ild,
In the automotive game between suppliers and the OEM (or if you are not selling direct to the OEM, then to the next level of Tier above you), most things are open for negotiation. There are two areas that are not generally open for negotiation, and that is quality and delivery. So when I say that you "must" continue to supply, this is rather accurate, as failure to do so will domino and result in the loss of ALL business. Even programs you supply to other OEM's and Tiers will be in question, as no one wants to bank on a non-performing supplier.
And then there are shut-down costs for line stoppage. Figure between 25k to 100K an hour for each hour the line is stopped during a normal planned shift. This can break a supplier.
This is a do or die business. The upside is that when things are good, that gravy (with lots of hidden margin) flows day in, day out, 240 days a year for multiple years. At one point I had a staff of about 15 people on just one single program I managed. It was valued at 58 million a year and ran for 6 years, so there was lots of gravy to go around.
If raw material and energy keep increasing, and the OEM will not accept any cost increases, then at some point we will get a "balk" from the industry giants. This has happened before, and the best example is when many companies started rejecting large GM programs after the "lopez effect". What happened was that GM paid a prototype and/or development fee, but then shopped the production program. Many times the development company did not win the production award. This was a major shift in industry thinking. This finally backfired, as those development companies would not continue to invest their technology, only to lose the gravy train to some low-ball supplier who snatched the program away after the difficult and innovative program phase was complete. GM finally got the message when some of the big players refused to play ball during the development phase on several new programs. And this Lopez also went around and shopped mature production programs, and that took important gravy away that impacted supplier willingness to fund new development.
Sorry for the long-winded response, but like the scorpion said to the frog, "its my nature" <g>
GT
TH |
