Small Suppliers feeling squeeze
From the Toronto Star Feb. 24, 2005. Business Section
By: DAVID BRUSER

Cutting costs is the key to Magna International Inc.'s success in the middle of a cutthroat war among auto makers to remain competitive.

"Cost reduction and productivity are really the name of the game,'' Magna president Mark Hogan said yesterday after a breakfast meeting in Brampton at which he lamented manufacturers that expect annual reductions of 8 to 10 per cent.

``Unfortunately, the targets that have been set by the manufacturers have been very aggressive and in many cases we haven't been able to meet those," Hogan said.

"You have to survive in the here and now. That means cost reduction."

But at least one small-parts supplier has balked at such cost-cutting demands and is now in court with Magna subsidiary Intier Automotive Inc.

Last year, Intier demanded that Aurora-based Axiom Group Inc. slash its prices on all contracts by 31.8 per cent. Axiom, which makes small parts for window systems, said such a cut would eventually kill it and instead offered a much smaller reduction. Intier responded in the fall by giving a 90-day notice that it would cancel Axiom's contracts.

But a judge last week awarded Axiom an interim injunction preventing Intier from immediately terminating about 40 contracts, some of which run through 2009, until a trial resolves the dispute between the two firms.

Hogan did not answer whether the Axiom-Intier fight has changed how Magna does business with its suppliers, saying he did not want to comment while the matter is in court.

But Steve Rodgers, Magna's vice-president of marketing, talked generally about the tensions between so-called Tier 1 and 2 suppliers.

"You don't want to beat up on suppliers, but at the same time sometimes we have to make tough decisions to make sure that we're focusing on competitive suppliers that will keep our jobs and our employees in our plants successful.

"We don't want to be aggressive," Rodgers said.

"We work like crazy to try to make our own facilities more competitive, more efficient, more lean. But the supply base that we have in turn also has to be there. If we stick with a supplier that is uncompetitive in quality or is uncompetitive in price, it drags down all of our businesses, and no longer allows us to maintain our manufacturing facilities in Ontario."

When asked about Rodger's comments, Axiom president Perry Rizzo said: "We categorically state that the innovations and cost savings which Axiom has provided are unparalleled in the industry.

"The problem is not with competitiveness. It is with Intier continually moving the goalposts. They are now benchmarking Canadian suppliers against third-world labour rates and third-world supply costs."