See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/264835240

The Evolution of Relationships between Car Manufacturers and Component

Suppliers in the Context of Deep Crisis and Accelerating Technical Change

Article  in  International Journal of Automotive Technology and Management · January 2013

DOI: 10.1504/IJATM.2013.056859

CITATIONS READS

8 1,204

1 author:

J.-J. Chanaron
Teaching & Training Through Research
93 PUBLICATIONS   835 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

no project View project

All content following this page was uploaded by J.-J. Chanaron on 07 August 2015.

The user has requested enhancement of the downloaded file.

320 Int. J. Automotive Technology and Management, Vol. 13, No. 4, 2013

The evolution of relationships between car

manufacturers and France-based component
suppliers in the context of deep crisis and
accelerating technical change

Jean-Jacques Chanaron
Centre National de la Recherche Scientifique –
Grenoble Ecole de Management,
12, rue Pierre Sémard – BP 127,
F-38003 Grenoble Cedex 01, France
E-mail: jean-jacques.chanaron@wanadoo.fr

Abstract: After the 2008 to 2009 crisis, suppliers and subcontractors to the
French automotive industry were in a depressed situation and a consolidation
by function seemed to be the only option to ensure the survival of small- and
medium-sized suppliers. Relationships between OEMs and suppliers have not
changed significantly and satisfactorily for the vast majority of suppliers and
subcontractors: a rebalancing in favour of suppliers appears inevitable and
urgent. Even if the prospects of major technological changes are still distant,
they represent real opportunities for development over time but also a threat to
businesses in the traditional mechanical sector. OEMs and suppliers should be
prepared to innovate to meet these challenges but also because innovation is the
best source of competitiveness and therefore survival.

Keywords: automotive industry; component suppliers; purchasing; supply

chain; relationships.

Reference to this paper should be made as follows: Chanaron, J-J. (2013)

‘The evolution of relationships between car manufacturers and France-based
component suppliers in the context of deep crisis and accelerating technical
change’, Int. J. Automotive Technology and Management, Vol. 13, No. 4,
pp.320–337.

Biographical notes: Jean-Jacques Chanaron is a Research Professor with the

French National Centre for Scientific Research (CNRS) and the Associate Dean
Scientific Director Grenoble Ecole de Management. He has published
numerous books, articles in peer-reviewed journals and conference papers in
industrial economics, economics of innovation, management of technology
and innovation. He is an Associated Professor with Henley-Reading Business
School and Tongji University in Shanghai (China). He is a leading expert in
the automotive industry. He is a consultant to international organisations,
professional organisations, OEMs and suppliers. In 2004, he has been granted
the first IAMOT award for research excellence in technology and innovation
management.

Copyright © 2013 Inderscience Enterprises Ltd.

 The evolution of relationships between car manufacturers 321

1 Introduction

“The implosion of the global automotive industry”1, “Tsunami storm among component
suppliers”2, “From 40,000 to 50,000 jobs are under threat in French automotive
suppliers”3, “The European OEMs at greater risk of bankruptcy than the U.S.”4, this is a
sample of so many alarmist titles in the business press during the first half of 2010,
despite new car sales finally rebounding from the depths of the crisis.
The Rhône-Alpes, the leading French region of automotive component suppliers by
the number of jobs, was obviously very affected by this crisis and, in such a context, the
Rhône-Alpes Automotive Cluster and the Lyon Urban Trucks and Bus (LUTB) pole
wanted to carry out a study to provide suppliers and regional subcontractors with new
information, partly based on a synthesis of their own analyses and opinions, and in any
case independent of their professional associations (CCFA, FIEV, etc..) or government
agencies, including the ‘automotive industry platform’ (PFA) setup following the
‘Automobile Convention’ in January 2009 .
What changes are underway or expected in the nature of the relationships between
manufacturers of passenger cars (referred to hereunder as OEMs) and their first and
second tier suppliers of components, modules and systems in the context of this global
crisis of automotive markets? What change(s) could be attributed to the increasing
involvement of public agencies and governmental initiatives? Furthermore, are these
relationships also under pressure from the perspective of the major technological changes
planned for the powertrain: hybrid vehicles, battery or fuel cell electric vehicles? These
are the three central questions to which this research seeks to provide some elements of
response.

2 The research background

Analysts, whether academics (Afriat et al., 1987; de Banville and Chanaron, 1985, 1990;
Helper, 1991a, 1991b; Humphrey and Ashforth, 2000; Mudambi and Helper, 1998;
MacDuffie and Helper, 1997; Noteboom et al., 2000) consultants or professionals
(Mercer, 1995; Bergmann et al., 2004) widely agree in believing that relationships
between automotive OEMs and suppliers have greatly evolved over the eighties
and nineties, from so-called hierarchical relationships expressed as sub-contracting
(so-called also arm’s length, market-based or adversarial model) to exclusive orders by
contractors, (that were the norm since the Second World War), towards qualified
asymmetric partnership relationships, in which suppliers certainly benefit from
increasing responsibility, whilst still remaining subject to economic and financial
pressures from their customers who are the prime contractors.
The evolution over time of automotive OEMs-suppliers relationships has been
described by several academic researchers from the mid-eighties. The first dramatic
change happened under the pressure of Japanese automakers competition in North
America and Europe when it appeared obvious that part of their competitive advantages
come from a specific subcontracting structure (Keiretsu) and supply chain management
(Cole and Yakushiji, 1984; de Banville and Chanaron, 1985, 1990; Shimizu, 1999; Sako,
1992, 1996). Sambharya and Banerji (2006) quoted Dore (1983) as pointing out such
specificity under the label of ‘relational subcontracting’ when European researchers
322 J-J. Chanaron

