Metadyne - "Detroit We Have A Problem"

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TRAVERSE CITY, Mich., Aug 9 Justin Hyde writing for Reuters reported that the chief executive of a U.S. automotive supplier urged peers at an industry conference this week to rise up against price pressures from auto makers and steel tariffs even if it meant "bringing Detroit to its knees".

Tim Leuliette, chairman and CEO of metal parts supplier Metaldyne Corp., addressed participants at the auto industry conference here only hours after the leaders of General Motors Corp. and Ford Motor Co. praised suppliers as equal partners in their business.

Leuliette's harshest comments in a speech titled "Detroit, We Have A Problem", were aimed at the steel industry, which has been raising prices as much as 40 percent from 20-year-lows with the assistance of tariffs on imported steel imposed by the U.S. and unexpectedly tight supplies.

Leuliette said the primary type of steel Metaldyne relies on is among those subject to a 30 percent tariff this year. He called the tariffs "patently dishonest," and said automakers that enjoy long-term contracts with steel companies had left suppliers to fend for themselves.

"We expect you (steel makers) to reduce prices next year in line with our cost reductions to the OEMs (automakers)," Leuliette said. "We don't have the means to support you. If you want price increases, you will need to make your case to the OEMs."

"The tariffs, which the Big Three view as our problem, must become the industry's problem," he said. "Suppliers cannot and must not be forced to absorb price increases legitimized by the politically driven tariffs. If we must bring Detroit to its knees over this, so be it."

Steel makers have defended the tariffs and price increases as necessary to ensure their survival.

Before the conference convened, Peter Peterson, automotive marketing director for U.S. Steel told Reuters that the auto industry had enjoyed the benefit of record low steel prices for years.

"If they (suppliers) thought there was no end to prices going down, and the collapse of the domestic steel industry was not going to have an effect on the prices of the goods they bought, I'm sorry they built a business plan on that," Peterson said.

Leuliette's comments come when auto suppliers are enjoying their fourth straight year of high production, but with profitability near historical lows. The cause is not hard to identify: profit projections of GM, Ford and DaimlerChrysler AG's Chrysler arm rely on cutting parts costs by billions of dollars a year for the next several years.

At a conference usually steeped in the relaxed atmosphere of a northern Michigan resort surrounded by three golf courses, Leuliette's battle talk stood out and was even interrupted by applause.

"The Big Three cannot return to their past glory by having the supply community financially subsidize their inability to address their own problems," Leuliette said.

Suppliers employ 80 percent of the people now building vehicles in North America, and invest over half the capital, but "unfortunately the supplier community often behaves as if it has no leverage," he said "We're far too tame."

With much of the global auto industry's overcapacity aimed at or in the United States, automakers here face declining prices for new vehicles. And as Chrysler economist Van Jolissaint noted on Friday, the situation is not expected to improve this decade. "That's going to continue to put pressure on the OEM (automaker)-supplier relationship," he said.

A survey released on Friday by the Original Equipment Suppliers Association found that among about 50 suppliers, the average of operating earnings as a percent of sales has fallen 30 percent in the past three years. The study suggests half of all auto suppliers "should feel significant urgency" to improve profits, with 15 percent of suppliers "severely unprofitable."

"We are destroying wealth," said J Ferron, an industry analyst with PriceWaterhouseCoopers. "We are operating as if this industry is a good hobby."

Most automakers who spoke at the conference had kind words for suppliers and expressed concern with their survival.

"We don't want to put the squeeze on anybody," GM Vice Chairman Bob Lutz said. "It's like the cattle rancher who decided he could maximize profits if he could just reduce the amount of food for the cattle...the plan looked great on paper --projected profits were sensational-- until the day the cattle all fell over dead. Dead suppliers don't do anybody any good. We want all of us to win together."

David Cole, organizer of the annual Management Briefing Seminars, said the pressure would force suppliers and automakers to come up with a new model for doing business. But Leuliette provided one maxim he thinks suppliers should live by: "We're not here to make cars or car parts. We're in business to make money making car parts."