DETROIT - Rubber product manufacturers often are caught between a rock and a hard place - between price-cutting demands of the automotive companies and unpredictable raw material costs.
This year General Motors is offering to ease that pressure by becoming both the customer and the raw-material supplier.
If GM can work out the specifics, some rubber company officials say they would be happy to work with the automaker in a new capacity. Others say, 'No thanks.'
For years, automakers have forced their suppliers to cut prices on original equipment auto parts. Although GM has tried to shake its reputation as a bully - dating back to the days of international purchasing director J. Ignacio Lopez - the automaker still wants to pay less for components.
BUYING FOR DELPHI
GM already buys natural and synthetic rubber and chemical products for its subsidiary Delphi Automotive Systems, one of the nation's largest makers of rubber products. The automaker's purchasing department believes if it buys even more raw materials - possibly from Southeast Asia - to resell to its supply base, it can secure lower fixed prices for everyone.
In this way, GM can decrease component prices even more and 'do it in a way that's not decimating the bottom line of the suppliers,' said Louis Fierens, worldwide chemical commodity manager at GM who oversees the purchase of rubber materials and parts.
A few rubber industry executives have talked to GM about a raw-material resale program, although they emphasize it has not gone beyond discussion. (One official said he had talked to Ford Motor Co. about a similar program. Ford declined to comment.) They and others in the industry -who are hearing about the program for the first time - are skeptical that GM can pull it off.
A few raw-material suppliers are just plain scared. 'It has been often talked about but never done,' said an official at a major synthetic rubber producer. 'There's nothing but bad news in that program, whether you're a raw-material supplier or a converter,' he said.
WHO GETS HURT?
The biggest question on the minds of many sources is: Who will feel the pain if raw material prices rise - GM, the makers of rubber products or the suppliers of raw materials?
Typically, rubber product makers absorb the increases. But GM said with the resale program, it will assume the risks involved with fluctuating material costs.
If GM is offering to take that burden away from the molders and extruders, 'we would love for them to take that on,' said an official at a company that molds rubber-to-metal parts.
'As long as you're the guy not getting squeezed, you're not going to mind,' said Harry Millis of Cleveland, a consultant to the rubber industry. In addition, suppliers who have shown their flexibility to GM on pricing in the past have done pretty well, Millis said.
If GM gets fixed prices on raw materials, the burden logically becomes that of the natural rubber, synthetic rubber and chemical producers. 'It just moves the area where the pressure is felt,' said Peter Boorman, former business manager of Shell International Chemical Co. and now a consultant to the rubber industry with Polymer Elastomer Business.
NO CAUSE FOR CONCERN
That's not exactly a cause for concern at GM. What should worry the automaker, according to the synthetic rubber company official and others, is that potential savings from the resale program might be eliminated anyway by the very nature of the auto industry.
For one thing, makers of rubber products have worked hard to meet auto companies' pricing demands by increasing efficiency and quality and decreasing defective parts.
Also, automakers such as GM require an extensive approval process for any new materials. Since every rubber source - whether it is natural or synthetic - is different, finding a new material or material supplier can be a long and daunting task.
'You still have to meet the (customer's) engineering specifications,' said William Schumann of Acadia Polymers, a Roanoke, Va., manufacturer of dynamic seals. If GM can find a way around that, Acadia would be interested, he said.
Another problem is that rubber product makers use a wide variety of ingredients for automotive applications. Even rubbers used for similar purposes, such as engine sealing, can differ greatly because of various requirements regarding temperature, chemical resistance and durability.
GM approached Eagle-Picher Industries Inc. of Cincinnati a couple of years ago with a similar resale project, said former Eagle-Picher official William Oeters, who is now president of joint venture Eagle-Picher-Boge LLC. However, Eagle-Picher uses so many different types of rubber at its various subsidiaries that the two companies could not find good fits, he said.
Over the years, automakers also have delegated more responsibilities to their supply base. In turn, suppliers have relied more on their relationships with full-service raw material sources.
The synthetic rubber industry official asked how, if GM finds cheaper suppliers in Southeast Asia, those material suppliers will be able to provide U.S. manufacturers with adequate technical support.
Others wonder what will become of the rubber trade. The head of one rubber trading company said GM began talking a year ago about not using the trade to acquire natural rubber.
Some consumers feel they can do things better and more efficiently themselves, the trader said.
Rubber traders, who have lower overhead, know where the rubber sources are and how much they should be paying for materials.
'(GM) is getting into an area they have very little experience in,' the executive said.
'Their shortsightedness might kill the trade.'