Recently, a joint report by "Auto News" and "Crain's Detroit Business" in the United States has brought unexpected benefits to Tier1 and other suppliers.

　　OEMs have been unwilling to bear the increased cost of parts, but in the past few months, suppliers have been calling for reducing the pressure of rising costs. Companies including Cooper Standard Automotive Inc., a well-known American supplier in the field of automotive sealing parts, have been asking customers to renegotiate contracts to make up for losses.

　　And from the soaring cost of commodities to supply chain problems, although the same problem has also impacted their business, it has also given them new strength at the negotiating table with the customers of the automaker. In the downstream of the supply chain, as the supply chain crisis continues, small and medium-sized enterprises are struggling to survive. These requirements have in fact become demands.

　　The problem of cost

　　In fact, since the beginning of this year, automakers have made the most of the surge in demand by converting low car inventories into record prices and strong profits. However, the supply chain crisis has also exposed every aspect of the supply chain. The interdependence of layers has strengthened the importance of all participants, including those small and micro enterprises.

　　The negotiating ability between suppliers and automakers can be said to have never been stronger than it is now. Today, they are using this influence to change the way they do business with equipment manufacturers. And equipment manufacturers are feeling the pressure, if they want to continue to obtain the business of auto parts, they must acquiesce to this approach.

　　Thomas Walters, a commercial litigation attorney for Dinsmore & Shohl LLP, said: “Historically, automakers have huge influence and exert influence on the supply base.” He said, “I think in this case, equipment manufacturing Businesses have no choice but to share the pain with other manufacturers in the same situation."

　　According to the semi-annual Economic Forecast released by the Institute for Supply Management (ISM) this month, the prices of various manufacturing raw materials have risen by 14.5% since the end of 2020. It is expected that prices will rise 8.1% next year.

　　The results of an ISM survey of about 900 industry members show that supplier companies have achieved some success in passing price increases to customers. About 64% of manufacturing executives said they can pass on the impact of rising prices. Less than half of the people said they expect the business environment to improve next year.

　　In the United States, most of the contracts between automakers (in fact, GM and Ford) and suppliers are for the production period of parts, ranging from a few years to 10 years or even longer, and many agreements are as early as the COVID-19 epidemic. It was signed before the beginning and subsequent supply crisis. The general rule is to supply customers at all costs and the supplier shall bear the economic losses.

　　Dan Sharkey, co-founder of Brooks Wilkins Sharkey & Turco PLLC, said, “At one end of the supply chain, you see these crazy, excessive growth. At the other end of the supply chain, automakers charge Higher prices. In the middle are all the suppliers."

　　In recent years, the capacity utilization rate of light-duty vehicles in North America has been steadily declining, and since the new crown pneumonia epidemic in the second half of 2020, the plant has been reopened after it stopped production and has been in a state of stagnation. According to data from the Federal Reserve Bank of St. Louis, the capacity utilization rate in the third quarter of this year was slightly higher than 60%, compared with nearly 80% in the same period last year.

　　From Ford Motor's F-150, Explorer Explorer to Stellattis Group's Jeep Cherokee (Jeep Cherokee), a series of unexpected shutdowns have severely affected suppliers' revenues. (See Commune article "Eight factories stop production, Ford adds trouble to the core")

　　For example, Alpha USA was established in 1957. It was originally a gasket manufacturer. At the beginning of the 21st century, the company has developed into an engineering company. The president and chief operating officer of Alpha USA has always been Harles Dardas. Currently, Alpha USA mainly provides fastener components and stamping parts for automakers.

　　They are outspoken about the unprecedented rise in steel prices. Alpha USA's executive vice president and chief administrative officer David Lawrence (David Lawrence) said that almost all of their suppliers have issued an ultimatum: either raise the salary or stop supplying. The only option for Alpha USA is to pay a raise.

　　"This is their way of survival," Dan Sharkey said of the smaller suppliers. "They will have to ask for price increases to make up for the costs. They have no other way of survival."

