North American Suppliers Gaining Clout

The stronger North American auto suppliers that survived the industry downturn can now command higher prices and afford to be choosy about their customers, Automotive News reports, citing parts makers, analysts and purchasing executives.

Rapidly rising vehicle production in the region is creating tight supplies of some components, thus giving suppliers the upper hand in negotiations, according to the newspaper. Parts makers eliminated 20%-30% of their North American production capacity during the auto slump and are reluctant to add new facilities.

Casting firm Grede Holdings LLC, says limited capacity has forced it to drop customers in the light and commercial truck segments. CEO Doug Grimm tells AN that Grede now has the freedom to choose between carmakers who collaborate and those who want to return to the more adversarial relations of the past.

Parts makers say automakers are now offering better terms, including more no-bid contracts, faster compensation for tooling outlays and guarantees they will be paid for increases in raw material costs.

Analysts say the improvements are boosting supplier profitability. Roland Berger Strategy Consultants says the 50 largest suppliers based in North America increased average operating earnings to 6% of sales in the first half of 2012 from 5% a year earlier.