introduced the concept of partnership (de Banville and Chanaron, 1985, 1990, 1992;
Cusumano and Takeishi, 1991; Lecler, 1992, 1993; Lamming, 1993, 1989; Dyer and
Singh, 1998; Neuville, 1997; Naulleau and Guth, 2000). A substantial body of literature
introduced the concept of trust as a basis for such partnership (Sako, 1991; Helper and
Sako, 1997; Dyer and Chu, 2011). Following Womack et al. (1990), and despite critical
comments (Chanaron, 1991), the Toyota or lean supply chain management has been
widely considered as the best practice (Alàez-Aller and Longas-Garcia, 2010) and highly
superior to the alternative modes of supply chain management.
Most of these scholars challenged the so-called Europeanisation and Americanisation
of the Japanese practices for supply management as deriving toward a mix of the
old OEMs dominated on-order subcontracting system and real partnership (based
on cooperation). Chanaron (2002, 2004) postulated that such model which seems to be
applicable worldwide, including Japan, could be named ‘asymmetric partnership’
because, in such a model, the OEMs keep the leading role and still have a tough control
on the supply chain to their own benefits, even if their first rank suppliers did really gain
tangible and substantial advantages.
From the late 1990s, changes in Toyota Production System (TPS) and organisation
targeted cost reduction at design stage, rending even more crucial the early involvement
of suppliers in the new product management process (Shimizu, 2000). Having adapted or
‘hybridised’ the TPS as far as they could during the eighties, many European and
American OEMs, such as GM, Ford, Volkswagen, facing globalisation of the whole
value chain (Chanaron et al., 2001), and the increasing technological complexity and
modularity (Birchall et al., 2001; Chanaron, 2004), re-established a more traditional
relational structure (Henke et al., 2008). There is then no more single best practice but
many variants (Alàez-Aller and Longas-Garcia, 2010), each OEM having adapted its
supply strategy to, types of supplier, the nature of the supplied product (component,
system, module) and cultural constraints (Chanaron, 1999, 2004). However, there is very
limited academic research5 yet published explicitly dedicated to the impact of national
culture in the Hofstede’s (1980, 1998) sense on buyer-supplier relationships in the
automotive industry (Aquilon, 1997; de Faultrier et al., 2009). Several scholars clearly
established that national culture has a strong impact on such relationships for industrial
products (Hewett et al., 2006), in the hospitality industry (Jones, 2000) or for various
types of relationships (Rinehart et al., 2008) or B2B in various countries (Chang and
Ding, 1995). This is obviously an issue for further research.
As its main research hypothesis, the current article postulates that the ‘asymmetric
partnership’ type of relationship established in the 1990s and 2000s is no longer adapted
to an industry which suffers from the constraints of a new and permanently changing
environment. On the one hand, the increasing volatility of automotive markets, the
foreseeable consequence of the crisis in 2008 to 2010, requires all actors in the
automotive sector to demonstrate constant solidarity, which seems to preach for a
rebalancing in favour of component and component suppliers. On the other hand,
technological developments that will inevitably lead the search for the clean car and
efficient use of fossil energy call for greater spending on research and development, rapid
and ground-breaking technological innovations and, potentially, the emergence of new
entrants in components and systems as well as final vehicle assemblers. If some OEMs’
spokespeople acknowledged the mutual dependence with suppliers, so far very few
implemented such constraint in practice.
 The evolution of relationships between car manufacturers 323

3 The scope and methodology of the research

This research has focused its comments and analysis on the sector of passenger cars and
small commercial derivatives, excluding trucks, buses and coaches, based on an
assumption of the similarity of the two industries in terms of supply relationships. The
study focused on European car manufacturers and Japanese and North American
multinational OEMs based in Europe. Similarly, with regard to suppliers, only European
or foreign companies based in Europe were approached.
Table 1 Survey characteristics

Commercial Research
Type Company name CEO
executives executives
Vehicle Renault E E
manufacturers PSA E E
Fiat E E
Component Baud Industry E E E
suppliers Baumann Springs E E E
Beru E E E
Bosch France E E
ContiTech E E
Anoflex E E E
Crouzet E E E
Delachaux E E E
Conductix
Delphi France E E
Denso France E E
DJC SAC E E E
Electricfil E E E
Enricau E E E
ITW Bailly-Comte E E E
JTEKT E E E
Metaldyne E E E
MCE-5 E E E
MGI Coutier E E E
Nief Plastic E E E
Plastic Omnium E E
Rhodia E E
Saint-Jean Industries E E E
SNR Bearings E E
Valeo E E
Professional FIEV E E
associations Arve Industry E E E
Thesame E E E
VDA E E E
324 J-J. Chanaron

This is a qualitative study of the situation of manufacturer-supplier relationships in

Europe, identifying possible scenarios for their evolution in the medium and long-term
from analysis of recent academic and professional literature available on this theme, but
mostly from interviews with experienced and high level individuals in the industry: chief
executive officers (CEO), suppliers’ sales directors, OEMs’ buyers, R&D Directors, etc.
More than eighty interviews were conducted between November 2009 and March 2010
and involved, among manufacturers, Fiat, Peugeot-Citroen and Renault; among suppliers,
Baud Industry, Baumann Springs, Beru, Bosch, ContiTech Anoflex, Crouzet, Delachaux
Conductix, Delphi, Denso, DJC SAS, Electricfil, Enricau Group, ITW Bailly-Comte,
JTEKT, Metaldyne, MCE-5, MGI Coutier, Nief Plastic, Plastic Omnium, Rhodia, Saint
Jean Industries, SNR Bearings and Valeo; finally, among the organisations, FIEV, Arve
Industry, Thésame in France and VDA in Germany. The population of 25 suppliers is
then a mix of large corporations as well as SMEs.
The interviews lasted around two hours (in average) following an interview guide
initially tested with two or three CEOs of key suppliers in the Rhône-Alp region. The
objective of such discussions was to assess to what extent there is consensual vision of
the three key issues on which this research is focused: buyer-supplier relationships,
public involvement and technological change. Due to the qualitative nature of the
investigation (Yin, 1993, 2008), the research did not pretend collecting and analysing
figures and data but only opinions and points-of-view. Consequently, the results have no
pretention to generalisation to the whole French automotive industry as well as its
European counterparts.

