Survey Finds Suppliers Are Pinched

January 13, 2004
| By Katy Rent |
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GRAND RAPIDS — According to a survey released this week by IRN, automakers and their Tier One suppliers continue to demand greater price reductions from their component suppliers.

The findings of the fourth biennial supplier survey conducted by the automotive forecasting and consulting firm showed the highest level of both price reduction requests and supplier givebacks in the history of the survey.

IRN also recently conducted a similar survey of European suppliers in the German-speaking market and found that price reduction expectations, while less than those in North America, are becoming a more common occurrence in Europe.

“Our study indicates that an increasing focus of supplier-customer interaction is perpetual negotiation on component pricing,” said Kim Korth, founder and president of IRN. “When we conducted our first survey in 1997, we did so as a response to what then appeared to be an intensive and highly negative pricing environment.

“Little did we imagine that many suppliers would look back on that period as the ‘good old days.’ Strategic differentiation is the only way to break this cycle. If you make a commodity product, you have little or no leverage with your customer.”

IRN, which polled more than 150 component suppliers in North America and Germany for its fourth pricing survey, also found that:

  • Automakers and their Tier One suppliers demand an average of 6.3 percent in price reductions from their North American suppliers, a jump of nearly 17 percent over 2001, which was 5.4 percent.

  • Suppliers in the North American study were more giving in 2003, agreeing to cuts of 3.6 percent, up 20 percent over 2001, when it was 3 percent.

  • In the German market, the average request from an OEM ranged from a low of 2.6 percent by BMW to a high of 5 percent for Ford. The average for all respondents was 4.1 percent.

  • The European suppliers responded to their customers’ requests with givebacks averaging 2.4 percent.

“It is clear that many segments of the industry have accepted continuous price reduction demands as the norm,” Korth noted. “It is equally clear, however, that not everyone is affected in the same way.”

One of the most interesting results of the survey was the wide discrepancy in the level of givebacks. Some suppliers still give little or nothing, while others give as much as 5 percent to 6 percent, the survey found.

“Our greatest concern is that the highest percentage of givebacks appears to be coming from already financially troubled suppliers who are less able to support them,” said Korth. “Price reduction requests are an unfortunate fact of life. How suppliers deal with them is an increasing indicator of their success or failure.”           

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