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May 2004

Auto Industry Suppliers are Unable to Recover Steel Surcharge Costs

Southfield, MI— Automotive industry suppliers are mostly unsuccessful in passing the cost of steel surcharges on to their customers, according to a recent steel surcharge survey conducted by Plante & Moran, PLLC and the Original Equipment Suppliers Association (OESA). Nearly half of all suppliers serving automotive OEMs are expecting “no recovery.”

The survey found that 40 percent of suppliers have pursued full reimbursement of the surcharges, yet only 20 percent of survey respondents have “firm” agreements for some form of recovery. 60 percent of suppliers attempted to negotiate recovery with their customers, while others used different approaches, including presenting the business case, paying or re-sourcing, negotiating scrap, and simply invoicing for the increased costs.

Other data from the survey includes:

•More than 65 percent of suppliers think the surcharges will affect their bottom line by more than 3 percent if they are unable to recover the costs.
•Suppliers expecting “no recovery” vary from 45 percent with OEM customers, to 25 percent for those serving tiered suppliers with sales greater than $1 billion annually, to 5 percent for those serving tiered suppliers with sales less than $1 billion annually.
•30 percent of suppliers have discussed recovery of costs with all of their customers, and 50 percent have approached some customers.
•Hot and cold rolled steel had the greatest total effective increase in price in the last year at 43.7 percent and 38.5 percent, respectively. Coated steel realized a 34.7 percent increase, and stainless steel increased by 12.3 percent.


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