Toyota, Ford and Honda to compensate suppliers for increasing raw material costs

Article by Christian A., on August 15, 2012

The automakers that are most willing to provide compensation to suppliers for increasing raw material costs are Toyota Motor Corp., Ford Motor Co. and Honda Motor Co., according to a poll of 92 suppliers conducted by IRN Inc. in May and June. The consulting firm, which is based in Grand Rapids, Mich., said that these automakers scored the highest in terms of willingness to follow the raw material pricing policies of 9 companies that build vehicles in North America.

Toyota was very likely to "satisfactorily offset [raw material price] increases," according to 60% of respondents. About 51% selected Ford while 43% chose Honda. Chrysler Group had the biggest improvement year-to-year. From 23% last year, about 37% of suppliers now said Chrysler was very likely to offset raw material price increases.

But when considered as a group, automakers and suppliers have welcomed price indexing as the compensation most preferred. The two parties usually agree on a public pricing benchmark, then prices are adjusted accordingly every month or quarter. The payments may climb or decline, depending on price fluctuations.

About 55% of the respondents intended to recover their raw material costs through price indexing, while just 24% said they would want either a one-time price increase or a permanent price hike.

IRN President Kim Korth, the author of the survey, said that relations with automakers are now “on a more equal footing.” He explained that suppliers were hesitant before due to fears that the automaker won’t be pleased with them. But they were forced to deal with the issue. Indexing became more accepted since automakers and suppliers wouldn’t anymore have to renegotiate contracts whenever the price of a key raw material fluctuates.

Topics: toyota, ford, honda

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