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Supplier gets dwindling sums for its parts

Marketplace Staff Oct 22, 2007

Supplier gets dwindling sums for its parts

Marketplace Staff Oct 22, 2007


KAI RYSSDAL: Troubles here in the North American market are forcing U.S. automakers to cut costs any way they can. They’re trying to offload some of their retiree obligations. And they’re extending that tough love outside the immediate corporate family. From WKSU, Amanda Rabinowitz has the story of one longtime GM supplier.

Amanda Rabinowitz: Al Myers strolls through his plant. He’s got perfect posture and a crisp, white shirt. The president of Allied-Baltic Rubber knows most of his 190 workers and their spouses by name. He smiles and stops to chat while they make GM suspension parts.

Myers has been with Allied-Baltic Rubber since 1960. His father was past president and his grandfather founded the company. GM accounts for 80 percent of his business. Myers says over the years, GM has pressured him to keep prices so low that his last price increase was in 1984.

AL Myers: The methods that they’re using now border on cruelty to animals. They’re so relentless and so overbearing with their requests for price reductions that they really don’t care whether you go out of business or not.

A GM spokeswoman says the company goes to extreme lengths to keep suppliers profitable. Because when suppliers go out of business, she says it’s disruptive and costly to find new ones. But in 2005, GM said it would slash purchasing costs by 30 percent. The car maker blamed rising steel and plastic prices for $2.5 billion in losses. It asked suppliers to cut back on using those materials. Myers primarily uses rubber, but that’s gone up too.

Myers: General Motors will not allow a price increase, and when you look at the price of cars, which go up annually, people think that you’re getting an increase in your products annually and it’s unfortunately not the case. I wish it were.

GM’s relationship with suppliers has gone from friendly to frosty, according to Melinda Barcus. She’s been with Allied-Baltic Rubber for eight years and in the car-making business for three decades. She says that changing relationship is an indicator of the future of car making.

Melinda Barcus: My dad always said, when I was a kid growing up, don’t make it your life, because eventually Japan and all the rest of ’em gonna take over. And it’s going that way. If it’s gonna happen, it’s gonna happen.

Back in 2005, 85 percent of suppliers surveyed described their relationship with GM as poor. John Henke heads a Detroit consultancy called Planning Perspectives. He says domestic suppliers have to swallow the losses if they want the business to stay here in the U.S. But Henke says if suppliers can weather the next few years, the domestic industry could rebound.

John Henke: Everybody is looking mostly at China and saying, “Oh my gosh, you know, what can we do against China.” Well, China right now is being faced with inflation. We’ve got issues with transportation. You can’t easily get parts from one part of the world to the other except by plane, and that’s incredibly expensive. If those companies can stick it out for a while and improve themselves, they are going to become increasingly competitive.

Allied-Baltic Rubber’s future is uncertain, says Myers.

Myers: You try to maintain your own identity, but I believe for the smaller independent companies it will even more difficult in years to come.

In other words, he might just do what lots of other independent suppliers have — sell out to larger companies to survive.

In Kent, Ohio, I’m Amanda Rabinowitz for Marketplace.

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