German carmakers and automotive suppliers might have to reconsider their method of negotiating with steel mills over annual coil supply contracts.
Automotive tier suppliers often feel the most hard done by in the talks, in which mills on one side and OEMs on the other are the bigger and stronger opponents. In this triangle, tiers are traditionally the ones that end up paying higher prices to the mills for steel, but receiving lower prices from the OEMs for the steel component in the parts they supply (see separate story).
In comparison with last year’s relatively high prices, “the mills this time conceded €50-80/tonne [$52-83] lower prices,” says a manager at an automotive supplier. This figure was also heard from other sides. But in the negotiations for finished car parts, OEMs are heard entering the talks requesting a year-on-year reduction of €100/t or more for the steel component.
Tier supplier say they could withdraw from purchasing steel individually. Instead, all steel negotiations would be put in the hands of the OEMs in a practice called pooling-by-retail, with one valid price for all coil distributed among all players in the chain.
According to the manager, pooling in France accounts for 90% of all negotiations, but for far less than 50% in Germany. So far, German negotiators trusted their own expertise most, but the squeeze in recent years has made them increasingly willing to hand over that responsibility. After all, pooling itself is a cost factor for the OEMs, with the need for additional personnel in times when VW and Ford have announced staff cutbacks. “And mills do not like pooling much, because of the same reason,” he tells Kallanish.
“We want fairness from the OEMs, not better deals,” the tier manager emphasises. “We are the sausage in the sandwich,” he adds.
Christian Koehl Germany