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June 24, 2003

FRANCE: Car industry can’t keep demanding suppliers cut costs without co-operation, conference told

The car parts industry faces crisis if vehicle makers hit by weak demand keep forcing suppliers to charge less instead of working with them to cut costs, component firms' executives said this week, according to Reuters. One independent industry expert told a conference in Paris that some 40% of publicly listed suppliers in Europe, the United States and Asia were in "financial trouble", the news agency said.

By bcusack

The car parts industry faces crisis if vehicle makers hit by weak demand keep forcing suppliers to charge less instead of working with them to cut costs, component firms’ executives said this week, according to Reuters .

One independent industry expert told a conference in Paris that some 40% of publicly listed suppliers in Europe, the United States and Asia were in “financial trouble”, the news agency said.

And top executives warned that while the major players would likely survive pressure from vehicle makers to slash prices for their engines, headlights and other parts, small suppliers could face collapse if manufacturers did not change their ways, Reuters added.

“We cannot (continue with) this opportunism because we will leave behind a pile of dead bodies and the manufacturers do not get their supplies from a dead body,” Volker Barth, head of Europe, Middle East and Africa at the world’s biggest car parts firm Delphi Corporation, told an industry conference, according to the news agency’s report.

“We have arrived at the point where some suppliers are not making any money on deals but are going ahead with them just to get some cash flow,” Barth told Reuters earlier in an interview.

Reuters noted that car makers are grappling with a slide in demand in Europe and the United States as consumers jittery about the shaky world economy delay splashing out on new vehicles. As a result, many are refusing to pay top dollar for parts and accessories, thus gnawing away at suppliers’ margins.

The news agency said Delphi slashed its profit targets earlier this month while Visteon and Europe’s largest listed car parts firm Valeo are cutting jobs to shield margins from a weak market and pricing pressure.

According to Reuters , Steve Young, vice president of AT Kearney auto consultancy, said that some 40% of global suppliers surveyed were in “financial danger”, but that this number was falling.

Young told Reuters that suppliers could not simply blame unfair pressure from manufacturers and also needed to take responsibility for bad deals that had lost them money. But he said some car makers were already working with their suppliers to trim manufacturing costs, rather than piling on the pricing pressure.

“Now to a greater extent there are discussions on the processes that link suppliers and manufacturers… addressing sources of cost rather than simply squeezing margins,” Young reportedly said.

Executives from Ford and PSA Peugeot Citroen told Reuters they were already working with their suppliers to make the manufacturing process more efficient.

“(Our system) is now ‘win win’ because the focus is about cost not price,” Morgan Jackson, director of purchasing for Ford Europe, said, according to the news agency.

But Reuters noted that Renault chairman Louis Schweitzer told reporters that although the most efficient way to squeeze cost was to collaborate, car makers still had to strive for the best deal for their shareholders.

“Once you have made all the possible savings, the issue of sharing profit burdens arises,” he reportedly said. “It’s a case of two companies with two different sets of shareholders and I don’t believe in gesturing.”

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