool-Aid, let the experts handle this.
About Valient Automotive
Valient Automotive is a leading global automotive market research consultancy that provides cost-effective market research services including OEM-Supplier customer satisfaction surveys, brand equity, advertising effectiveness, product & concept development research, online surveys of consumers and automotive dealers, focus groups and product clinics. Our clients include leading OEM vehicle manufacturers, Tier 1-2-3 suppliers, dealerships, online retail, aftermarket and investment firms.
