Despite the interests of automakers, it was another tough year for suppliers

When the pandemic persuaded virtually every industry to suspend in 2020, the supply chain became so dysfunctional that restarting the commerce sector itself became a challenge. This is the equivalent of a stack of 20 cars, and the automotive industry has been particularly hit by the complexity of its supply lines. The following year showed improvement, but production could not stabilize to pre-pandemic levels.

The solution for car makers and dealers was to start demanding more money for cars. If there is a shortage of vehicles The value of new and used models has blown the roof.. This move kept automakers largely in the black for 2021, even though it is generally impossible (or unwilling) to manufacture products at a normal pace. However, it did not help suppliers who were unable to tackle the same premium for individual components while having to deal with increasing economic hurdles.

When automakers began to reduce their production targets, they realized that they had to reduce their production and deal with irregular orders from many customers. This could lead to a bottleneck before new economic pressures emerged. Today, equipment manufacturers are facing inconsistent orders, rising material and shipping costs, and labor shortages becoming commonplace.

The Wall Street Journal A recent article covered several auto parts suppliers and focused on how they tried to navigate the current economic situation. Many companies are lowering the level of future employees, and many are filling their ranks with former criminals. However, there are other companies that are enthusiastic about doing the same thing as current prisoners, and some have been accused of engaging in forced labor (these accusations are not new to the industry. is not). In the meantime, those who play according to the rules often find themselves just scraping.

From the WSJ:

Some auto parts makers say the outlook is about the same as in 2008 and 2009, when sales fell due to the recession.

“How do suppliers offset these cost increases we have experienced without getting price savings? [the car companies]?? ” [Peter] Anthony said. [The Chicago-based insulation supplier] UGN is losing money and has recently begun discussions with its customers regarding revisions to the terms.

But the biggest problem, he added, is that his company is losing out on the bubbling pricing of the automotive industry. Due to tight inventory, car buyers are paying record amounts for new cars. This has led both automakers and dealers to make healthy profits this year, despite the turmoil caused by the shortage of computer chips.

Anthony’s company is one link in the global supply chain that is buckling under the pressure of labor shortages, rising freight and commodity costs, and manufacturing turmoil.

Supplier usually deals with car companies under fixed-price contracts that set prices for vehicle program lengths that can take five years or more, and it is difficult to renegotiate, executives and industry lawyers say. .. Auto parts manufacturers also rely on a stable flow of work orders and an efficient, just-in-time supply chain to keep costs down.

However, late delivery and order cancellations due to chip shortages, coupled with rising costs for the entire business, are putting further pressure on already thin profit margins, executives and industry analysts say.

Suppliers are tired of hitting automakers who are increasing their profit margins by raising the cost of their cars. Many are beginning to demand renegotiation of contracts that formally guarantee that their purchase promises will be kept. Others are simply raising their prices to explain the general difficulties of the time. For example, Michigan-based Cooper Standard Automotive has chosen to ask its customers for a total price increase of approximately $ 100 million. However, many suppliers will simply reduce their forecasts by 2022, as other companies are not sure if they will be able to win enough business to negotiate higher prices.

Electrification has played an additional role in agitating the turmoil in today’s industry. As automakers shift their focus to electric vehicles, certain suppliers are becoming irrelevant and others becoming indispensable. The assembly plant has already canceled the order with a sudden notice, often with weeks of downtime. For suppliers who specialize in the parts needed for combustion vehicles, that trend can last forever as more EVs are installed on the road.

Mary Buchzeiger, Chief Executive Officer of Lucerne International, a supplier of stamped metal parts in the Detroit region, said: “I had a good time in 2008.”

Assisting suppliers as much as possible is probably in the automaker’s greatest interest, as consumers have a limited amount of capacity to withstand. Marquez cannot continue to reduce production indefinitely until all new cars are retailed for a cool million dollars. Also, if the industry as a whole relied on a reliable delivery schedule less than two years ago, suppliers can’t expect to fly forever in their trouser seats as well. But car makers don’t seem to be in a hurry to readjust their existing contracts. We tend to believe that it’s because the supplier is getting the shorter stick, but the profit report seems to support that, but because of the secret nature of most business contracts, everyone I can’t say for sure.

General Motors President Mark Royce said the company’s overall willingness to renegotiate depends on contract terms, among other factors, but the general preference is to stick to prior agreements.

“I don’t think passing things through is a way to create value for our customers,” he said at the Barclays Virtual Investor Conference.

But customers are already paying more for less. Whether intentionally or unintentionally, automakers are already passing costs on to their customers, while equipment makers are obsessed with transactions that they no longer comply with. In conclusion, suppliers are well aware that large dogs are making juicy profits despite reducing production, and do the same without increasing their rates as well. You can not. Unfortunately, that scenario undoubtedly encourages car companies to keep raising their prices until the public decides that car pricing is unacceptable and stops buying, to a subset of the whole new problem. Open the door.

[Image: Chamil/Shutterstock]

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Despite the interests of automakers, it was another tough year for suppliers

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