Supplier relationships can be a competitive difference.

This conclusion was drawn from the 15th annual North American Automotive - Tier 1 Supplier Working Relations Index Study, which looks at the automakers’ supplier relations and how they impact OEM profits.

Ford, General Motors, FCA US (Chrysler) and Nissan collectively would have earned $2 billion more in operating profit last year had their supplier relations improved as much as Toyota’s and Honda’s did during the year.

The study is watched carefully in automakers’ boardrooms because an OEM’s supplier relations rating is highly correlated to the benefits that a supplier chooses to give an OEM – including which OEM is first to see a supplier’s newest technology, is provided a supplier’s best personnel for support, and gets their best pricing – all of which impacts an OEM’s competitiveness and operating profit.

“Last year we unveiled an economic model that proves a direct cause-effect relationship between an automotive OEM’s supplier relations and the OEM’s operating profit,” says the study’s author, John W. Henke, Jr., president and CEO of Planning Perspectives Inc. “For the first time ever, it allowed us to put a dollar value on suppliers’ non-price benefits – those valuable actions and practices, which along with supplier price concessions make a substantial contribution to an OEM’s competitiveness. The economic model enables us to determine the economic value of the non-price benefits and the supplier price concessions, which in turn enables us to calculate the supplier total economic contribution to the operating profit of each OEM."

Toyota and Honda improved their WRI ranking a combined average of 8.7% over last year’s levels, Henke notes. "Using our economic model, we know that if supplier relations at Ford, Nissan, FCA and GM also improved by 8.7%, they each would have realized significantly higher operating income – an estimated $2.02 billion collectively. At the low end, Nissan would have generated another $261 million and at the high-end GM would have earned another $750 million, with Ford and FCA in between.”

The 2015 Study also shows the following significant changes in supplier relations among the OEMs:

· Toyota’s and Honda’s continuing efforts to improve supplier relations have paid off handsomely as they are ranked one and two, respectively, for the fifth straight year, well ahead of the other four automakers. Toyota has been ranked in first place since the study’s inception in 2002 except for 2009 and 2010 when Honda captured first place.

· Honda, with 11.8% improvement this year, nearly doubled Toyota’s improvement of 5.6%. If Honda keeps up the pace, it could take over first place from Toyota next year. Honda is the most preferred customer of suppliers, but just slightly over Toyota.

· Ford has regained third place over a declining Nissan, but only because Ford declined only 2% compared to Nissan’s 10.6%. Ford has dropped to its lowest ranking in five years but is significantly ahead of FCA and GM.

· In a major shift, Nissan, which was most improved overall last year, had the greatest drop in ratings this year and slipped to fourth place behind Ford. This year, Nissan is the least preferred customer of the six OEMs.

· And, for the second year in a row, FCA’s and GM’s rankings have fallen. They are now tied for last place, having both dropped 8.5% in the rankings – more than 100 points behind leaders Toyota and Honda.

Over the years, the study has shown convincingly that automakers should be working work very hard to improve their relations with suppliers – especially since the OEMs spend 60% - 70% of their revenue with suppliers and because suppliers play an increasing role in the success of vehicle programs through their sharing of new innovations with the OEMs.

The study shows that suppliers with good working relations with an OEM provide their customer considerable benefits. These suppliers:

• Are more willing to invest in new technology to meet future OEM needs, and are more willing to share new technology with the OEM.

• Are more willing to support the automaker beyond contractual terms.

• Communicate more openly and honestly with the OEM.

• And importantly, give greater price concessions to the OEM.

On the other hand, automakers with poor relations:

• Receive smaller price concessions and must work harder to get them.

• Get less experienced supplier personnel supporting them.

• And typically are not among the first to get the suppliers’ best ideas and new technology.