With North American vehicle production headed toward 15 million-plus units next year, automakers are encountering a new breed of supplier: the one that says "no."
To automakers' chagrin, some suppliers -- mainly those in capital-intensive industries -- can pick and choose their customers. With capacity short and production schedules rising, suppliers can afford to accept the contracts and customers they want, and reject those they don't want, whether because of prices or the broader terms of doing business with certain customers.
In short, the balance of pricing power has shifted to the supplier.
Consider Grede Holdings, a suburban Detroit producer of iron castings for steering knuckles, control arms and other components.
Over the past three years, Grede (GRAY'-dee) bought some foundries and shut others, dismantling unprofitable plants despite customers' pleas to restart them. Now the company is juggling competing demand from customers in its three product sectors: light vehicles, commercial trucks and industrial components.
"We've dropped customers across all three markets," said CEO Doug Grimm. "We had to make some tough decisions. Some customers were working more closely with us, and others wanted to go back to the old business model."
Chrysler Group, which was not dropped by Grede, confirms that plant shutdowns during the recession have caused some spot shortages of parts.
"For many commodities, we had a dramatic reduction of capacity and now we're facing some barriers," said Scott Kunselman, Chrysler's purchasing chief. "One of our biggest problems is getting capacity for certain components."
To ease production bottlenecks, Chrysler and other automakers are offering vendors better terms. Suppliers are:
- Securing contract guarantees that they will be paid if raw material prices rise.
- Winning more no-bid contracts from automakers.
- Getting quicker compensation for tooling.