New Parts Policies Worry Honda Suppliers

Suppliers of Honda Motor Co. are scrambling to adapt to the company's decision to make cost its priority in purchasing rather than technical innovation, The Nikkei reports.

Parts makers also were surprised that Honda is now outsourcing substantial design and development tasks to them, says the newspaper, which doesn't cite its sources.

The company plans to create teams with suppliers to work on 19 key components, including bodies and turbochargers, The Nikkei states. Suppliers will be responsible for engineering parts for such systems as steering and air conditioning.

Honda informed its largest global suppliers of the new policy at a meeting in November, The Nikkei says. The goal is to cut procurement costs 30% to help the carmaker expand in emerging markets by offering lower-price vehicles.

The strategy relies in part on designing vehicles that share more parts. Honda aims to boost the proportion of common components used by all three of its top-selling models the Civic compact, CR-V crossover and Accord midsize sedan to from 20% of value now to 40%-50% by 2017.

The new policy will favor large, global suppliers. But it also squeezes them to cut parts costs quickly.

None of Honda's affiliated parts makers participated in the November meeting, according to The Nikkei. It opines that such companies some of which derive 80% of their sales from Honda may be forced to consolidate.