OE Suppliers May Drop By 50 Percent: Group Predicts Half Will Go Under by 2010

The auto industry is on track to lose half of its parts suppliers by 2010 because of escalating pressure to reduce component prices. That prediction from the Original Equipment Suppliers Association (OESA), a trade group that represents suppliers, comes in response to a new survey that found automakers are demanding more and steeper price cuts from parts makers.

From The Detroit News via MEMA Industry News

DETROIT — The auto industry is on track to lose half of its parts suppliers by 2010 because of escalating pressure to reduce component prices.

That prediction from the Original Equipment Suppliers Association (OESA), a trade group that represents suppliers, comes in response to a new survey that found automakers are demanding more and steeper price cuts from parts makers.

IRN Inc., an industry consulting and forecasting firm based in Grand Rapids, Mich., polled suppliers and found record levels of price cut demands from automakers and givebacks from suppliers in 2003.

Automakers and their primary suppliers demanded an average of 6.3 percent in price reductions from their North American suppliers – an increase of nearly 17 percent over the previous high, 5.4 percent, in 2001. Meanwhile, suppliers agreed to cuts of 3.6 percent – up 20 percent compared with 2001, matching the previous high recorded in 1999.

If the trend continues, suppliers will be forced into consolidation to stay competitive and 50 percent will vanish by decade’s end, said Neil De Koker, managing director of the OESA.

“(Suppliers) are going south, they’re going to Mexico and they’re going to China,” he said.

Despite healthy sales in 2003, automakers are playing hardball with suppliers because increased competition is squeezing their profit margins.

Detroit automakers have been especially quick to demand cuts, said IRN Vice President Melissa Anderson. Toyota Motor Corp. and other manufacturers that are based overseas but maintain manufacturing operations in North America are more respected by suppliers.

“If you can’t come up with the percentage requested by Toyota,” De Koker said, “Toyota will bring people into your plant and work together to identify waste for the benefit of both the supplier and Toyota.”

Detroit’s automakers have recently adopted similar practices, but it’s too soon to determine whether or not they have improved the business climate for suppliers.

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