As demands on suppliers increase, so must the lengths of their contracts, says the founder of Heartland Industrial Partners LP, a private equity fund that has been acquiring auto suppliers. “The supplier base is rapidly absorbing former OEM fixed costs and becoming much more asset-intensive,” says David A. Stockman, a former Reagan Admin. cabinet member.
While suppliers are being asked to take more responsibility for design and engineering, their costs are rising accordingly, Stockman warns. “We're willing to take on the burden, but we have to have a horizon that's meaningful,” he says. “Price-downs without shared cost-downs are self-defeating.
“The OEMs need to recognize … there has to be more long-term certainty about what jobs you have, how it's going to be priced and how you're going to earn a return over the life cycle of the platform.”