A looming war and volatile oil prices have added a new twist to the give and take of price negotiations in the auto industry, forcing some companies to seek renegotiations for parts costs.
With most resin prices on the increase, some plastics suppliers are in a vise, with demands to reduce the price of final products to automakers while the price they pay for raw materials is climbing higher.
``You have to come to your customer and tell them what's happening,'' said Claude Mathieu, president and chief executive officer of Mann + Hummel Automotive Inc., the Portage, Mich.-based unit of Germany's Mann + Hummel GmbH. ``You cannot influence the world market of steel or resin. It's very clear that we have to give the price increase in some way to our customers, and they don't like it.''
Resin makers globally, facing shortages in oil and natural gas along with concerns about a protracted war with Iraq, have hiked prices repeatedly this year.
``If it's only 3 percent or so, we can handle it,'' Mathieu said in an interview during the Society of Automotive Engineers 2003 World Congress, held March 3-6 in Detroit. ``If it's 10 percent or 15 percent, we can't.''
There is no one standard solution for every situation, though, noted Scott Upham, senior director of forecasting for J.D. Power & Associates automotive group in Troy, Mich. Suppliers are not even necessarily united in their suffering. The impact of resin prices varies from company to company - even from one component to another.
Some firms hold contracts that tie their part price to the raw material cost. Others do not.
``Typically, there is some shielding of the price changes within the larger Tier 1 suppliers,'' Upham said. ``The ones who are caught most in the middle are the smaller Tier 2s or Tier 3s.''
The price increases have brought renewed attention to General Motors Corp.'s bulk resin purchasing program. The automaker wants its suppliers to sign up to buy resins through GM, reasoning that it may be able to negotiate far better prices than smaller companies individually.
The downside, though, is that those firms may not see a benefit in their own pockets if prices suddenly drop, Upham noted.
Resin suppliers, meanwhile, say they are busy working with their customers to find ways to cut final product costs through integration or technology. Cooperative research has seen a big jump during the past few years, as automakers and suppliers alike have trimmed their budgets.
``The customer base is really coming back and trying to find partners and situations where they can plan something together,'' said Jean-Claude Steinmetz, president of Rhodia Engineering Plastics of Lyon, France. ``We are partnering to find new applications that can reduce overall costs. These are approaches that are finding a lot more open ears than they were three or four years ago.''
Automakers are aware of what is going on, he said. Even if they were not buying resin, they and their suppliers went through a similar crisis last year when tariffs levied on overseas steel hit the auto industry, prompting shortages and price increases.
They also have seen the monetary impact of other items beyond the industry's control, such as currency devaluations affecting suppliers in Brazil that hit Mann + Hummel with price jumps of 30-40 percent, said Dieter Seipler, president and CEO of M+H GmbH of Ludwigsburg, Germany.
Other companies have independent contracts that are helping them through.
Lighting systems molder Guide Corp. of Pendleton, Ind., currently is in a good position. It is in the last year of a five-year, pre-negotiated contract that ensures stable prices for the year, said spokesman Jeff Hutson.
``Of course the question is really what happens after that,'' he said. ``Who knows what's going to happen between now and when we open negotiations for the next contract?''
The same uncertainty that has sent prices up could bring them back down easily. Belief that war with Iraq will be brief already has decreased oil prices, especially because the country sits on the second-largest oil reserve in the world, Upham noted.
``You've got to hedge against what's going to happen,'' he said. ``You try to be flexible. In an ideal situation, you've got discussions going up and down the supply chain about what's happening, so everyone can adjust.''