Thursday, October 14, 2004
Rising steel prices pit automakers, suppliers
Yahoo! News: "Rising steel prices threaten to erode relationships between automakers and their suppliers - and profits for both.
Some suppliers want automakers to pay an extra 10% to 20% when renewing contracts because of rising steel prices. Automakers are balking, demanding instead that suppliers find ways to cut costs.
But both sides are likely to feel the pinch. The price of cold-rolled steel, the kind used by automakers and their suppliers, was $740 a ton last week, up 68% from $440 a ton in January.
Suppliers use steel to build parts such as wheels, door handles and engine components. Automakers buy steel for exterior parts such as fenders and hoods.
The steel in a $26,000 car costs $750 to $1,000.
If automakers accept the price increases sought by suppliers, the likely impact is $100 to $200 a car. Because of intense sales competition, automakers would be unlikely to pass that increase on to buyers, further draining profits already hurt by customer incentives.
The auto industry isn't alone in feeling the effects of climbing steel prices. Among others, the building and road construction industries have been hurt.
The price increase is being driven by global demand for steel, primarily in China, which is undergoing explosive growth in construction and manufacturing.
"It's not just an automotive industry problem or a domestic problem. It's a global problem and a problem for any industry using steel components," says Tony Brown, senior vice president of global purchasing for Ford Motor."
Some suppliers want automakers to pay an extra 10% to 20% when renewing contracts because of rising steel prices. Automakers are balking, demanding instead that suppliers find ways to cut costs.
But both sides are likely to feel the pinch. The price of cold-rolled steel, the kind used by automakers and their suppliers, was $740 a ton last week, up 68% from $440 a ton in January.
Suppliers use steel to build parts such as wheels, door handles and engine components. Automakers buy steel for exterior parts such as fenders and hoods.
The steel in a $26,000 car costs $750 to $1,000.
If automakers accept the price increases sought by suppliers, the likely impact is $100 to $200 a car. Because of intense sales competition, automakers would be unlikely to pass that increase on to buyers, further draining profits already hurt by customer incentives.
The auto industry isn't alone in feeling the effects of climbing steel prices. Among others, the building and road construction industries have been hurt.
The price increase is being driven by global demand for steel, primarily in China, which is undergoing explosive growth in construction and manufacturing.
"It's not just an automotive industry problem or a domestic problem. It's a global problem and a problem for any industry using steel components," says Tony Brown, senior vice president of global purchasing for Ford Motor."
