Automotive News - June 30, 2008 - (Page 8)

8 • JUNE 30, 2008 advertising OUR DEALERS ARE GROWING JCI sues suppliers seeking price boost 3 companies ask for relief from rising steel costs Robert Sherefkin rsherefkin@crain.com AND SO CAN YOU! Windsor, Ontario. The companies produce stampings and other components. Restraining order Last month, a federal judge issued a temporary restraining order preventing Tecnicas De Fluidos, which makes machined tubes, from raising prices or halting shipments. Neither Johnson Controls nor its suppliers would comment. While JCI is taking a hard line, it seems unlikely that mere lawsuits will insulate any manufacturer from the worldwide inflation that plagues all makers of steel products. Over the past six months, steel prices have doubled, and further increases seem inevitable. Last week, the Financial Times reported that Chinese steel makers agreed to pay 96 percent more for iron ore ship- “With Zimmerman as a partner we have grown to be the # 1 GM Dealer in Albany, NY.“ INFLATION Kara DePaula DePaula Chevrolet DETROIT — Johnson Controls Inc. is suing three suppliers that want to raise prices to compensate for the rising cost of steel. The companies must absorb higher raw material costs because their purchasing contracts require them to do so, according to lawsuits filed in May by Johnson Controls with the U.S. District Court for the Eastern District of Michigan in Detroit. Defendants named in the lawsuits are Tecnicas De Fluidos S.A. de C.V., of Puebla, Mexico; Steel Technologies Inc., of Louisville, Ky.; and Windsor Machine & Stamping Ltd., of ments from Rio Tinto, an Anglo-Australian mining company. To cushion themselves against rising steel prices, General Motors, Ford Motor Co. and Chrysler LLC buy bulk quantities of steel for resale to their suppliers. The automakers also negotiate multiyear contracts to smooth price fluctuations. Don’t sue But steel makers now are imposing surcharges across the board. And as steel prices soar, one prominent industry executive warns that manufacturers should not resort to lawsuits to resolve pricing disputes. “The judges in these matters will not be very sympathetic” to the plaintiffs, predicts Neil De Koker, managing director of the Original Equipment Suppliers Association, an industry group in suburban Detroit that represents 400 suppliers and consultants. During similar steel price disputes in 2005, he says, judges ruled that such matters were economic issues that must be addressed outside their courtrooms. But that may be cold comfort to a manufacturer trying to fend off unilateral price increases. Consider Johnson Controls, which received a blunt warning from Windsor Machine, which makes headrest components. In an e-mail message dated May 9, a Windsor Machine salesman warned Johnson Controls that the Canadian company is “faced with a businessthreatening situation. “Therefore, Windsor Machine has no other option but to stop steel orders for your products. … This is not what Windsor wants, but we have no choice.” c RESULTS! • KEYES AUTO GROUP • IRA MOTOR GROUP • TOM WOOD AUTOMOTIVE • CHECKERED FLAG • AUTONATION • DIEHL MOTOR COMPANY • CORAL SPRINGS AUTOMALL • RUSTY ECK FORD • AUTOLAND • HENDRICK CARY AUTOMALL • PATRICK AUTO GROUP • HUBLER AUTOMOTIVE • PLEASANTON AUTOMALL • DEPAULA CHEVROLET • WALLACE NISSAN OF KINGSPORT • SUPERIOR CHEVROLET Dealers Prove Our Advertising Gets Rising prices, falling sales grip industry continued from Page 1 GM purchasing chief Bo Andersson: “You need a sense of urgency to find alternatives and reduce consumption.” sures. But no longer. “Neither we nor anyone else can withstand for long a doubling of costs” on raw materials, Ross said at the Ward’s Auto Interiors Show. “At some point, everyone in the supply chain will have to make the difficult decision to stop supporting the weaker suppliers.” Pressure on plastics No relief is in sight. In July, Dow Chemical Co., a major automotive supplier of plastics, foams, adhesives and coatings, announced plans to raise prices as much as 25 percent. That’s in addition to a 20 percent price increase announced May 28. In a statement, Dow Chemical CEO Andrew Liveris said the