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Increased costs no problem … yet
But auto suppliers south of the border are feeling the bite-back
By Harry Chandler
Thursday, November 13, 2003
Canadian auto parts makers aren't yet turning away business from vehicle manufacturers demanding deep price cuts, but they could be soon.
Unlike their counterparts in the U.S., where many health care costs are borne by employers, Canadian parts suppliers of everything from door hinges to body panels are often buffeted by demands from automobile manufacturers for parts at the lowest possible prices.
But it can't last, says Gerald Fedchun, president of the Automobile Parts Manufacturers' Association of Canada (APMA). He says Canadian firms could begin turning down contracts as early as next year.
Canadian auto parts makers have yet to experience the bite-back that many parts manufacturers in the U.S. have been feeling, Fedchun says.
In recent years, higher health care costs, a fierce incentives war and falling market shares have hit U.S. car companies hard. As a result, manufacturers contend they are no longer able to pay the prices that parts suppliers say they must charge to turn a profit.
GM recently issued an ultimatum to its suppliers under a contract clause that gives them 30 days to match the lower prices of their rivals or risk having their contract terminated. GM would also like all of its suppliers to decrease their costs by 20 per cent within three years, but says that it wants to do so by helping suppliers save money on materials and design.
Some suppliers view this as a hostile action by GM, feeling that this clause gives the automotive giant too much power in determining supplier prices. A spokesperson for General Motors of Canada did not return calls. Mr. Fedchun says that Canadian companies have been less affected by this problem, due mainly to Canada's universal healthcare system, but says that it could become a problem as early as next year. Rising health care costs south of the border has become a significant expense for American parts manufacturers. It's not getting any cheaper for suppliers to produce parts, Mr. Fedchun says, and to survive they'll have to raise their prices.
According to Fedchun, the average cost to manufacture parts has risen by about three per cent each year. Unless there is some sort of technological breakthrough that allows parts to be produced more efficiently, he says Canadian suppliers could be facing the bite-back within the year.
The Reuters news agency, meanwhile, reports that GM plans to boost its purchases of auto parts made in Canada by 25 per cent over the next several years. It quotes an unnamed official who says that GM, which buys about $9 billion in parts annually from Canadian suppliers such as Magna International Inc., plans to increase its Canadian parts spending to $11.7 billion annually.
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