STUTTGART - Automakers are forcing suppliers to take on more up-front development costs. This puts partsmakers at greater risk if a new model's sales are slow.
That's one of the conclusions in an automaker/supplier pricing survey. The report also says that automakers are using more sophisticated methods to force suppliers to lower agreed prices for components.
Last year the automakers surveyed developed just 6 percent of components in their vehicles on their own, compared with 14 percent in 2002, said the joint report by Hans-Andreas Fein and Associates, a Stuttgart-based management consulting firm and IRN, a Detroit-based market research company.
Automakers collaborate with suppliers on 31 percent of new-component development, down from 47 percent in 2002.
That means suppliers are taking on expensive development pro-cesses by themselves for 63 percent of components.
Three major volume manufacturers - Ford, Opel and Renault - no longer develop any parts on their own. They demand suppliers' cooperation.
"Only Porsche seems to still be master of its own engineering," said principal consultant Hans-Andreas Fein. BMW also has above-average involvement in development, he added.
This shift dramatically affects mid-sized firms because, for the most part, suppliers aren't repaid all their investment in fixed costs immediately. In about 72 percent of the cases, the fixed costs are counted as part of a component's price or spending on prototypes and tooling is paid back in installments.
On average automakers will still pay two thirds of a component's investment costs before a new model goes into production. But suppliers receive the remaining one third after production starts.
"So the suppliers are sharing in the manufacturers' sales risks," said Fein. "If a model flops as the Smart Roadster and the Maybach did, suppliers are stuck with costs they can't recover.
Many cost-cut rounds
In general, pressure on suppliers to cut costs has grown since 2002, the report said. "The methods are becoming more sophisticated," Fein said.
Reopened contracts and cost-reduction programs are becoming more common. The practices are especially widespread at Daimler-Chrysler, Volkswagen and Audi. At VW, a supplier can look forward to more than five cost-cutting rounds a year.
Ford, DaimlerChrysler, VW and Opel sought the biggest concessions last year, ranging from 4 percent to 6.1 percent of the original price.
VW and Renault won the biggest concessions from suppliers because of the large production volumes they offer.
One bit of good news for suppliers is that automakers' purchasing managers have been getting smaller price concessions. The average reduction in prices was 3.9 percent last year compared with 4.1 percent in 2002.
The report said Porsche, Renault, BMW and PSA were examples of the most "moderate" manufacturers. But even the so-called "moderate" manufacturers are applying more pressure on their suppliers on material costs, using cheaper raw materials and replacing steel with plastic, among other measures.
The report called Price Reduction Requests of Automobile Manufacturers 2004 documents 196 cost-cutting rounds by German automakers as well as Renault and PSA/Peugeot-Citroen.