Global Fastener News

GM Sues Textron Fastening Over Steel Price Hikes

Jason Sandefur

Seeking to avoid plant shutdowns, General Motors Corp. agreed to pay Textron Fastening Systems and steelmaker Steel Dynamics above-contract prices to cover skyrocketing steel prices, which have risen more than 30% since January 1, the Wall Street Journal reports. \However, GM has also filed a lawsuit to force those suppliers to honor current contract pricing.
�Both suppliers are seeking to impose a premium on an already-agreed-upon, fixed-price contract,� GM spokesman Tom Him told the Associated Press. �We declined to pay those premiums. When they threatened to stop shipments, we agreed to pay under protest and filed the lawsuits.�
According to the Journal, GM is paying TFS a 3% increase over contract prices. TFS had �threatened cessation of GM�s supply of steel fasteners� unless the automaker agreed to the hike, court documents state. Troy, MI-based TFS supplies a significant portion of GM�s fasteners, giving it strong bargaining power with the automaker. Lending further urgency to the situation was the industry wide push to �just-in-time� manufacturing, leaving GM with little inventory to strengthen its resistance to price hikes.
TFS spokesman Tim Weir confirmed to FIN the existence of the lawsuit but declined to comment because the case is still pending.
A weak U.S. dollar and rising demand for steel in China have driven up steel prices in 2004. Steel costs are squeezing the Big 3 automakers, who face higher supplier prices but cannot pass the increase on to consumers in a tepid economy. It�s unclear if Ford or DaimlerChrysler have consented to similar prices increases from suppliers, but the issue is likely to worsen in the coming months as global steel prices continue to climb.
The Big 3 may have backed themselves in a corner with their push in recent years to lower supply chain costs by streamlining production with just-in-time parts delivery from a small number of suppliers with larger, long-term contracts. The move has created a heavy reliance on fewer suppliers, leaving auto manufacturers with little tolerance for supply disruptions.
Other car makers have taken a tougher stance against suppliers. Toyota Motor Corp. has threatened to terminate its contract with a U.S. auto-parts supplier that recently raised prices. Toyota is in the process of re-sourcing the component.
Some domestic auto-parts suppliers fear a similar backlash. One unnamed Michigan supplier told the Detroit Free Press that GM and others will �give you some wiggle room now, but they�ll make you pay for it later, which means they�ll pull the business from you down the road.�
Auto industry experts predict the issue threatens to devour smaller suppliers.
�If it continues we will see small tier-three suppliers going down and then cascading into shutdowns for the industry,� stated auto business consultant Craig Fitzgerald. �We�re surveying suppliers right now, and many of them are saying that in two months they will have a hard time keeping open.� �2004 FastenerNews.com