Metals price spike adds to pressure on carmakers


A recent spike in metal prices has put additional cost pressures on automakers, which they cannot pass on to customers in the face of flat or declining sales in Europe, Japan and the United States.

The high cost of materials from steel and aluminum to the platinum used in catalytic converters has had automakers searching for alternatives to reduce costs while they also develop ways to meet stringent new emission standards, executives said at the Geneva auto show this week.

"We are sweating blood to find a way to balance these increases and not raise the price of our products," Fiat SpAChief Executive Sergio Marchionne told reporters on Wednesday. "It is very hard work."

Marchionne said the Fiat industrial group's raw materials costs have been rising as much as 4 per cent per year.

"Skyrocketing raw material prices are a problem for the entire industry," Toyota Motor Corp President Katsuaki Watanabe told reporters.

Thierry Dombreval, chief operating officer of Toyota Motor Europe, said those cost increases cannot be passed on.

"We have to find further cost savings to offset the effect," Dombreval said. "Even the smallest savings help."

Toyota has been exploring making smaller and lighter cars to make them more fuel efficient, including using materials such as reinforced plastics to replace steel content in a concept car that it unveiled in Geneva.

Platinum and palladium, which are used in catalytic converters, have hit record and six-year highs respectively. Aluminum prices remain high and steel producers have continued to raise prices this year as well.

For General Motors Corp, steel costs rose 12.5 per cent in 2007, GM Europe President Carl-Peter Forster told reporters. He blamed the increases in part on consolidation in the steel industry that have helped restore pricing power for steel makers.

The pressure on automakers translates to further demands on parts suppliers.

Ferrari, a unit of Fiat, responds to increased commodity costs by improving efficiencies and negotiating with suppliers to cut costs, Ferrari General Manager Amedeo Felisa told Reuters.

Platinum costs, "That's a problem for the makers of catalytic converters," Felisa said.

Automakers also have looked to global platforms to reduce costs in the face of these price pressures. Ford Motor Co unveiled its global small car, the new Fiesta, in Geneva and plans to produce it in Spain, Germany, China and Thailand.

Even tire makers, which have been able to raise prices in recent years to more than recover the cost of commodity cost increases, continue to search for alternatives to replace expensive raw materials. Michelin announced price increases in the United States and Europe in recent weeks.

On the foreign exchange front, the euro's rapid rise to above $1.50, a record high against the dollar, is adding to pressures, leaving some automakers such as Volvo and Alfa Romeo contemplating production in North America.

Watanabe said the stronger yen was making it more difficult for Toyota, but the automaker would take various measures to address the situation. Long term, the best defense against foreign exchange fluctuations is to have production facilities in those markets, he said.

Volkswagen's premium brand Audi is considering building vehicles in the United States, possibly in coordination with Volkswagen or in an independent plant, Chief Executive Rupert Stadler told reporters.


Volkswagen itself has been scouting locations in North America for an assembly plant to take some of the sting out of volatile foreign exchange rates. (Reuters)
 
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