The sorry spectacle of Collins & Aikman's bankruptcy hearing should be a final wake-up call for Big 3 purchasers: The status quo no longer works.
If automakers ignore the financial health of their own vendors, they risk the financial collapse of those suppliers. The downfall of Collins & Aikman - a venerable supplier of interior fabrics, instrument panels and door panels - is a case in point.
Saddled with debts and low-margin products, the company came unglued this spring. To maintain its cash flow, Collins & Aikman had negotiated dozens of unprofitable contracts.
Then, in a last-ditch effort to negotiate a price increase with DaimlerChrysler, Collins & Aikman CEO David Stockman threatened to halt the delivery of parts for the hot-selling Chrysler 300, according to published reports.
DaimlerChrysler parts kept flowing, but Collins & Aikman filed for Chapter 11 protection. Now creditors and customers are haggling over the company's ability to stay in business.
This is not a nickel-and-dime issue. The supplier's customers already have ponied up more than $300 million to keep Collins & Aikman afloat.
Collins & Aikman must accept responsibility for its financial crisis. But GM, Ford and Chrysler - its largest customers - must shoulder at least part of the blame.
A recent survey of suppliers concluded that Toyota, Honda and Nissan are more willing to consider the financial health of suppliers. They don't merely seek the lowest possible price.
The Chrysler group recently has indicated some willingness to work cooperatively with suppliers. But small improvements are not enough. Each of the Big 3 must understand that price negotiations with suppliers are not a zero-sum game.
From Automotive News