Dow Jones Business News
Auto Suppliers Threaten To Stop Shipment Over Steel Costs
Wednesday March 3, 5:44 pm ET
By Sharon Silke Carty, Of DOW JONES NEWSWIRES
DETROIT (Dow Jones)--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 source said three major suppliers to Delphi Corp. (NYSE:DPH - News) wrote letters to the company requesting the price increases, threatening to break their contracts if Delphi wouldn't comply. Delphi then, in turn, asked its biggest customer, General Motors Corp. (NYSE:GM - News) , to help absorb the costs. The auto maker refused.
A stoppage in shipments could mean some GM assembly plants won't get the parts they need, the source said, and could force a temporary shutdown. Delphi could try to enforce its contracts by suing its suppliers, the source said.
GM spokesman Tom Hill said the company hasn't discussed increasing prices with Delphi. But, he said, GM intends to stick to its original contracts.
"We have contracts with our suppliers, and they're fixed," Hill said. "We expect our suppliers to pay what they agreed to pay in contracts."
The tangle over prices comes at a difficult time for automotive suppliers and the industry as a whole. The auto makers 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 industry has been engaged in an all-out incentives war since the terrorist attacks of Sept. 11, 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, said the company has attempted to recover some of its costs by asking its customers to pay additional surcharges. But those surcharges don't cover the entire cost, he said, 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 said.
Henry Braddock, president of St. Joe Tool Company in Bridgman, Mich., has also penned letters asking his customers to help shoulder rising raw material costs. Most of the materials he uses to make parts like bits 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 aluminum, in addition to the skyrocketing steel prices.
"We either get some relief, or we won't be here in six months," he said. His other option is to stop shipments to customers who won't budge on price, he said.
A Delphi spokeswoman said 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 Corp. (NYSE:VC - News) , which is a major supplier to Ford Motor Co. (NYSE:F - News) , said the company is working to collaborate with its suppliers to ensure none of Visteon's customers face shutdowns of assembly plants. |
