Suppliers Feel Pinch from Auto Industry

Workers at the Timken Co. can spin magic with bearings, crafting superb tapered bits of metal tinier than grains of sand and 9-ton sculptured steel behemoths. The friction-reducing bearings let cars, sport utility vehicles, railroad engines, space satellites, computer disk drives and even missile guidance systems function. But for all that specialized engineering, the $3.8 billion Canton manufacturer is caught in the same pythonlike economic squeeze as businesses large and small across the world: how to cut costs and do more with less, because if they don't, someone else eventually will.

From Akron Beacon Journal

CANTON, OH — Workers at the Timken Co. can spin magic with bearings, crafting superb tapered bits of metal tinier than grains of sand and 9-ton sculptured steel behemoths.

The friction-reducing bearings let cars, sport utility vehicles, railroad engines, space satellites, computer disk drives and even missile guidance systems function.

But for all that specialized engineering, the $3.8 billion Canton manufacturer is caught in the same pythonlike economic squeeze as businesses large and small across the world: how to cut costs and do more with less, because if they don’t, someone else eventually will.

Timken and all other automotive suppliers have been told to shave costs by automakers, which have had a hard time making a profit in recent years even though sales have been strong. Ford Motor Co. and General Motors, for instance, told their suppliers last year that they must meet a “world market price” for goods that is increasingly being set by what is made in low-cost nations such as China.

Timken’s automotive group generated more than a third of the company’s $3.8 billion revenue in 2003. Industrial group sales totaled $1.5 billion, while steel-making took in $893 million.

Timken, in its filings with the Securities and Exchange Commission, said it faces substantial downward pricing pressure even when there is significant demand for its bearings, steel and related products.

“Every company has to look around constantly and lop off its least productive plants,” said Hank Cox, spokesman for the National Association of Manufacturers in Washington, D.C.

“I don’t mean to minimize the significance of those lost jobs,” he said. Companies close plants to survive; the laid-off workers, however, often cannot find comparable wages and benefits in the service sector, he said.

Cox said his association has a study that shows the average price of manufactured goods has dropped about 1 percent a year over the past seven years, but the cost of making the goods has gone up.

“A lot of older plants and older processes just can’t keep up,” Cox said. “There’s very little room to raise your prices.”

Automakers are finding it hard to raise prices even as more and more frills and technology are being added to autos, said Ford spokesman Paul Wood. At the same time, Ford and other automakers face the rising cost of health insurance, pensions and more, he said.

But customers resist paying more.

“There are incredible pressures within the automobile industry to take out costs. That is a fact of life,” Wood said. “Customers aren’t lining up to pay more for a car.”

And those pricing pressures have to trickle down to suppliers, he said.

Each company is challenged with meeting customers’ demands for high-quality products at low cost, said Eron Shosteck, spokesman for the Alliance of Automobile Manufacturers.

“That leads to pressures throughout the entire supplier community,” he said. “Everything that happens has a ripple effect.”

_______________________________________

Click here to view the rest of today’s headlines.