High steel prices force suppliers into bankruptcy

Munich. Exploding steel prices are putting the German auto industry under increasing pressure. Some suppliers have gone bust and there are fears that there will be steel delivery bottlenecks during 2004.

Five suppliers have already declared themselves insolvent, according to Theodor Tutmann from Euroforge, an association for steel users.

A task force has been established to look into the problem by the raw materials committee of the VDA, the German auto industry association.

One of the first victims of the steel crisis is the Falkenroth Group, based near Luedenscheid. The company produces camshafts for the Maybach.

"Companies that work with steel have huge problems financing their steel purchases," said Tutmann.

He added: "Suppliers' customers will have to help to prevent insolvencies and production losses."

The precarious situation faced by steel-using suppliers is partly self-inflicted. When demand for steel rose in China some companies started to panic buy, therefore prices almost doubled.

Many companies have long-term supply contracts that do not include renegotiation clauses.

Tutmann said suppliers will learn a lesson from their mistakes.

Some companies -- especially North American firms such as Ford, General Motors, Delphi or Visteon -- believe that price fluctuations are a problem for their steel suppliers alone, Tutmann said.

He said German manufacturers are willing to compromise. That was because an automaker's whole production could come to a stop if a supplier goes bust, said Tutmann.

There is a danger that further businesses will be forced to declare insolvency.

Horst Kuschetzki, CEO of the hinge specialist Edscha, said: "The situation is dramatic. The steel price increases have the potential to cause trouble for every part of the process chain."

Tutmann said cars may have to become more expensive to ease the crisis.

But VDA president Bernd Gottschalk said this was not an option, especially in view of the current incentive wars: "Price increases are extremely difficult in the current situation."

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