Industry-wide supplier price hikes growing

AUTOMOTIVE industry suppliers are raising prices across the board as raw material and other cost factors force a flow on to end users.

Several US-based manufactures, including Ford Motor Company, told Reuters this week that substantial price increases from increased energy, labour and raw materials costs are becoming harder to absorb, quoting a rise in component pricing of between seven and 20 per cent.

That pressure was reflected in Ford’s statement this week that inflation-driven supplier costs would run $US1 billion ($A1.51b) higher than expected in the current quarter – a statement that saw the manufacturer’s shares take their largest single-day hit in more than a decade.

Ford’s warning also impacted other stocks, not only of manufacturers including General Motors and Stellantis, but also more broadly.

“During the course of the year, more and more suppliers have gone to their customers, demanding higher prices,” CEO of aluminium parts manufacturer Aludyne, Andreas Weller, told Reuters.

“They’ve been trying to hold everybody off, but eventually the dam breaks and then you’ve got to pay people.”

Mr Weller said that across the Atlantic in Europe, natural gas and electricity prices are almost 10 times what they were two years ago, thanks in no small part to Russia’s invasion of Ukraine. He said prices in the United States were five times higher than they were before the start of the COVID-19 pandemic.

Add in the tightening labour market and the higher compensation required to attract appropriately skilled workers, and “there is no improvement in sight”, he said.

Transformer and glass moulding manufacturer RoMan Manufacturing expressed a similar viewpoint in discussions with Reuters.

Co-owner Bob Roth said the rapidly changing price environment had forced the company to change contractual requirements with customers whereby they only have 15 days to lock in contract pricing compared to the 90 days offered previously.

Other suppliers were passing on costs immediately.

Vitesco Technologies, who produce engine control units (ECUs) and EV charging hardware told Reuters it was already passing on material costs to manufacturers.

“It’s clear that auto manufacturers have the chance to increase the prices of new cars, we have increased on the materials side, and in many cases were able to give those increases to our customers,” said CEO Andreas Wolf.

Mr Wolf said his company had teams assigned to keep watch over suppliers within its own network that could be having financial problems because of spiralling costs.

Many suppliers simply can’t adapt fast enough to the pace of price increases, offering trailing contracts that leave them squeezing costs and accepting lower profit margins when prices spike, Reuters said.

“It’s hard to get out in front of it,” said Die-Tech Engineering owner Bill Berry.

“Our cost of raw materials has skyrocketed from an historical perspective.”

Mr Berry said his company had raised some prices but was sensitive to competition from overseas.

As reported on these pages, car manufacturers have faced a series of supply chain issues over the past two years that have repeatedly delayed production. Shipping, energy and labour costs, raw material costs and the ongoing microprocessor shortage have all played a part in driving production costs up.

Reuters spoke to Morgan Stanley analyst Adam Jones who summarised the situation thusly: “Ford’s announcement shows that we are not out of the woods yet. It was only a matter of time before supplier cost recoveries began to flow”.

It was a point that was not lost of Michigan-based engineering and machining firm Mobex Global, whose CEO Joe Perkins said simply: “It’s the new economic reality and we’ll continue to fight for financial relief”.

with Reuters