Price Concessions Sign of Stronger Automotive Industry

The Financial Times of London reports U.S. automakers are trying to make greater profits by demanding price concessions from major suppliers.
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The price concessions are an indication that the automotive industry is rebounding in North America. As recently as a year ago manufacturers were having to prop up their suppliers to keep supplies coming in to their manufacturing plants.

In an article published on the Financial Times website, Toronto-based writer Bernard Simon cited “Johnson Controls, a big maker of seats, interior fittings and electronic systems, said that ‘we are seeing more pressure for price reductions, as would be expected after a downturn and a return to profitability of the carmakers and supply base.’” Lest you feel too concerned for Johnson Controls, which employs 130,000 people worldwide and is based in Glendale, Wisc., it reported a 23 percent increase in its quarterly cash dividend in November.

The article mentions Ford, GM, Honda, and Nissan are all seeking price cuts through greater efficiencies and not by direct price reductions. But it sounds as if the still recovering supply industry (which saw 62 companies file for bankruptcy protection in 2009) is facing a case of play along or go alone. The article says “a fifth of respondents to a Planning Perspectives survey earlier this year said that the three Detroit carmakers – GM, Ford and Chrysler – forced price cuts by threatening to take their business elsewhere.”


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