price increases are necessary to cushion “the continuing relentless rise in the cost of energy and hydrocarbon feedstocks. … That trajectory shows no sign of changing.” Despite steep price increases, Dow Chemical is temporarily halting production at a number of plants because of weak demand. That’s a classic indicator of stagflation, which occurs when inflation combines with a downturn in business activity and a rise ISTOCK PHOTO Andersson: ‘We may need to replace things’ STEEL YOURSELF: The type of steel used to make bumpers, wheels and frames costs more than $1,000 a ton — double its price in December. in unemployment. Dow has idled 30 percent of its North American production of acrylic acid, which is used to make paints, coatings, textiles and adhesives. In 2002, Dow spent $8 billion on oil, natural gas and hydrocarbon-based raw materials. This year, the bill will top $32 billion, and that’s if prices don’t climb any higher. “There has been a variety of reactions” from customers, said Dow spokesman Chris Huntley. “But all have understood why we had to do it. Some have said, ‘At least this gives us an opportunity to go out and do the same thing ourselves.’ ” O OT PH CK O IST Bo Andersson, the chief of General Motors’ global purchasing operations, traditionally has taken a hard line against suppliers’ price increases. In an interview last week with Staff Reporter Robert Sherefkin, he acknowledged the inexorable rise in raw material prices and noted some strategies to ease their impact. Q&A GET A COMPLETE MARKETING PROGRAM! Guerrilla TV Marketing Radio Print Hispanic Direct Mail Web Design TREAD DREAD: In the past three months, tire prices have risen nearly 20 percent. The top eight tire makers raised prices in June or July, following increases late last year. The cost of three main raw materials — petroleum, steel and natural rubber — have risen sharply, says William Bainbridge, a spokesman for Hankook Tire America Corp. In July, Hankook will raise tire prices 8 percent. The price of natural rubber has climbed because of rising demand in China coupled with blight that reduced the rubber output of Latin American plantations. The latest tire price increases are the steepest the industry has seen, Bainbridge says. “We’re all curious to see how that sticks.”c What is the impact of inflationary pressures on GM? Things are getting more expensive. We may need different designs. We may need to replace things with something else. We minimize scrap and the use of other materials. How are you handling skyrocketing steel prices? You can use less steel. You can use different grades, and you can buy from different places. To control the cost of raw materials, GM makes bulk purchases of steel for resale to its suppliers. Have you considered similar purchasing programs for other raw materials? Not really. Has the explosion in commodity prices changed GM’s purchasing philosophy? Not really. On the execution, yes. You have more pressure in the system and have to deal with it in a different way. And you need a sense of urgency to find alternatives and reduce consumption. But the model and strategies are not that different.c Pricey tires When oil prices soared, tire makers cut back on oil-based tire materials and started using more natural rubber. It wasn’t enough. Now the price of natural rubber is rising, too. On June 1, Bridgestone Corp., the world’s largest tire maker, raised prices 10 percent for its Bridgestone and Firestone brand tires. The increases on replacement and originalequipment tires are in addition to an 8 percent increase that Bridgestone imposed in March. Internet Website Optimization In-Store CALL OR E-MAIL THE AGENCY THAT WILL WORK FOR YOU 24/7 (SERIOUSLY) TO HO KP OC IST BARRELED OVER: Oil for petrochemical 1-888-878-ZADV zauto@zadv.com or visit www.zadv.com feedstocks costs $136 a barrel on the futures market, up 39 percent since January. In 2002, Dow Chemical spent $8 billion on oil, natural gas and hydrocarbon-based raw materials. This year, the bill will top $32 billion, and that’s if prices don’t climb any higher. http://www.zadv.com http://www.zadv.com

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