4 Changes in trade relations since 1990

The first important finding of the research stipulates that there were no major changes in
customer-supplier relationships in the automotive industry over the last 20 years
(Chanaron et al., 2001). The current situation is by no means the result of a significant
change but would correspond to an enhancement of existing practices (Huws et al.,
2009). Among these, the following options stand out:
1 The ever-more drastic reduction in the range of suppliers, both OEM’s and first tier
component suppliers. On the one hand, the OEMS note a two-fold, even threefold
reduction in their range of suppliers which, according to them, should lead to
increasing loyalty and stronger relations with these suppliers (Frigant, 2007).
Unfortunately for the suppliers, despite this reduction in numbers, there was however
no development in partnership-style relationships between the different players in the
industry.
2 And on the contrary, relations are becoming rigid and increasingly remote. Suppliers
point to three elements in the strategy of the OEMs. First, the rotation of buyers has
increased, although practices vary greatly among companies. Some have adopted a
three-month rotation strategy, clearly intended to avoid too close a relationship with
suppliers; this is in direct contradiction to their argument for loyalty, developed to
explain their reduction in the range of companies available. Secondly, suppliers
complain of problems due to the unilateral establishment of contracts by their
customers, leaving no room for negotiation. Finally, this phenomenon is accentuated
by the development of consultative platforms, regarded as ‘Manichean’, involving a
 The evolution of relationships between car manufacturers 325

loss of sense of negotiation. Providers no longer have room for manoeuvre in the
improvement of the product they could offer automakers. It is also difficult to find
partners capable of answering questions that arise when suppliers offer a tender,
which is accompanied by a greater loss of the time required to respond to bids.
Customer-supplier relationships thus appear less and less human and more remote,
and therefore more and more complex.
3 The complexity of relationships is reinforced by the segmentation of companies.
Purchasing and engineering departments are ring-fenced and information does not
flow easily between them. There is therefore a stranglehold by the purchasing
department on the decision process, at the expense of any technical aspects. This
stranglehold leads to an exacerbation of the criterion ‘price’ and constraints on
productivity gains, particularly by subjecting requests for price (RFQ) to
‘quasi-mechanical’ productivity targets which, according to providers, can range
from 2% to 5% per year and possibly beyond.

4.1 The establishment of commercial relations

4.1.1 Change in the criteria and methods for selecting suppliers
First observation from the interviews: there are differences between manufacturers. Two
main commercial-relationship approaches seem to emerge:
1 On the one hand, a policy of balance between buyers and engineers, found especially
in Fiat and PSA. Compartmentalisation between the two managements is not strict
and there has been some collaboration in the choice of suppliers.
2 The other approach is a policy which advocates a clear supremacy of the purchasing
department with a predominance of the criterion ‘price’ over the technical aspects of
responses to consultations. Such practice can be found at Renault and Volkswagen,
for example.
Strictly speaking, criteria are not necessarily firmly applied but are usually distorted.
Price is obviously the key criterion for purchasing departments, which tends to obscure
other elements that previously had their importance in decision making, such as quality,
delivery times or the ability to innovate. Then there is the criterion of localisation, which
enhances the economic constraints: local plants, ‘low cost’ plants, which immediately
lead to the notion of the critical mass of supplier companies being able to follow their
customers in their geographical deployment, particularly into emerging countries (China,
India, Brazil, Russia, etc...).
Manufacturers are becoming more and more attentive to conditions of purchase,
logistics and quality. The flexibility of suppliers is thereby increasingly reduced in order
to meet these requirements. In terms of quality, this has now moved from parts per
million (PPM) to parts per billion (PPB)! However, some interviewees said that in the
presence of defects, customers were willing to pay anyway to avoid having any
interruption in the delivery of their parts.
Furthermore, the increased vigilance of vehicle manufacturers (i.e. customers) on the
financial strength and shareholder structure of their suppliers are additional
considerations. This is a direct consequence of the economic crisis and problems of
subcontractors’ reliability in the sector. Furthermore, it was found in a large majority of
326 J-J. Chanaron

interviews that OEMs are particularly invasive with their suppliers, requesting access to
financial statements and carefully checking for the presence of pension funds in their
shareholding.

4.1.2 The flow of information

The flow of information remains a key point in the commercial relationship, both in
terms of consultations and at the level of development and production. But although all
players in the sector praise the benefits of new, high-speed communications, it
nevertheless remains significant challenges to obtain information.
Customers are overwhelmed by ‘reporting’, by downsizing and by the ignorance of
suppliers’ representatives concerning the customer’s company.
Relations are increasingly remote because of the development of consultative
platforms, as it has been seen previously. More customers also increasingly prefer e-mail
exchanges rather than meetings.
The problems of comprehensiveness add to these problems of communication. The
customer simply provides input data from these consultations, and there is no longer
access to other information as there was ten years ago.
Conversely, customers have significantly increased their requirements vis-à-vis their
supplier base, both in the quality of information and the speed of response. Manufacturers
will even ask for a techno-commercial quotation. However, there is still no joint design
relationship between the customer and the supplier even though the latter could offer
improved technology and economics for parts and components (Zirpoli and Caputo,
2002). All information remains under the control of the customer through the use of
confidentiality agreements.

4.2 The issue of research development

4.2.1 Increased delegation of skills
The process of delegation of skills has been implemented for long time, and is only
getting more intensive. But this poses the problems of loss of expertise among
manufacturers, their R&D teams are becoming smaller and smaller, and they will have
difficulty in restoring the skills they have lost, although there are signs of reintegration
notably with the acquisition by Renault of FBFM.
It seems there will be more and more R & D transferred to suppliers in the coming
years, but only in skills that have already been transferred. This is because it is unlikely
that the manufacturer wants to lose new skills, including those concerning the powertrain,
design and bodywork, because this is the heart of the business together with the overall
architecture of the vehicle.
Indeed, if the builder becomes a simple systems assembler, the supplier has no
interest in offering him a change of technology, so long as his production lines have not
been amortised.

4.2.2 The place of technical research departments

Many industry players may have trouble absorbing the increased delegation of skills,
notably family, SME and very small enterprises (VSE) types of business. Requirements
for development research demand large investments that these small companies do not
 The evolution of relationships between car manufacturers 327

necessarily have. Laboratories and research departments may therefore constitute a safety
valve for supporting facilities already available in the company.
Continuous innovation requirements (Chanaron, 1998; Chanaron and Teske, 2007)
justify using labs and external consultants, giving an overview of the broader scientific
and technical expertise that exists outside. Nevertheless, criticisms are raised about the
dominance of researchers and theoreticians over engineers and technicians coming from
the industrial sector. These criticisms traditionally concern the system of research and
development in France compared to this activity in Germany.
There also remains a big risk of relocation to countries with cheap intellectual labour.
Many studies are already being outsourced to India, allowing these countries to acquire
more skills and enhance the quality of their work.

