Effects of CEO leadership on organizational outcomes and stakeholder trust

Automotive Parts Suppliers

Automotive Industry faced a serious decline in production in last few years resulting in concurrent decline in production of vehicle parts. Unfortunately the production and consumption of vehicle parts made in the U.S. declined more sharply than total sales of vehicles primarily because due to economic recession, people moved from big trucks and SUVs to smaller passenger cars. As consumption at home declined, exports of automotive parts increased dramatically from $42.7 billion in 2009 to $58.1 billion in 2010. At the same time imports of vehicle parts also increased as U.S. automobile companies started importing cheaper parts from Mexico, Canada, Germany, Japan and China. The combined imports from all these countries accounted for 78% of automotive vehicle parts imports. China was the most sought after country as imports from China for vehicle parts increased some 35%.

Suppliers in the U.S. faced a very challenging time during 2009 as automotive industry in the U.S. saw sharp decline in demand for new vehicles. Most automotive parts are produced for new vehicles but as demand for new vehicles decreased, so did the production of vehicles parts and thus U.S. suppliers had to work at 55% of their capacity level which was the breakeven point for most. (BLS)

The cause for decline was the sharp reduction in demand for new vehicles but suppliers faced a difficult time also because automakers started looking for cost efficient means of production which included importing parts from foreign suppliers. Many even moved their production abroad in order to cut costs. Suppliers in the U.S. also faced pressures from automakers to offer better prices and to take on more research and designing responsibilities. In an effort to meet these harsh demands, many suppliers had to resort to downsizing and capacity reduction. The competition posed by suppliers from abroad was also a major source of pressure for U.S. suppliers. Many foreign transplanted companies sought suppliers in their home countries and even U.S. automakers looked in other directions as pressure to cut costs increased.

Foreign suppliers have been the most fortunate in this scenario. As cost reduction pressures increased, automakers in the U.S. started looking for parts in foreign markets but what was even more surprisingly was the way foreign suppliers made inroads in the U.S. market. Instead of operating from their home countries, they also started establishing units in the U.S. thus making it much easier for automakers to get vehicle parts from abroad without the hassle of actually going abroad or communicating overseas. Over the past decade, some 1000 foreign suppliers have now established plants in the U.S. And because of their influx, some European suppliers who had originally been serving North American automakers also moved to Asian markets. Foreign suppliers with better and cheaper options available to them tend to operate far more efficiently compared to U.S. suppliers who have been suffering due to increased demands from automakers to reduce prices, reduction in capacity which needs to be recouped now and also stiff competition from foreign suppliers. The suppliers who suffered the most were Tier 2 and Tier 3 suppliers.

The main automakers of the U.S. known as the Detroit 3 are still purchasing most of their parts from foreign-based suppliers. German supplier Siemens which had no presence in the U.S. automaker industry till 2003 now has 25% share. Denso Corporation, another major supplier of automobile parts reported sharp increase in its supply to North American automakers and also said that it's trading with U.S. accounted for 40% of total sales. In 2008, Chrysler had called Denso its supplier of choice and this gives the company the coveted status of default supplier. Toyota has a major stake in Denso Corporation and the company has reported steady growth in the U.S. And expects to continue this trend of growth.