Court documents reportedly show that Delphi Corp. fears a stop-shipment from its steel-parts suppliers could result in losses totaling $US10 million a day.
Dow Jones Newswires said several of Delphi’s plants could be idled in as soon as one day if the shipments are halted which could, in turn, force General Motors to idle in as soon as two days, while supply shutdowns could also affect Nissan Motor and GM’s Opel and Vauxhall units.
The report noted that Delphi was awarded a temporary restraining order against two of its suppliers – Republic Engineered Products LLC and NSS Technologies – on February 20 in Saginaw County Circuit Court after the suppliers had threatened to stop shipping steel parts if Delphi would not agree to pay more for them.
Steel prices have been escalating since December, pushing the price tags as much as 30% higher, Dow Jones noted, adding that the temporary restraining order expires at the end of March.
The news agency said steel prices have skyrocketed since December, when many suppliers received notice from their steel distributors informing them of the surcharges. Ana Lopes, director of government relations at the Motor and Equipment Manufacturers Association, told Dow Jones the surcharges started out at around $US20 to $60 a ton, depending on the product type, but have now reached $80 to $130.
According to the report, the court documents said NSS and Republic are Delphi’s sole suppliers for several key items – NSS makes parts used in steering gear assemblies, which are then used by GM, while Republic manufactures 50 parts for Delphi, like hydraulic pump assemblies and service steering pumps.
Delphi reportedly said in the court documents that it keeps as little as two days’ supply on hand and shipments are made nearly every day, and sometimes more than once a day.
“Disruption of their supply will cripple or completely shut down Delphi’s production in one or two days,” the filing reportedly reads, causing “catastrophic losses totalling millions of dollars per day to Delphi and its customers.”
Dow Jones noted that the battle between the companies began in early January, with a letter from CT Cochran, vice president of sales for Republic, which stated that it was enforcing its policy of passing along surcharge prices to its customers – and those who wouldn’t pay would see their shipments stop immediately.
“Regrettably, this is a period when our key raw materials have increased to all-time high levels, leaving us no alternative but to implement these surcharges,” he reportedly wrote.
Dow Jones said that Delphi’s original contracts with the firm stated that Delphi won’t accept price increases on account of “any increases in seller’s labour, material, overhead and any other costs.”
The report said NSS, which provides Pittman shafts to Delphi, originally contracted in 1999 to sell the parts for $1.63 per piece, and also agreed to a 2% annual price reduction over the life of the contract.
The company reportedly makes about 1.8 million of the parts a year, which are then used in Chevy Tahoe, Silverado and Denali trucks but the lawsuit did not say how much more NSS was hoping Delphi would pay for the parts, Dow Jones added.