4.2.3 The financial risk-sharing

Customers are increasingly willing to delegate their skills to some of their suppliers.
However, it should be noted that there is no financial contribution to development
research, although this incurs major investments and risks. The mobilisation of cash flow
generally prevents SMEs from conducting several projects simultaneously.
It would however be wrong to think that customers do not participate in any way in
the development of the products that they order from their suppliers. In terms of product
development, some suppliers are able to negotiate participation by a customer through
their contracts for the purchase and maintenance of tools. But there are no rules in this
area, and every company is therefore struggling to succeed using its own resources.
This participation varies according to the customer; there are many imbalances
particularly because participation is linked to the unit price of ‘parts’. This method has a
drawback when the projected volumes are not achieved, which seems to occur very often.
Contracts never compensate for this factor; the only answer for the supplier is to be
sufficiently big, but especially to have a specific technology or knowledge capable of
influencing the decision.
This participation in the unit price is apparently not applied to first tier component
suppliers as they are considered by manufacturers to be strong enough financially to meet
their requirements.

4.3 The evolution of power relations

4.3.1 Customer-supplier relationships
In terms of balance of power, there are two opposing theories.
On the one hand, that of a ‘mono-polar’ hierarchical system (Chanaron, 2004),
centred on car manufacturers, which can be associated with large first-tier suppliers, and
a periphery, consisting of a multitude of actors subordinated to the strategic decisions
taken by this core. This option encourages relations of domination and dependence. On
the other hand, there is a ‘galactic’ system, i.e., without a dominant pole and in which the
players are therefore in equilibrium, with no hierarchical link.
At present, the balance of power in the industry is still based on domination by
manufacturers and major suppliers – far from equilibrium. The results of our
investigations are not optimistic about the evolution of this situation. Several companies
interviewed noted some flexibility on the part of their customers, due to the crisis and
328 J-J. Chanaron

government pressure to try to rebalance commercial relations between all players in this
sector. But, at the same time, they doubt that this situation will survive after the crisis.
There are only two situations in which rebalancing of bargaining power seems
possible. The first concerns the supplier. To obtain sufficient weight in the negotiation,
the supplier must generate interesting, ground-breaking technology without great
additional cost to its customers when compared to existing products. However, the
technological breakthrough, like the development of the common rail by Bosch, merely
leads to a perilous state of grace, only to vanish when competitors have launched similar
products of their own initiative, or even under friendly pressure from these same
customers.
The second situation concerns the OEM-customers. Only the strongest can afford
close relationships with their suppliers, because the risks they take when considering the
long-term relationships with some of their suppliers should not threaten their own
financial wealth and competitiveness.
In any event, no interviewed company, nor all the background research that has been
conducted, suggested that commercial partnership relations like Toyota enjoys can
develop in Europe and particularly in France. Especially as the Toyota model now tends
to be questioned, although it has weathered the crisis better than other models.
Relationships of this style work very well in Asia, but everything would need to be
started from scratch to be able to impose this relationship in Europe since the mentalities
are too culturally dissimilar. Manufacturers fail to understand and grasp the concept, in
particular because they are unable to find an adaptation that could apply in Europe and
especially France, where it is the State which is in charge and where there is little or no
initiative on the part of OEMs.
However, as it has been explained above, there are disparities between the various
European manufacturers. PSA and Fiat seem more open to discussion and partnership,
while Renault, dominated by the purchasing department, is less sympathetic towards its
suppliers. Nevertheless, German manufacturers are seen as more cooperative and thus
better able to integrate the model, even if several interviewees mentioned that
Volkswagen has hardened its hands on the supply chain during the crisis.

4.3.2 The required concentration of the industry

The question of the consolidation of the automotive industry through mergers and
acquisitions is an essential one in terms of the relations of power in the automotive
industry (Gorgeu and Mathieu, 1990, 2005). The OEMs are increasingly demanding
about the size of their suppliers. The notion of critical mass is crucial for reasons of
investment capabilities, both for the company’s geographical expansion and for financing
research, development and innovation. A company with sufficient critical mass has all the
advantages to be competitive in times of crisis and over-capacity and facing fierce
competition from low labour cost countries (Eastern Europe, India, China).
The balance of power is increasingly difficult between SMEs and their customers,
whether OEMs or tier 1 component manufacturers. These are the first to call for a
contraction of the industry. However this demand is primarily contextual-suppliers must
be large enough but not too large so as to create concerns about the leadership of
manufacturers.
The contraction of the industry poses various problems. The lack of a legal
framework is a key constraint, although SMEs have a strong interest in this. However,
 The evolution of relationships between car manufacturers 329

without a legal framework, combinations exist in many and varied forms (joint venture,
merger and acquisition, consolidation of capital, simply a partnership within a defined
project ...). This raises many issues, including management leadership and profit-sharing.
Most companies agree that the best solution is through the consolidation of capital.
It must be admitted that so far, the consolidation of the automotive component
industry lies mainly in the future, despite declarations of intent and the first interventions
in France by the Modernization Fund for Automotive Component Suppliers (François,
2010).

5 The effects of government interventions

One thing that the crisis demonstrated in France is the importance of State intervention
(Présidence de la République, 2009). This intervention was welcomed by many industry
players, subcontractors and suppliers and also by OEMs which needed such involvement
due to their tremendous financial difficulties. However, to date, the results are somewhat
mixed. Obviously, this research did not aim at discussing the background of and
foundations for public involvement when an industry is suffering from a deep crisis but
one of its objectives was to identify the perception of such involvement by industry
executives. Once again the research is focusing on opinions and interpretation by
interviewees.
There were a lot of concrete measures to support companies in difficulty. First, the
vote and the application of the Modernizing the Economy Law (LME)6 reduced the
payment period from 90 days to 60 days. If, at first glance, this is beneficial for industry
suppliers, it should be noted that some companies seem to be able to avoid this and
continue to pay at 90 days or more.
The first shortcoming of this decision is that it is national-transnational groups can
therefore escape it through their location outside the territory. Company headquarters not
located in France are not subject to 60-day payments and continue to pay within 90 days,
whereas French suppliers are required to pay their materials suppliers in 60 days,
regardless of their nationality. The second way to circumvent the law is by using
litigation - the complexity of commercial administration and the problems of information
flow can all extend the 60-day period for payment.
Other specific measures that were appreciated by all companies are the introduction
of short-time working during a crisis and research tax credits. These steps allowed
companies to retain their workforce at its maximum level despite the poor economy, and
to support their efforts in innovation in order to at least maintain their competitiveness.
Finally, activities at poles of competiveness and technology clusters were also
strengthened by the crisis, the State being able to support innovation through the various
tenders that it funded (ANR ...).

