Mercedes tells suppliers to lower prices, demands retroactive payments

Stuttgart. Mercedes-Benz wants 150 of its suppliers to lower their prices by 5 percent within the next three years. The company will make the demand during price negotiations set for this week.

The amount includes a flat 2 percent reduction plus 3 percent to be achieved by making technical changes to the ordered vehicle components.

DaimlerChrysler boss Juergen Schrempp told the Mercedes-Benz Car Group purchasing department to tighten cost saving measures to help offset a drop in sales.

Some suppliers were even asked to make large retroactive, one-off payments in accordance with the new "supplier performance agreement" for 2003.

Suppliers believe that this is a breach of contract and violates the fundamental principles that were set with the VDA (German Association of the Automobile Industry) regarding partnerships between automobile manufacturers and suppliers.

VDA President Bernd Gottschalk was asked at the VDA's annual meeting of the manufacturing group III, to which suppliers belong, to mediate the deal in Stuttgart.

Mercedes Board Member Juergen Hubbert and Mercedes purchasing director Harald Boestler have not shown any sign they plan to make concessions.

The suppliers, who do not want to be named for fear of reprisals, say they are surprised by the group's tough negotiating tactics and that Mercedes is not taking into consideration the consequences of such measures.

"We are already standing with our backs to the wall," the chief executive officer of a company in Baden, Germany, complained.

The managing director of another corporation said, "Their actions show no cooperation whatsoever." He warned, "If the group continues in that way then we will need to talk about quality."

Meanwhile, Mercedes has tried to play the subject down, saying the supplier performance agreement is part of its efforts to continuously improve several processes, a goal shared by other manufacturers.

After negotiations with Hubbert, Gottschalk is positive that the group will make some concessions: "There is some movement."

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