Materials Prices Dip

Thanks to the global economy’s stomach-churning loop-the-loop, demand– and prices– for auto-related commodities like steel and oil are dropping. For the moment anyway. Automotive News [sub] reports that the downturn in commodity prices couldn’t come at a better time for profits-challenged automakers, who will finalize supplier contracts this December. By locking in a lower price now, automakers will put the onus on suppliers to renegotiate if commodity prices go back up over the next year. Hear that? It’s GM VP for purchasing and supply chain Bo Andersson rubbing his hands and cackling maniacally. Andersson plans “a different mix of contracts with steel makers in a bid to get lower prices for 2009,” despite supplier concerns that the cost of raw materials such as coke and iron ore have not fallen as rapidly as the price of finished steel. Bottom line?

With the spot price per ton of hot-dipped galvanized steel down over $150 since June, automakers look to save as much as $120 per vehicle. Aluminum, copper and crude oil are dropping too, adding to projected cost reductions. Of course the prospect of even a tiny profit bump has a similar effect on the automaker-supplier relationship as dropping a T-bone in a cage with two starving wolves. Suppliers have been eating giant material cost increases over the last several years, and a “senior purchasing executive” tells AN that automakers likely can’t afford to be too aggressive about renegotiating to take advantage of the dip “because they never grant full price increases.” Meanwhile battered US steel suppliers are also said to be reducing production to stabilize prices. So expect automakers and suppliers to go to war over this price dip. These days, it’s all they know.