5.1 The problem of the scrappage scheme

A key measure of government support for the French automotive industry in crisis in
20087, the scrappage scheme had already been used in the 1990’s with mixed success:
windfall sales through artificial stimulus, followed by a significant decline when the
measure was lifted.
330 J-J. Chanaron

Although on first analysis the scrappage scheme had beneficially supported the
demand for new cars in France, avoiding an outright collapse of the market, it should be
pointed out that the scheme severely diverted sales to the purchase of low-end or ‘low
cost’ vehicles, mostly manufactured in countries with cheap labour. In France, the
scrappage scheme has been largely detrimental to national production, which explains a
much more significant decline in production than in registrations.

5.2 Support measures for customer/supplier relations

Observations are more alarming in this area, although this issue was a central concern of
government and a number of actions were undertaken to overcome the failings of the
current system. The companies surveyed do not appear to have seen any concrete results.
Many agree that the ‘Code of Performance and Good Practice (CPBP) in
Customer-Supplier Relationship within the Automotive Industry’, signed on February 9,
2009 by the professional organisations (CCFA CLIFA) representing the automakers and
suppliers and attended by Minister of Economy, Industry and Employment and the
Secretary of State for Industry and Consumer Affairs, has had no impact on the
purchasing practices of manufacturers and major component suppliers. Similarly, many
point to the impossibility for the State to act effectively in the business dialogue that goes
well beyond national boundaries and the constraints of the European Union’s competition
regulations.
In the present circumstances, the PFA, which followed the Automobile Convention
held on January 20, 2009, also does not seem able to evolve in the right direction to
correct major defects in the customer-supplier relationship. Its mediating role in the
implementation of the CPBP was not as successful as hoped for. According to the report
of May 5, 2010, few companies have consulted it, whilst many testify to its
non-application, or even the obvious bad faith of some major players in the industry. The
PFA conducted a survey in 2010 to assess the real impact of the CPBP which confirmed
such weakness.
Another negative point that was established in our investigation is the multiplicity of
players involved in some way or another in the institutional dialogue between customers
and suppliers: the PFA, FIEV, CCFA, State, Regions, Regional Departments of the
Environment, Territorial Development and Housing (DREAL), etc.. This plethora of
voices has the effect of making the landscape very confused. While this is certainly
preferable to a ‘desert’, companies, especially VSEs and SMEs, may not have the
resources to identify the ideal partner in the French administrative ‘layer cake’. Many
companies have said in this regard that the poles of competitiveness, because of their
proximity, are probably the links that are the most likely to federate into genuine
networks, invest themselves in the activity and develop understanding.
Although many actions have been initiated and implemented, and companies feel a
real desire on the part of the State to support of the French automotive industry, a sense
of relative inefficiency was expressed during the various interviews and seminars held; it
is true that these were held before the resumption of any growth was discerned in the
results of the first half of 2010. The majority of players in the industry believe that the
support of public authorities both at national and regional level is important and
necessary, as amply demonstrated by the specific effects already achieved since the end
of 2008, and this should even be strengthened over time.
 The evolution of relationships between car manufacturers 331

6 The development opportunities related to technological innovations

Extensive research have been carried out on the perspective of radical innovations
allowing the automobile to be carbon-free as far as possible, reducing the dependence to
petrol and contributing to decrease global warming: hybrid (Chanaron and Teske, 2007),
full battery electric or fuel cell cars and trucks (Chanaron, 2010, 2011). This current
research was not aimed at establishing and comparing the potential performances of the
different alternatives to the internal combustion engine (ICE) and at predicting their
probability and timing of emergence. It was rather limited to the evaluation by industrial
stakeholders of the potential consequences on the current automotive value chain and
supply chain.

6.1 The probable status quo in relationships of power

Under the dual and increased pressures of energy and environmental constraints8, the
2000s saw the resurgence in the concept of full electric cars and hybrid vehicles in the
interests of governments, industrial and major parts manufacturers, as well as for new
potential ‘entrants’ until then outside the traditional automotive sector. These
technological options are often considered as requiring real breakthrough innovations
(Chanaron, 1994, 2010, 2011; Chanaron and Teske, 2007), themselves capable of
challenging the industrial organisation of the metal-mechanical chain which controls the
techniques for the powertrain of the ICE.
The automotive industry, and especially commercial relations between the various
players in the industry, should not necessarily be disrupted by the technological
breakthroughs resulting from these new models of vehicles. First, because these
technologies are still far from being ready for mass marketing that could seriously
threaten traditional component manufacturers and subcontractors. Furthermore, because
manufacturers do not intend to change their organisations and their purchasing practices,
including those strategies for segmenting the different managements that led, in most
cases, to a clear predominance of the purchasing function. It is hard to imagine the buyer
not going to the supplier who first developed the technology, and who has the most
reliable and cost-efficient technology.
The only way to truly change this approach is to legislate for changes in the rules of
the market, for example either by promoting the emergence and spread of new
technologies or by breakthrough innovations leading to a precarious monopoly for a few
successful companies. Indeed this might require further increase in the government’s
involvement through dedicated subsidies to the purchase of green cars, public
contribution to investment in power supply infrastructure (smart grid, for instance) or
hydrogen production and distribution.
A majority of Interviewees do not foresee a major and massive breakthrough before
the 2020s. The transition through hybrids and rechargeable hybrids gets support from
most suppliers, probably because such an option does not challenge so much their core
competencies. This is indeed good news for PSA which is deliberately choosing the
scenario prioritising hybrid vehicles.
Some but very few interviewed experts are deliberately selecting full electric vehicles
as the most foreseeable scenario for this period. Obviously these interviewees are
integrating the strategy emphasised by Renault.
332 J-J. Chanaron

