- The Washington Times - Friday, January 19, 2001

The power struggle is on. And who wins the battle over lower prices now raging between DaimlerChrysler and its suppliers may signal where the auto industry's real strength lies.
Only a few short years ago, U.S. automakers encouraged the nation's biggest suppliers to gobble up the smaller ones.
The idea was to pare down the number of players, allowing car manufacturers to cultivate better working relationships with key parts makers and involve them earlier in the design and engineering of new vehicles. Envisioned were long-term contracts that would benefit both parties. And suppliers and automakers were pictured venturing hand in hand into new markets around the world.
This was OK with suppliers, already making moves on the acquisition front so as to broaden their product portfolios in order to provide complete vehicle "systems" rather than individual parts to automakers. In theory this would allow suppliers to play a larger role in building cars and higher profit margins would follow as a result.
Since then, a number of key suppliers have grown bigger and stronger. Mergers and acquisitions have happened at an unprecedented rate, and there are now more than a half-dozen parts makers with annual sales exceeding $10 billion.
The result of all this? Suppliers now hold more cards, and automakers may find it harder to put the squeeze on parts makers for price breaks in more troubled times ahead.
Suppliers already appear to be feeling their oats. The proof is unfolding in Auburn Hills, Mich., where several of the biggest parts makers are balking at financially beleaguered DaimlerChrysler's insistence on an overnight 5 percent price cut.
It used to be, given such an ultimatum, parts industry executives would have swallowed hard and caved to Big Three demands. There may have been some off-the-record grumbling, but few would have publicly denounced the price pressure. And no one would have refused the directive outright for fear of losing future business.
That isn't the case this time around. At last count, nearly a dozen suppliers including Arvin Meritor, Bosch, Continental-Teves, Cooper-Standard, Dana, Eaton, Federal-Mogul, Mahle, Siemens, TRW and Valeo have flat out refused to go along with the 5 percent cut. And more are expected to follow suit. "I [told DaimlerChrysler] there's no way the supplier community can accept five percent without offsetting cost reductions in design, process, communication," Neil DeKoker, managing director of the Original Equipment Supplier Association, is quoted as saying.
For its part, DaimlerChrysler says the 5 percent cut isn't negotiable. Without it,the automaker says it will take its business elsewhere. "[Suppliers] made a profit with us, they grew with us," DaimlerChrysler Chief Operating Officer Wolfgang Bernhard said. "If they don't stick with us and help us get turned around, we'll have to find other suppliers."
Talks continue between DaimlerChrysler and its key suppliers. Sooner or later, one side will blink. And when it does, it will mark a shift in the industry's power paradigm or signal it's back to business as usual. No doubt GM and Ford are watching this one closely.
WARD'S AUTOMOTIVE REPORTS


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