PARIS -- The car parts industry faces a crisis if auto companies hit by weak demand keep forcing suppliers to charge less instead of working with them to cut costs, component company executives said this week.
One independent industry expert told a conference in Paris that some 40 percent of publicly listed suppliers in Europe, the United States and Asia were in "financial trouble."
And top executives warned that while the major players would likely survive pressure from auto companies to slash prices for their engines, headlights and other parts, small suppliers could face collapse if manufacturers did not change their ways.
"We cannot (continue with) this opportunism because we will leave behind a pile of dead bodies, and the manufacturers do not get their supplies from a dead body," Volker Barth, head of Europe, Middle East and Africa at Delphi Corp. told an industry conference.
"We have arrived at the point where some suppliers are not making any money on deals but are going ahead with them just to get some cash flow," Barth told Reuters in an interview.
Carmakers are grappling with a slide in demand in Europe and the United States as consumers jittery about the shaky world economy delay splashing out on new vehicles.
As a result, many are refusing to pay top dollar for parts and accessories, thus gnawing away at suppliers' margins.
Delphi Corp slashed its profit goals this month while Visteon Corp. and Europe's largest listed car parts firm Valeo SA are cutting jobs to shield margins from a weak market and pricing pressure.
Steve Young, vice president of AT Kearney auto consultancy, said that some 40 percent of global suppliers surveyed were in "financial danger," but that this number was falling.
Young told Reuters that suppliers could not blame unfair pressure from manufacturers and also needed to take responsibility for bad deals that had lost them money.
But he said some carmakers were already working with their suppliers to trim manufacturing costs, rather than piling on the pricing pressure, Young said.
"Now to a greater extent there are discussions on the processes that link suppliers and manufacturers, addressing sources of cost rather than simply squeezing margins."
Executives from Ford Motor Co. and PSA/Peugeot-Citroen SA said they were already working with their suppliers to make manufacturing more efficient.
"(Our system) is now win-win because the focus is about cost not price," said Morgan Jackson, director of purchasing for Ford Europe.
But Renault Chairman Louis Schweitzer told reporters that although the most efficient way to squeeze cost was to collaborate, carmakers still had to strive for the best deal for their shareholders.
"Once you have made all the possible savings, the issue of sharing profit burdens arises," he said. "It's a case of two companies with two different sets of shareholders and I don't believe in gesturing."