6.2 Increased competition due to new technologies

While it appears that the emergence of hybrid and/or battery or fuel cell electric vehicles
should not have a significant effect on the relational model, these technologies will
nevertheless impact the stakeholders in the automotive industry.
Indeed, many companies expect new players to integrate the sector, as happened
during the development of electronics in vehicles. A priori, only certain areas seem to be
affected by these changes, notably the electrical functions: batteries, electric motors,
electronic control modules, charging systems, etc. Some current providers feel that their
own survival is ultimately linked to their ability to diversify into components for
electrical and electronic equipment.
Nevertheless, several points need to be considered: first, the complexity of the
specifications of vehicles, whether thermal, electric or hybrid, which can lead to
difficulties in adaptation for a new entrant with little understanding of practices within
the sector. Apparently, it would be easier for a new entrant to move into the all-electric
vehicle sector. In addition, new technologies require large investments that only few
companies will be able to fund alone. Thus, although some large groups working in the
field of electricity (generation, distribution, equipment and components, etc...) will
inevitably integrate the industry, most companies that are likely to make their entry
should do so via a partnership with companies already established as automotive parts
suppliers.

7 Conclusions

This article is contributing to confirm the initial hypotheses formulated from previous
research and a comprehensive specialised literature review. The relationships between
OEMs and their suppliers are not at all well adapted to the current situation within the
automotive industry when facing an increasingly global and competitive market as well
as potentially dramatic technological changes.
The research is obviously suffering from various bias and limitations which deserve
further research to be overcome. The first one is the qualitative nature of the research
methodology which does not produce clear and unchallengeable evidences, preventing in
particular any temptation for generalisation. The second weakness is its focus on France-
based suppliers. It is obvious that similar investigation should be carried out all over
Europe but also in Japan and North America but eventually in emerging BRICS countries
such as Brazil and China. A third weakness is its very applied perspective which limits
any attempt for more theoretical construction about strategic supply chain management.
But the present investigation might be more useful for managerial and industrial
policy implications.
Despite the goodwill shown in the official speeches of politicians and leaders of
major automotive manufacturers and first tier suppliers, what is being called the
automotive crisis has not allowed the long-awaited rebalancing of the power relationship
between OEMs and suppliers. Certainly, in France as in Italy and Germany, the major
OEMs have prevented some strategic SMEs from going bankrupt and disappearing from
the scene altogether. But these rescues were determined on a case by case basis, often in
haste to avoid the disruption of supply, and in any event without any real strategic plan. It
 The evolution of relationships between car manufacturers 333

must be said in their defense they have all known a very difficult situation for several
months and they are themselves ‘flying by the seats their pants’!
The crucial solidarity within the automotive system, recognised more than twenty
years ago (de Banville and Chanaron, 1991), remains a sine qua non for the long-term
survival of the automotive industry in France. The disintegration of the current supply
chain - first tier suppliers and small and medium size subcontractors – is an unmistakable
sign of a long-term weakening of the domestic auto industry. However, economic
analysis has shown that it is the strength of all strata of the pyramid which ensures the
sustainability of an industry such as automotive assembly. Obviously, this strength must
first be financial, but it should also be technological and organisational (Chanaron, 2001).
Although the fully ‘clean’ cars without CO² that everyone demands are not yet a real
threat to existing players in the automotive sector, it is permissible to think that they
should already be prepared for such technological and organisational changes, and that
the long-term competitiveness of French companies in these new industries depends
largely on coherent and collective leadership, solidarity, and anticipating these changes
sufficiently early. This means not only that the necessary financial solidarity exists,
including a sharing of risks and profits, but also that it is governed by a single
institutional organisation. It must also extend to areas hitherto largely overlooked as
having no immediate interest in the short and medium term, such as advanced research
(basic and pre-competitive R&D) and education and training.
Concrete measures that seem necessary to implement could include:
1 Giving the PFA a mandate to (finally!) start the rebalancing of supply relationships
and force the vehicle manufacturers to make lasting changes in behaviour. This
mandate should cover not only a significant shift towards solid contracts with
objectives involving all stakeholders of a project – prime contractor, tier 1 and tier 2
suppliers sharing added value - but also a return to more personal relationships, in
addition to virtual relationships;
2 Increasing instances of reflection open to SMEs in the automotive industry,
especially at local level through regional associations of the automotive industry
(ARIA): this would offer to share strategic information of subjects analysed by
independent experts, mission reports…
3 Ensuring that suppliers and subcontractors of small- and medium-sized companies
are financially associated with the programmes and projects for technological
research and the development for clean cars. The technical innovations required
demand an effort of all stakeholders, governments and SMEs.
4 Establishing an institution of independent manufacturers and major suppliers which
advises, guides and supports SMEs in their efforts towards consolidation and
globalisation.
5 Strengthening the participation of public authorities at national and regional level
and ensure the implementation of a balanced governance and dynamic of the
automotive industry in order to avoid confrontation between OEMs and suppliers;
coordinate strategies for a harmonious growth of the national automotive sector,
safeguarding the competitiveness of firms in an industry where globalisation is
accompanied by ever-increasing competition (especially at the technological level)
and for the preservation of jobs and skills.
334 J-J. Chanaron

