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Automakers and Tier 1 suppliers pushing for cost cuts

By: Rhoda Miel

October 4, 2013

DETROIT – Price reduction requests continues to be the standard operating procedure within the auto industry, with automakers and their largest suppliers seeking an average reduction of 3.1 percent from their supply base, according to the 2013 Pricing Survey conducted by IRN Inc.

That percentage is slightly higher than the average of 3 percent in 2012, but the consulting group noted that actual price reductions – following negotiations – averaged 1.3 percent, noted Grand Rapids, Mich.-based IRN in its report.

Tier 1 suppliers requested the biggest reductions – 3.6 percent – and received an average concession of 1.8 percent, IRN noted in its annual survey.

Both the averages for carmakers and suppliers is far below the level in 2003, when the industry sought more than 6 percent in reductions and received more than 3 percent.

At the same time, 26 percent of respondents said they were able to win price increases, particularly because of capacity shortages or engineering changes. That is down slightly from 2012, when 27 percent of suppliers said they won increases.

The surging auto industry is bringing up an increased concern with capacity, suppliers said, with 25 percent of them noting that they are having problems keeping up with demand.

"If current projections for automotive sales in North America for 2014 are correct, expect this to be one of the top issues for the industry in 2014," IRN officials noted.

The full report, with further details on individual automakers, is available from IRN.