A Michigan consulting firm asked 92 suppliers about the raw material pricing policies of nine automakers who assemble vehicles in North America.
60% of respondents said Toyota are very likely to “satisfactorily offset [raw material price] increases.” 51% said the same of Ford, and 43% said it of Honda. Chrysler Group showed the biggest year-to-year improvement: 37% of the suppliers said Chrysler are very likely to offset raw material price increases, up from 23 percent last year.
As a group, automakers and suppliers have adopted price indexing as the preferred type of compensation. Typically, the two parties agree on a public pricing benchmark, then adjust prices accordingly every month or quarter. Automaker payments may rise or fall, depending on price fluctuations.
55% of respondents said they plan to recover their raw material costs via price indexing, while only 24% said they will seek either a one-time price increase or a permanent price hike. “Relations with automakers are on a more equal footing, now,” said IRN President Kim Korth, the author of the survey. “Before, suppliers were afraid that the automaker would get mad at them. Now, they say they have to deal with this.”
Indexing has become popular because it frees automakers and suppliers from having to renegotiate contracts every time the price of a key raw material fluctuates.
This year, the auto industry got a break when raw material prices declined, a result of the economic slowdowns in Europe and China.