　　In turn, Alpha USA is seeking to transfer these costs to the supply chain to mitigate its losses. At first, the customer's reaction was "bad luck", but now their tone has begun to change. "Our customers started talking to us reluctantly," Lawrence said. "At this point, we have no customers insisting on their position, but no customer has yet to propose a solution."

　　Who will digest the final cost?

　　Coincidentally, the supply chain litigation business has never been better. The friction in the supply chain keeps Dan Sharkey, Walters, and lawyers like them busy. Dan Sharkey has worked in this field for nearly 30 years, but has never dealt with so many commercial disputes at the same time, even during the 2008-09 financial crisis. Walters said he doesn't think this situation will improve anytime soon.

　　"This is definitely a new field," Walters said. "It is safe to say that many suppliers are facing financial pressure and may not be able to survive this COVID-19 and global supply chain disaster." One of them is Stewart Industries LLC (Stewart Industries LLC), this is a 20-year-old minority company in Battle Creek, Michigan. Major customers include Denso, a Toyota-owned Denso company.

　　Just before Thanksgiving, Stewart sent an e-mail to customers informing them that the company would close the business and the parts would stop shipping. Stewart CEO Joseph Stewart (Joseph Stewart) and President Erick Stewart (Erick Stewart) wrote in a signed letter: "Today, we regret to tell you that Stewart Industries LLC is Suffering from the historical financial crisis, we will stop our business."

　　Both Dan Sharkey and Walters said that there may be more suppliers in financial distress, and that under normal circumstances, accidental loss of suppliers is a headache for the purchasing department, and in a supply crisis, this It could be a major blow. They have never seen an automaker so willing to negotiate a contract restructuring that is disadvantageous to them.

　　These negotiations include some previously unheard potential concessions, including retroactive price increases, faster payment deadlines, long-term contracts, raw material price indices, and general sharing of fluctuations related to production costs. Normally, the only adjustment is for automakers to put pressure on suppliers to cut costs.

　　"This is amazing," Sharkey said. “Some people’s views are surprisingly generous. I’m really surprised that some OEMs (automobile manufacturers) actually raise prices because it’s difficult for everyone to get supplies, so they want to be the suppliers’ favorite customers.”

　　In addition, whether OEMs decide to help suppliers digest costs, and how to help suppliers digest costs, will have an impact on their profits, and they must respond to investors.

　　General Motors Chief Financial Officer Paul Jacobson (Paul Jacobson)

　　"Obviously, I will not have any conversations about our supply base, but what I want to say is that the focus is on us to ensure consistency and reduce supply chain fluctuations, whether it is due to logistics or semiconductors." General Motors chief Financial officer Paul Jacobson said so during an investor conference call in October.

　　In a conference call with investors last month, Toyota executives briefly discussed price negotiations with suppliers and emphasized the need to take both sides into consideration. Toyota Chief Financial Officer Kenta Konta said, "Regarding the relationship with suppliers, we hope to coexist with our suppliers so that we can reduce costs and increase competitiveness together."

　　Several other large suppliers also echoed this sentiment of "working together". Robert Lee, President of Automotive Technologies Continental North America, said recently, “We are in discussions with customers. What I want to say is that we must recognize that everyone needs to create value. And to ensure that the value from the industry is fairly distributed."

　　It is a victory for the supplier to pass the price increase to the automaker. But for consumers, the situation is not so optimistic. Of course, the industry ultimately counts on consumers to digest the final cost.

　　"The most likely scenario is that the OEM will at least share these costs, and then (costs) will have to be passed on to other places," Lawrence said. "Most likely, I think this means a substantial increase in car prices."

　　Of course, these are mainly the "power imbalance" phenomenon of automakers and suppliers in the North American market. In the Chinese market, due to the explosion in the field of new energy, "supply chain restructuring" is a historical phenomenon that is happening, and the entire automotive industry chain has never been so exciting. But this is already a speed that the North American market can't catch up.