Suppliers suffer from high raw materials prices

Tag : Raw Materials

The price of steel has doubled this year and the prices of manyother products used in cars -- including plastic and magnesium --have also increased substantially. Grand Rapids-based IRN received177 survey responses from 150 component suppliers with most sayingthey are suffering from the crisis.
"We were really kind of overwhelmed by the response," said KimKorth, founder and president of IRN.
Korth warns that if automakers and tier-one suppliers continue totry to negotiate individually they will find themselves bogged downin time-consuming talks and may face the need for additionalnegotiations as prices continue to go up.
"It's a situation where one-time solutions don't work because thatassumes that you get it behind you and you move on," Korth said."Given the continued volatility, unless there are almost continuousnegotiations, it's going to be very problematic."
Korth said several automakers are thinking about modest vehicleprice increases in the hopes that most consumers don't notice. Thatmay be possible since the increases would be spread out over lifeof multiyear auto loans. Korth also said another plan would allowsuppliers to get higher prices from automakers on a sliding scaleas commodity prices fluctuate.
Since Jan. 3, prices of hot rolled steel have increased from $520to $1,125 per ton, and Korth said automotive plastic is expected toincrease 17% in July. High steel and raw material prices havealready resulted in surcharges and lawsuits between suppliers andtheir customers.
Milwaukee-based Johnson Controls Inc., the world's largest maker ofautomotive seats, filed a lawsuit earlier this month againstIllinois Tool Works Inc. saying the supplier broke a contract bydemanding higher prices to cover raw material costs.
Johnson Controls said in court documents filed June 24 in U.S.District Court in Detroit that a halt in shipments of bolts, screwsand fasteners from the Glenview, Ill.-based company would disruptproduction at "numerous plants across the country owned by GeneralMotors, Ford, Chrysler, Nissan, Toyota, Mercedes and Honda" andcause layoffs of "hundreds of thousands of workers."
In May, Dana Holding Corp. Executive Chairman John Devine saiddealing with the cost of steel has become the Toledo-basedsupplier's No. 1 priority.
And on June 1, Troy-based ArvinMeritor Inc. put a steel surchargein place for some of its automotive, military and commercialvehicle customers.
"It's definitely a major issue impacting all of our businesses,"said ArvinMeritor spokeswoman Lin Cummins. "It's on a case-by-casebasis. We are working with all our customers."