Pricing power shifts to some auto suppliers

David Sedgwick

Published: November 14, 2012 6:00 am ET

Related to this story

Topics Automotive

DETROIT (Nov. 14, 11:20 a.m. ET) — With North American vehicle production headed toward 15 million-plus units next year, automakers are encountering a new breed of supplier: the one that says “no.”

To automakers’ chagrin, some suppliers — mainly those in capital-intensive industries like iron castings — can pick and choose their customers. With capacity short and production schedules rising, suppliers can afford to accept the contracts and customers they want, and reject those they don’t want, whether because of prices or the broader terms of doing business with certain customers.

In short, the balance of pricing power has shifted to the supplier.

“For many commodities, we had a dramatic reduction of capacity and now we’re facing some barriers,” said Scott Kunselman, Chrysler Group’s purchasing chief. “One of our biggest problems is getting capacity for certain components.”

To ease production bottlenecks, Chrysler and other automakers are offering vendors better terms. Suppliers are:

• Securing contract guarantees that they will be paid if raw material prices rise.

• Winning more no-bid contracts from automakers.

• Getting quicker compensation for tooling.

Spot shortages

In an Oct. 24 interview, Kunselman told Automotive News that Chrysler has experienced some spot shortages of tires, brake rotors and iron castings.

Tire shortages should abate over the next couple of years, now that tire makers are building factories. But shortages of iron castings may persist.

Other product sectors are experiencing similar shortages, said Kim Korth, principal of IRN Inc., a Grand Rapids, Mich., consulting firm. During the recession, suppliers eliminated 20 to 30 percent of their production capacity, and they haven’t added it back, she said. That is translating to richer contracts.

“Suppliers are putting on third shifts, trying to figure out how to get more production,” Korth said. “They can’t support the demand that they have now, so why should they settle for a 2 or 3 percent gross margin?”

Newly emboldened suppliers are demanding, and getting, better terms from their customers. According to an IRN survey published in July, half of the suppliers polled said they had negotiated price pass-throughs — whereby suppliers pass a portion of higher costs through to customers — for raw materials, up from virtually zero three years ago.

Because the auto industry is short of capacity, automakers are closely watching suppliers for signs of trouble.

Chrysler, for instance, is monitoring suppliers that are running their plants around the clock to meet demand. At any given time, Chrysler’s list of maxed-out suppliers fluctuates from a dozen to 20 companies, Kunselman said.

“We work with those suppliers to make sure they don’t skip key quality steps or even preventive maintenance,” Kunselman said. “You have to look extra hard to make sure they keep a tight rein on quality.”

Chrysler’s problems are not unique. In January, Toyota confirmed that it was monitoring 10 to 20 suppliers that were struggling to produce enough parts, and urging some to add more capacity rather than to continue to rely on extended overtime.

A complete version of this story is available at www.autonews.com.


Comments

Pricing power shifts to some auto suppliers

David Sedgwick

Published: November 14, 2012 6:00 am ET

Post Your Comments


Back to story


More stories

Image

Auto industry on the hunt for new lightweight materials

January 26, 2015 4:03 pm ET

The auto industry is focusing on lightweighting, and this is igniting a race to find new materials that can meet ever-changing performance needs of...    More

Image

Continental builds low-emission interior trim factory in China

January 26, 2015 12:33 pm ET

Benecke-Kaliko AG is making the largest investment in its history to build an environmentally friendly auto interior trim plant in China, prompted by ...    More

Image

Gurit wins carbon fiber auto contract using new processing technology

January 23, 2015 9:22 am ET

Switzerland-based composite materials group Gurit Holding AG has been selected as the supplier for carbon fiber based automotive body panels at a...    More

Image

ACC's 'Roadmap' gaining traction

January 22, 2015 1:56 pm ET

Nearly a year into the launch of the latest effort to promote greater use of plastics in automotive applications, a trade group behind the push says...    More

Image

Auto supplier Cooper-Standard to trim operations in Europe

January 22, 2015 11:08 am ET

Novi, Mich.-based Cooper-Sandard Holdings Inc. said Jan. 21 it plans to consolidate its operations in Europe, including reducing manufacturing in Fran...    More

Market Reports

Plastics in Automotive: Innovation & Emerging Trends

This special report newly released by PN and sponsored by The Conair Group examines current trends in the use of plastics in automotive, materials innovations and the changing landscape. It includes a review of legislative/regulatory activity impacting vehicle development and lightweighting, market opportunities & challenges for mold and toolmakers, innovative design strategies being implemented by major OEMs and suppliers, as well as a review of key indicators in Canada, Mexico, Brazil and China.

Learn more

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Injection Molding Market Analysis & Processor Rankings

Plastics News BUNDLED package contains our in-depth Market Analysis of the Injection Molding segment. You will gain keen insight on current trends and our economic outlook.

As a BONUS this includes PN's updated 2014 database of North American Injection Molders RANKED by sales volume. Sort, merge, mail & prospect by end market, materials processed, region, # of plants and more.

Learn more

Upcoming Plastics News Events

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events