DAVID SEDGWICK

Suppliers seem to gain clout; is it temporary?

COMMENTARY
David Sedgwick is a special correspondent for <i>Automotive News</i>.
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I'm always a bit skeptical when auto executives -- or journalists or industry analysts -- announce that suppliers are finally getting respect from their customers.

But lately it does seem like vendors are enjoying more bargaining power. "Supplier Business," a newsletter published by consulting firm IHS Automotive, says Toyota Motor Corp. will ask suppliers in Japan for price cuts of less than 1 percent.

Those price cuts will take effect for April through September. Normally, Toyota seeks cuts of 1.0 to 1.5 percent, according to the newsletter, which cited the Japanese financial daily Nikkei.

Toyota's peaceable approach to price cuts follows General Motors' decision last month to roll back the most controversial portions of its standard Terms & Conditions contract.

Suppliers had feared GM sought broad authority to recover warranty costs, claim rights to suppliers' intellectual property rights and gain access to their financial information.

But it would be a stretch to suggest that GM has suddenly gone soft. Last month, word leaked out that the company has asked some suppliers to cut prices by 10 percent over the next three years.

Still, automakers appear to be showing more deference to suppliers.

Last June, a supplier survey published by IRN Inc. concluded that suppliers are demanding -- and getting -- contract clauses that require automakers to shoulder higher raw material costs.

Honda, Ford, Toyota and Nissan were most willing to share raw material costs, according to IRN.

As long as production is increasing, suppliers will hold a strong bargaining position. Analysts expect North American vehicle production will top 16 million units this year, and automakers are coaxing suppliers to expand capacity.

In October, 26 percent of suppliers surveyed said they had "difficulty meeting production expectations" in 2013. And 28 percent of respondents said they might run short of capacity if production tops 16 million units in 2014.

But what will happen in a shrinking market? Let's hope we have a few more years before we find out.

You may e-mail David Sedgwick at dsedgwick@crain.com.

You can reach David Sedgwick at dsedgwick@crain.com.


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