References
Afriat, A., de Banville, E. and Chanaron, J.J. (1987) ‘Les rapports entre constructeurs automobiles
et fournisseurs aux Etats-Unis’, CPE Etude, No. 90, September.
Alàez-Aller, R. and Longas-Garcia, J.C. (2010) ‘Dynamic supplier management in the automotive
industry’, International Journal of Operations & Production Management, Vol. 30, No. 3,
pp.312–335.
Aquilon, M. (1997) ‘Cultural dimensions in logistics management: a case study from the European
automotive industry’, Supply Chain Management, Vol. 2, No. 2, pp.76–89.
Bergmann, M., Mangaleswaran, R. and Mercer, G.A. (2004) ‘Global sourcing in the auto industry’,
McKinsey Quarterly, Special ed., pp.43–51.
Birchall, D., Chanaron, J.J. and Tovstiga, G. (2001) ‘Capabilities in strategic knowledge sourcing
and assimilation: a new look at innovation in the automotive industry’, The International
Journal of Automotive Technology & Management, Special Inaugural Issue, Vol. 1, No. 1,
pp.78–91.
Chanaron, J.J. (1991) ‘That machine that changed the world’: éléments critiques, Workshop on the
International Competitiveness of the Automotive Industry, EEC, Brussels, 21st February, in Le
Journal de l’Automobile, 20/12/1991.
Chanaron, J.J. (1994) Perspectives de la voiture électrique: les leçons de l’histoire’, Revue de
l’Energie, numéro spécial Energie, Transports, Environnement, No. 463, November,
pp.627–635.
Chanaron, J.J. (1998) ‘Automobiles: a static technology, a « wait-and-see » industry?’, in
Chanaron, J.J. and Bye, P. (Eds.): Technological Change and Inertia: Case Studies, A Special
Issue of the International Journal of Technology Management, Vol. 16, No. 7, pp.595–630.
Chanaron, J.J. (1999) ‘Modularization: changing bargaining power within the supply chain’,
Seminar on ‘Opportunities for Franco-Japanese Partnerships in the Automotive Sector’,
DATAR & French Embassy in Japan, Tokyo Press Club, 22 October & Workshop on the
Future of Automotive Industry, Japan Technology Transfer Association (JJTA), Tokyo,
26 October.
Chanaron, J.J. (2001) ‘Managing technological and organizational innovations and core
competencies: lessons from the automotive industry’, The International Journal of Automotive
Technology & Management, Special Inaugural Issue, Vol. 1, No. 1, pp.128–144.
Chanaron, J.J. (2002) ‘Les relations entre le cœur et la périphérie du système automobile européen’,
Xèmes Rencontres Internationales du GERPISA, Paris, 6–8 June.
Chanaron, J.J. (2004) ‘Relationships between the core and the periphery of the automotive system’,
International Journal of Automotive Technology & Management, Vol. 4, Nos. 2–3,
pp.198–222.
Chanaron, J.J. (2010) ‘An operational framework in forecasting radical innovation: the case of the
CO2-free automobile’, IEEE International Conference on Industrial Engineering and
Engineering Management, Macau, 6–9 December.
Chanaron, J.J. (2011) ‘Towards an operational framework in forecasting breakthrough innovation:
the case of the clean automobile’, Kudan Square, IIES-Toyota, 30, March, pp.4–7.
Chanaron, J.J. and Teske, J. (2007) ‘The hybrid car: a temporary step’, International Journal of
Automotive Technology & Management, Vol. 7, No. 4, pp.268–288.
Chanaron, J.J., Nellore, R. and Soderquist, K. (2001) ‘Lean supply and price based global sourcing,
the interconnection’, European Journal of Purchasing and Supply Management, Vol. 7, No. 2,
pp.101–110.
Chang, K. and Ding, C. (1995) ‘The influence of culture on industrial buying selection criteria in
Taiwan and Mainland China’, Industrial Marketing Management, Vol. 24, No. 1, pp.277–284.
Cole, R. and Yakushiji, T. (1984) The American and Japanese Auto Industries in Transition,
University of Michigan, Ann Arbor.
 The evolution of relationships between car manufacturers 335

Cusumano, M.A. and Takeishi, A. (1991) ‘Supplier relations and management: a survey
of Japanese transplant and US auto plants’, Strategic Management Journal, Vol. 12, No. 8,
pp.563–588.
de Banville, E. and Chanaron, J.J. (1985) ‘Le système automobile français : de la sous-traitance au
partenariat ? Eléments pour une problématique’, CPE Etude, No. 56, mai.
de Banville, E. and Chanaron, J.J. (1990) ‘Les relations d’approvisionnement (chapitre 2)’, in
Jacot, J.H. (Ed.): Du Fordisme au Toyotisme? ou les voies de la modernisation du système
automobile en France et au Japon, La Documentation Française, Etudes et Recherches du
CGP, Nos. 7–8, février, Paris.
de Banville, E. and Chanaron, J.J. (1991) Vers un système automobile européen, Economica, Paris.
de Banville, E. and Chanaron, J.J. (1992) ‘Des équipementiers partenaires forts: une nécessité pour
la survie du système automobile européen’, Culture Technique, Vol. 25, pp.167–174.
de Faultrier, B., Vlad, M. and Caroline Sam Long, C. (2009) ‘Management des enchères inversées:
Facteurs de succès et influence de la culture nationale sur ces facteurs’, La Revue des Sciences
de Gestion: Direction et Gestion, Vol. 44, Nos. 237/238, pp.113–119.
Dore, R. (1983) ‘Goodwill and the spirit of market capitalism’, British Journal of Sociology,
Vol. 34, No. 4, pp.459–482.
Dyer, J.H. and Chu, W. (2011) ‘The determinants of trust in supplier-automaker relationships in the
US, Japan, and Korea’, Journal of International Business Study, Vol. 42, No. 1, pp.10–27.
Dyer, J.H. and Singh, H. (1998) ‘The relational view: cooperative strategy and sources of
interorganizational competitive advantage’, Academy of Management Review, Vol. 23, No. 4,
pp.660–679.
François, I. (2010) ‘La consolidation se fait attendre dans l’automobile’, Les Echos, 16–17 juillet.
Frigant, V. (2007) ‘Les fournisseurs automobiles après dix ans de modularité: une analyse de la
hiérarchie mondiale et des performances individuelles’, Cahiers du GREThA, 2007-15.
Gorgeu, A. and Mathieu, R. (1990) ‘Partenaire ou sous-traitant?: qualité et ressources humaines
chez les fournisseurs de l’automobile et de l’armement-aéronautique’, Centre d’études de
l’emploi.
Gorgeu, A. and Mathieu, R. (2005) ‘Les restructurations industrielles: une fatalité du marché? Le
cas de la filière automobile en France’, Revue de l’IRES, Vol. 47, No. 1, pp.37–58.
Helper, S. (1991a) ‘Strategy and irreversibility in supplier relations: the case of U.S. automobile
industry’, Business History Review, Vol. 65, No. 4, pp.781–824.
Helper, S. (1991b) ‘How much has really change between U.S. automakers and their suppliers’,
Sloan Management Review, Vol. 32, No. 4, pp.15–28.
Helper, S. and Sako, M. (1997) ‘Determinants of trust in supplier relations: evidence from the
automotive industry in Japan and the United States’, Journal of Economic Behavior and
Organization, Vol. 34, No. 3, pp.387–417.
Henke, J.W., Parameswaran, R. and Pisharodi, R.M. (2008) ‘Manufacturer price reduction pressure
and supplier relations’, Journal of Business & Industrial Marketing, Vol. 23, No. 5,
pp.287–300.
Hewett, K., Money, R.B. and Sharma, S. (2006) ‘National culture and industrial buyer-seller
relationships in the United States and Latin America’, Journal of the Academy of Marketing
Science, Summer, Vol. 34, No. 3, pp.386–402.
Hofstede, G. (1980) Culture’s Consequences: International Differences in Work-Related Values,
Sage Publications, Newbury Park, CA.
Hofstede, G. (1998) ‘Attitudes, values and organizational culture: disentangling the concepts’,
Organization Studies, Vol. 19, No. 3, pp.477–492.
Humphrey, R.H. and Ashforth, B.E. (2000) ‘Buyer-supplier alliances in the automobile industry:
how exit-voice strategies influence interpersonal relationships’, Journal of Organizational
Behavior, Vol. 21, No. 6, pp.713–730.
336 J-J. Chanaron

