Executives Buoyed By Raw-Material Price Stability
By Tom Murphy WardsAuto.com, Jan 22, 2008 2:24 PM

DETROIT – Supplier bankruptcies remain a problem, the sub-prime mortgage crisis has made credit hard to find and 2008 promises to be a “very challenging” year for the industry, but General Motors Corp.’s purchasing chief is extremely pleased with a recent development: Raw-material prices appear to be stabilizing.

In some cases, prices actually are coming down, Bo Andersson, GM’s group vice president-global purchasing and supply chain, tells journalists after a supplier-recognition event at the North American International Auto Show here.

“Aluminum is down more or less 10% from last year. That’s helping,” Andersson says when asked about the economic condition of GM’s lower-tier suppliers.

“That’s a good trend,” he says, while admitting the volatile nature of raw-material prices can reverse that trend quickly.

“Take aluminum, copper, lead, nickel – they all peaked out, and it’s somewhat trailing downward now,” Andersson says. “The big question mark is, what about oil? I don’t know.”

Petroleum, selling for about $90 per barrel on Jan. 18, is a primary component in the production of plastics and gasoline.

Precious metals, which are used in catalytic converters, also have witnessed exorbitant price increases. Platinum, for instance, sells for about $1,560 per ounce.

GM’s Bo Andersson

MetalPrices.com reports the Jan. 18 price of aluminum at $1.09 per lb. on the London Metal Exchange. That compares with $3.23 for copper, $1.18 for lead and $12.57 for nickel. The website confirms a 3-month decline in pricing for all the materials.

The cost of steel also has caused fits in recent years, but that issue appears to have softened as well, partially due to long-term contracts GM has signed with steel producers. “I don’t lose sleep over steel,” Andersson says.

At another press event on the sidelines of the Detroit auto show, Valeo SA Chairman Thierry Morin echoes the observations about raw-material prices.

In 2006, Morin says Valeo recorded an operating profit margin of 3.4%, and by 2010 that margin should exceed 6%, with a 1-point gain coming from improvements in raw-material costs.

When prices skyrocketed in 2004, Valeo – and much of the auto industry – was stuck with old contracts that provided no relief. Morin says many of these contracts are expiring and being replaced by new deals with fairer pricing built in.

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“We don’t have to beg for compensation” from customers because of high raw-material prices, Morin says.

While sounding optimistic, Morin says he does not want to become too confident, “because then it hits you in the back.”

Over the next two years, Morin says he expects to see “a kind of leveling off of worldwide industrial activity, putting less tension on the markets. I’m not saying commodity prices will not increase, but we shouldn’t suffer from the same increases that we had between 2003 and 2007.”

Exchange rates also factor into the economics of raw-material prices. Because of the low value of the dollar, Andersson says European suppliers can benefit tremendously from purchasing materials in the U.S., rather than in their home market.

“If raw materials are going down when you buy dollar-to-dollar, they go down a lot if you buy from a euro base,” he says.

On the floor of the auto show this week, Andersson gives outstanding achievement awards to several key suppliers:

• Alpine Electronics Inc.
• Autoliv Inc.
• Seyen Alloy Wheel NA
• Wellington Industries
• Barton Marlow Co.
• Burke E. Porter Machinery Co.
• Chemico Systems Inc.
• Eaton Corp.
• Hoegh Autoliners AS
• Jack Cooper Transport Co. Inc.
• Magna Car Top Systems GmbH
• Methode Electronics Inc.

Andersson praises GM’s supply base as “the best in the industry,” and says the auto maker launched 25 vehicles last year – all of them flawlessly.

He encourages suppliers to approach him or his staff with problems, particularly if GM is responsible.

“What we need to do more of is communicate – be open and clear with each other,” he says. “I don’t see any challenges out there that can’t turn into opportunities, but we have to continue to work together as a team.”

GM has 3,000 suppliers globally, with 1,900 in North America. Andersson says some 250 suppliers are involved in each new-vehicle program.

tmurphy@wardsauto.com