Suppliers grade Toyota, Ford and Honda highest for raw materials compensation price increase

According to an IRN Inc three motor companies; Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. have topped the chart as the firms most willing to recompense suppliers for the ever rise in cost of raw material.

The survey by Grand Rapids, Mich., pulled data from about 92 suppliers between the months of May and June, quizzing them of the raw material pricing policies of nine automaker companies in North America.

60% said Toyota was very likely to “satisfactorily offset [raw material price] increases.” While 51% responded that Ford had their endorsement as the automaker with the quality and 43% said it was Honda that would most likely offset the raw material increases.

Though it didn’t overtake the aforementioned trio, Chrysler Group showed the most year-to-year improvement. Last year the firm got 23% of positive raw material price offset but this year, they climbed to 37% behind Toyota, Ford and Honda.

Usually, the automobile makers and their suppliers come to a price indexing agreement as means for compensating the raw materials increase. The prices are then adjusted monthly and quarterly to reflect this compensation.

On how they intend to recover their raw material costs, 55% of the respondents say they plan to recover theirs through the price indexing that will be agreed by both parties while only 24 percent said they would seek either a one-time price increase or a permanent price hike.

The author of the survey, IRN President Kim Korth says; “Relations with automakers are on a more equal footing, now. Before, suppliers were afraid that the automaker would get mad at them. Now, they say they have to deal with this.”

For most, Indexing has become a well accepted option for both parties as they do not need to renegotiate contracts at every turn of raw materials fluctuation but for others indexing will not work. The indexing option works for materials such as steel, copper and aluminum but not for rubber or plastic resin.

That’s because there are no good price benchmarks for rubber or plastic resin, Korth said.

Suppliers of rubber parts “have been pulling out their hair, looking for an independent source to track material [price] variations,” Korth said. “And there are so many different types of plastics that the ability to index has been problematic.”

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