Huws, U., Dahlmann, S., Flecker, J., Holtgrewe, U., Schönauer, A., Ramioul, M. and Geurts, K.
(2009) Value Chain Restructuring in Europe in a Global Economy, Higher institute of labour
studies (K.U.Leuven).
Jones, D.L. (2000) A Determination of Interpersonal Interaction Expectations in International
Buyer-Seller Relationships, PhD dissertation, Virginia Polytechnic Institute and State
University,#9974204.
Kirkman, B.L., Lowe, K.B. and Gibson, C.B. (2006) ‘A quarter century of culture’s consequences:
a review of empirical research incorporating Hofstede’s cultural values framework’, Journal
of International Business Studies, Vol. 37, No. 3, pp.285–320.
Lamming, R.C. (1989) The Causes and Effects of Structural Change in European Automotive
Components Industry, International Motor Vehicle Programme, Massachusetts Institute of
Technology, Cambridge, MA.
Lamming, R.C. (1993) Beyond Partnership: Strategies for Innovation and Lean Supply,
Prentice-Hall, Hemel Hempstead.
Lecler, Y. (1992) ‘L’avenir du partenariat à la japonaise’, Revue Française de Gestion,
November–December, pp.50–63.
Lecler, Y. (1993) Partenariat industriel: la référence japonaise, L’Interdisciplinaire, Paris.
MacDuffie, J.P. and Helper, S. (1997) ‘Creating lean suppliers: diffusing lean production through
the supply chain’, California Management Review, Vol. 39, No. 4, pp.118–151.
Mercer, G.A. (1995) ‘Making purchasing look easy’, McKinsey Quarterly, May.
Mudambi, R. and Helper, S. (1998) ‘The ‘close but adversarial’ model of supplier relations in the
U.S. auto industry’, Strategic Management Journal, Vol. 19, No. 8, pp.775–792.
Naulleau, G. and Guth, J.P. (2000) ‘Du partenariat à l’entreprise étendue. Vers une reconfiguration
de la relation client/fournisseurs, dans le secteur automobile’, Gérer et Comprendre,
September, pp.31–41.
Neuville, J.P. (1997) ‘La stratégie de la confiance: Le partenariat industriel observé depuis le
fournisseur’, Sociologie du travail, Vol. 39, No. 3, pp.297–319.
Noteboom, B., de Jong, G., Vossen, R.W., Helper, S. and Sako, M. (2000) ‘Network interactions
and mutual dependence: a test in the car industry’, Industry and Innovation, Vol. 7, No. 1,
p.117.
Présidence de la République (2009) Pacte Automobile, Dossier de Presse, Palais de l’Elysée, 9
février.
Rinehart, L.M., Lee, T.R. and Page, T.J. (2008) ‘A comparative assessment of domestic and
international supplier-customer relationship perceptions’, International Journal of Physical
Distribution & Logistics Management, Vol. 38, No. 8, pp.616–636.
Sako, M. (1991) ‘The role of ‘trust’ in Japanese buyer-supplier relationships’, Ricerche
Economiche, aprile-settembre, Vol. 45, Nos. 2–3, pp.449–474.
Sako, M. (1992) Price, Quality and Trust, Interfirm relations in Britain and Japan, Cambridge
University Press, Cambridge.
Sako, M. (1996) ‘Suppliers’ associations in the Japanese automobile industry: collective action for
technology diffusion’, Cambridge Journal of Economics, Vol. 20, No. 6, pp.651–671.
Sambharya, R.B. and Banerji, K. (2006) ‘The effect of Keiretsu affiliation and resource
dependencies on supplier performance in the Japanese automobile industry’, Management
International Review, Vol. 46, No. 1, pp.7–37.
Shimizu, K. (1999) Le toyotisme, Repères, La Découverte, Paris.
Shimizu, K. (2000) Transforming Kaisen at Toyota, Working Paper, Okayama University.
Womack, J.P., Jones, D.T. and Roos, D. (1990) The Machine That Changed the World, Macmillan,
Green Village, NJ.
Yin, R. (1993) Applications of Case Study Research, Sage Publishing, Beverly Hills, CA.
 The evolution of relationships between car manufacturers 337

Yin, R. (2008) Case Study Research: Design and Methods, 3rd ed., Sage Publishing, Beverly Hills,
CA.
Zirpoli, F. and Caputo, M. (2002) ‘The nature of buyer-supplier relationships in co-design
activities, the Italian auto industry case’, International Journal of Operations & Production
Management, Vol. 22, No. 12, pp.1389–1410.

Notes
1 Les Echos, 04/01/2010.
2 Ibid.
3 Les Echos, 08/02/2010.
4 AlixPartners, Les Echos, 15/06/2010.
5 Kirkman et al. (2006) do not even find this category in their excellent survey of research
subject matter.
6 August, 4th, 2008.
7 But also in other countries which adopted a similar policy such as Germany, the UK and the
USA.
8 The prospect of a barrel of oil at a price above 100 dollars and in particular global warming
associated to CO2.

View publication stats