Automotive suppliers seek cost recovery on raw materials

2 September 2010

2 September 2010 | Lindsay Clark



Suppliers to automotive manufacturers are seeking contractual changes to take account of rising raw material costs.

A survey of 202 vendors, conducted by automotive consultancy IRN, found that on steel alone, 71 per cent were looking to recover the cost of price fluctuations. Steel prices have seen a great deal of volatility in 2010, with iron ore suppliers abandoning annual contracts with steel makers.  



Sixty three per cent of vendors surveyed sought cost recovery on raw materials of some sort, the research found. 



Kim Korth, IRN president, said very few automotive suppliers had passed on steel price rises to manufacturers in 2008.

Suppliers had done a great deal to protect themselves from material price increases since then, she said. “The transition to some kind of index-based pricing has become the norm [rather than] the exception,” she added.

However, these deals required continuous management, which most suppliers were not well staffed to support.

Korth said suppliers and manufacturers in this sector were forming collaborative relationships to cope with fluctuations in raw material prices within a certain parameter, such as 20 per cent. But this was true only to a point. “[If] prices increase by greater increments or more quickly than anticipated, all bets are off,” she said. 



Overall, volatility in raw material prices was causing automotive component makers to “place an increased emphasis” on relationships with suppliers, as well as with buyers in the sector, she added.  


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