Jacques Monnet, chief executive of the French auto suppliers association, FIEV (French Vehicle Equipment Industries in its French acronym), says that although the current position of the French supplier industry is OK, pressures are building from rising raw material costs.
“Our members told us, maybe because they were covered for the 2004 period, that they were dealing with the issue” Monnet told SupplierBusiness.com. The initial pressure affected the smaller specialist metal-working second tier suppliers, said Monnet.
Most FIEV members are first tier suppliers and did not feel the pressure as strongly, he said, because they buy more components, and materials account for a smaller share of their purchases.
But “now we hear more and more concern that if the issue continues then 2005 might be a tough year in terms of steel, for instance, and freight costs” said Monnet.
The price of plastic resins and non-ferrous metals are also issues, he said, but the high price of steel is having the biggest effect. Freight costs are also affected by China’s need to import high quality materials, he said.
Monnet says that the car makers have responded to the higher pressure on costs. “The car makers have already done a lot”, he said, especially for the component makers most affected. “We don’t get price increases” he said but “we get reductions of the price decreases.”
FIEV acknowledged that there is some additional pricing pressure from the French car makers but said that it is affecting the sector unevenly and there is no overall pattern. Most of the demands of the French car makers were well below the extremes of Ford, for example, said Monnet.
“International competition makes it harder from the car makers” said Monnet “but there is still an overall ethic that we appreciate” he said.
And the volume of sales is moving in the right direction.
“This year the OEM sales are going up” said Monnet, and he sees the French suppliers continuing to outperform vehicle volumes because of continued growth in content and outsourcing.
That continues the pattern of 2003. French vehicle production fell by 2.2% in 2003 but the French auto component industry had OEM sales of €20 billion in 2003, only 0.7% less than in 2003, according to data released by FIEV at the Paris show.
French component manufacturers were able to offset the volume decline in 2003 with additional content and some more outsourcing by the French OEMs. In addition French component makers’ sales through the aftermarket rose 0.7% to €3.6 billion.
FIEV said the increase in aftermarket sales was due to the growth of French car sales across Europe over the last few years.
But France’s balance of trade in automotive components deteriorated in 2003 – although it remained positive by €2.9 billion. Total exports fell by €67 million to €17.5 billion, while imports grew by €953 million.
French OEMs and leading French first tiers are looking to source more parts from low cost countries. Imports of parts from eastern Europe grew by 24.4% to €1.1 billion in 2003, while imports from Africa, where many French suppliers have operations established along the south Mediterranean coast, were up 17.2% to €323 million.
Imports from Asia (excluding Japan) have not yet shown the same jump, rising 7.2% to €312 million. But France’s balance of trade with Germany also deteriorated as high tech German parts sales grew 4.6%.
That is a small percentage growth but significant because Germany accounts for a third of the €14.7 billion in parts imported into France. And France’s exports to Germany fell 5% as the German OEMs and first tiers re-sourced their own purchases.