Suppliers change tactics to cover materials costs

Jens Meiners, Automotive News Europe

Brussels - Suppliers are trying new tactics to get their automaker customers to pay for rising raw materials costs.

Some partsmakers are being direct. Others avoid talking about materials costs. The success of these new approaches has varied.

Some suppliers - those with must-have technology, profitable customers or few competitors - fare better than those with commodity products or parts with high raw material content, said Lars Holmqvist, CEO of CLEPA, the European supplier association.

"Most OEMs compensate their preferred suppliers fully [for higher materials costs] because they would like to keep them," Holmqvist said in an interview. "But in other cases the OEMs say, 'It is your problem.' "

Suppliers and analysts expect prices of key raw materials - including rubber - to continue rising, although less rapidly.

"The pressure is definitely rising," said Jürgen Kratzmann, vice president of manufacturing for Lear's interior product division in Europe. "For some subsuppliers, it has become a question of survival."

Suppliers say initial ways to cope with high materials costs - pooling purchases, cost sharing, redesigning parts to use less of a raw material - are losing effectiveness.

Being more forceful worked for one German supplier last year when two automakers slowed the negotiations on price adjustments.

The supplier issued an ultimatum: Reach an agreement within 60 days, or the supplier would stop delivering parts in 90 days.

"They were very angry," said a vice president at the supplier, who asked not to be named. "They said 'You'll never get another contract from us.' But in the end, they came around. We didn't get everything we asked for, but we came close."

In contrast, some suppliers won't negotiate on commodity prices.

"If we bring up the subject with our customers," said another supplier executive, "they send over a bunch of auditors who leave no stone unturned."

• Evolving strategies
• New supplier approaches to coping with volatile commodity prices
• Get tougher in negotiations
• Find savings elsewhere
• Add technology and value
• Absorb costs to avoid customer scrutiny
• Keep asking for relief

From Automotive News Europe (A Crain publication)