This article is excerpted from a speech by Douglas Braverman, international purchasing products manager of Renault North America. He addressed the European Auto Industry Executive Seminar on 15 April in Dearborn, Michigan. The seminar was sponsored by the HCI Group of Chicago and Amsterdam.
At Renault we have decided to concentrate our sale of passenger cars and vans in Europe. To build these cars, we source materials, components, and equipment from around the world, including North America.
Renault has a history of purchasing activity in the US. I would like to discuss this history because I believe it serves to illustrate the evolution of the relationship between European car manufacturers and North American parts suppliers over the past 50 years, and it will give us an idea of where these trends are heading.
Renault's history of purchasing in the US began shortly after World War II, when, under the Marshall Plan, Renault bought millions of dollars of industrial equipment from US suppliers in order to modernize its French plants.
After a year or so, the various pieces of equipment began to need spare parts, and so in 1949 Renault opened a three-man purchasing office in Manhattan. The majority of the purchasing went into machine tool equipment: both spare parts and new machinery.
Soon, Renault began to realize that there were other purchasing opportunities in the US as well, including:
modelling clay for the design studios
steel for manufacturing torsion bars - the first car component purchased in North America
laboratory testing equipment
felt tipped pens, which were a big hit with the Renault design department and were then unavailable in Europe.
The Renault Dauphine
In the late 1950s, Renault decided to introduce the Renault Dauphine to the North American market.
Unfortunately, Renault had not made any provisions for an aftermarket network. When spare parts were needed, the American customers often ran into serious problems. If a customer required a replacement carburetor and the dealership was out of stock, the dealership would have to send a purchase order to France. Customers sometimes waited six weeks to six months for a replacement part, and despite the French reputation for romance and glamor, this did very little for the American public's romance with the Dauphine.
Renault decided to introduce some new vehicles to the US in the 1970s, such as the Renault LeCar and the R-18. We wanted to avoid making the same mistake twice. We decided to set up a network of American suppliers who would ship original equipment to the Renault factories in France, so that if replacement parts were eventually needed, the aftermarket network could be supplied right from the US. My job assignment was to identify and select OEM suppliers for a wide range of products.
It sounds like it would be easy to interest US suppliers in a whole new market. But in the 1970s the US parts suppliers were generally quite chauvinistic and uninterested in expanding overseas. To my surprise, I usually met with one of two answers.
One was: 'We're so busy with our US customers that it's not worth our time or effort to ship overseas.'
The other was: 'We've never shipped overseas, and we don't know how to handle it. Besides, with the cost of trans-Atlantic shipping we doubt that we could be competitive.'
The only companies that were truly interested in working with us were the large companies, such as Eaton, Miliken, and General Motors, which already had experience in international sales. I was able to obtain a purchase order for Eaton for 100 percent of the air conditioning units for the R-18; Miliken received 50 percent of Renault's requirements for the Renault LeCar upholstery.
GM wound up receiving not only 100 percent of Renault's power-steering pump requirements for the cars destined for sale in North America, but 100 percent of all Renault's power-steering pump requirements worldwide.
It may be self-evident, but these examples represent the first requirement of working with a European company: the willingness to do business overseas.
Our sales of LeCar were quite healthy in the 1970s and, in 1979, Renault decided to purchase American Motors. Because we began building here, it became relatively easy to interest American suppliers in working with us.
Our purchasing efforts in North America evolved into a two-site operation.
The purchasing of components and equipment for the Renault vehicles manufactured in North America was handled by American Motors' purchasing arm.
I continued to handle the purchasing for the material shipped to Europe. Although we sometimes banged heads over which supplier to use, basically the Renault Europe purchasing office and the Renault-AMC office worked harmoniously.
By the mid-1980s, my office was purchasing approximately $50 million of OEM components for export to Europe a year. The volume necessitated our establishing a sea-container system, by which American suppliers would deliver their merchandise to our forwarder in Detroit, who would consolidate it in one of five weekly sea-containers.
As 'just-in-time' deliveries became the rage, Renault opened a warehouse in northern France which would receive the sea-containers, handle the customs clearance on site, and stock the material so that a daily just-in-time delivery could be made to Renault's French plants.
Even the smallest American suppliers, with no experience in overseas shipping, were able to participate in this system.
As trade continued briskly between the US and Europe, the 1990s saw two new tendencies in the automotive industry, which would affect not only Renault but most of your companies as well.
The first new trend was that the US car manufacturers stepped up their effort to capture a portion of the European market. To do this, they began to open factories in Europe. To supply these plants, they began actively to seek European sources, both to comply with local content laws and to save money. In some cases, the US manufacturers expected their North American suppliers to follow them to Europe as well, if the American suppliers wished to continue working with them.
Here are two concrete examples of how this tendency has influenced Renault purchasing.
GM catalytic converters
As anti-pollution laws were passed in the various European countries, Renault's requirements for these components increased substantially. For years, Renault had been purchasing millions of dollars worth of catalytic converters from GM, which would ship them from its plants in Wisconsin. But GM learned from its experience supplying its own plants overseas that it would be more economical to build the catalytic converters right in Europe. Thus, the entire Renault catalytic converter assembly line was moved from Wisconsin to Gennevilliers, France.
In the 1970s, because of its willingness to work with Renault, GM Saginaw - today Delphi - obtained a contract to provide 100 percent of Renault's power-steering pump requirements. By the late 1980s, the use of power steering had increased dramatically in Europe. Although GM was not prepared to relocate the steering pump operations to Europe, it realized that it could offer Renault substantial cost cuts by opening a warehouse near the Renault plants. And so, today, GM supplies Renault from its European warehouses.
Renault's current purchasing policy is not just to source globally, but to find international companies which have operations, or are willing to open operations, in Europe.
In some cases, a smaller supplier may not be able to open its own factory in Europe, but another solution that Renault finds works well is to have a foreign supplier sign an agreement with a French company. I'm currently working with a North American supplier of parking brakes, which is one of many international parking-brake manufacturers trying to obtain business with Renault. Negotiations are still underway, but because the company in question has developed an active relationship with a French firm, Renault's purchasing department is considering it more seriously than some of its competitors.
The second new trend ties in neatly with what I've been saying. During the late 1980s and early 1990s, European suppliers began to catch up to, and in some cases surpass, their North American counterparts in terms of technology and price competitiveness. It was no longer enough for an American firm to say, 'We manufacture anti-pollution equipment' and expect Renault to purchase from it because the US was the world leader in these components. European suppliers now have the technology and the quality that at one time were the domain of the US automotive parts suppliers. In addition, the European suppliers often have the advantage of being able to offer more competitive pricing because they are closer.
I'm currently working with an American supplier of stamping dies. Although its products are technically just what Renault is looking for, it has continually lost out in bidding wars to the Italians and the Portuguese, who perhaps 10 or 15 years ago could not have competed technologically. The company I'm working with does have a design facility in the UK, and is currently examining the possibility of signing a joint venture with a local manufacturer in order to produce stamping dies for Renault.
Renault is a dynamic company, and we are continuing to expand. With the opening of eastern Europe, Renault's European market potential has increased, and we became a major player in the east German and Polish markets. Renault has manufacturing plants in Slovenia and Turkey, and construction is now underway for a major new Renault plant in Brazil.
We are also actively involved in new projects, including a joint venture with GM to produce a utility vehicle, currently known as the W83.
All of these projects, as well as our future ones, require the most technologically advanced and cost competitive suppliers available. But of course, the future does seem to necessitate a European presence.