By David Barkholz, Automotive News
Traverse City, Michigan-In the face of rising raw material prices and thin margins, suppliers need to exercise discipline in the business they take and the contract provisions they demand, a panel of supplier executives said.
Metaldyne Corp. insists on the ability in new contracts to pass along raw material surcharges demanded by vendors, said Thomas Amato, Metaldyne executive vice president of commercial operations.
He said several suppliers ended up in bankruptcy last year, in part, because they could not pass along those increases to the automakers.
"It's an absolute discipline, certainly for investing new capital in a new program," Amato said of the raw material contract clauses.
Metaldyne, which makes powertrain and undercarriage components, posted revenue of about $2000 million in 2005. DaimlerChrysler AG is the company's biggest customer.
In some cases, suppliers need to just say no to business if it won't make a profit, said Lyle Otremba, vice president of sales and programme engineering in the global sealing business of Cooper-Standard Automotive.
There's some finesse involved in telling a good customer, Otremba said. But it's far more science than art.
A supplier needs to know its exact costs for a component, then explain to the customer that the business is a loser at the price being requested.
"The best way to be confident in saying no is to know your costs," Otremba said.
The best way to get new business is design parts and subassemblies that reduce weight, boost horsepower or simplify the manufacturing process so they reduce costs or the number of parts needed for a module, said Mike Wall, director of North American market assessment at CSM Worldwide.
Cooper-Standard, for example, has a high-luster one-piece window frame on the new Cadillac Escalade that replaced 15 small parts on the previous model, Otremba said.
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