Some tier 2 automotive suppliers are threatening to stop shipments to tier 1 suppliers if the companies won’t increase prices to help absorb the impact of rising steel costs, a Dow Jones report said.
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A source told the news agency that three major suppliers to Delphi Corp. wrote to the company requesting the price increases, threatening to break their contracts if Delphi wouldn’t comply. Delphi, in turn, reportedly asked its biggest customer, General Motors, to help absorb the costs but the carmaker refused.
The source told Dow Jones a stoppage in shipments could mean some GM assembly plants won’t get the parts they need and could force a temporary shutdown though Delphi could try to enforce its contracts by suing its suppliers.
GM spokesman Tom Hill reportedly said the company hasn’t discussed increasing prices with Delphi but, he added, GM intends to stick to its original contracts.
“We have contracts with our suppliers, and they’re fixed,” Hill told Dow Jones, adding: “We expect our suppliers to pay what they agreed to pay in contracts.”
Dow Jones noted that the dispute over prices comes at a difficult time for automotive suppliers and the industry as a whole because the carmakers have been pushing to decrease costs in the supply chain by as much as 5%, while suppliers are faced with escalating steel prices – some estimates show the cost of steel has risen 30% since the start of the year.
Passing price increases on to consumers doesn’t appear to be an option, the report noted, because the motor industry has been engaged in an all-out incentives war since the terrorist attacks of September 11, 2001, and any attempt to pull back from incentives has been met with a drop in sales.
John Willoughby, a spokesman for Republic Engineered Products and a supplier to Delphi, told Dow Jones the company has attempted to recover some of its costs by asking its customers to pay additional surcharges but those don’t cover the entire cost and Republic may soon face a situation where it can no longer afford to continue shipping parts to Delphi and other customers.
“I am hopeful we will be able to continue the relationship and we will get this worked out,” he told the news agency.
Henry Braddock, president of St. Joe Tool Company in Bridgman, Mich., reportedly has also written letters asking his customers to help shoulder rising raw material costs. Most of the materials he uses to make parts for Cadillac filter motors and hydraulic hoses have shot up – he’s paying between 30% and 50% more for copper since December and between 10% and 15% more for aluminium, in addition to the skyrocketing steel prices, Dow Jones said.
“We either get some relief, or we won’t be here in six months,” Braddock told Dow Jones, adding his other option is to stop shipments to customers who won’t budge on price.
A Delphi spokeswoman told the news agency she couldn’t disclose details pertaining to the supplier debate, but said the company is working through its purchasing channels on those issues.
A spokeswoman for Visteon, which is a major supplier to Ford, reportedly said the company is working to collaborate with its suppliers to ensure none of Visteon’s customers face shutdowns of assembly plants.
