More rough roads to do business in the auto industry
The auto industry can be very tough to its suppliers.
While the sheer quantity of plastics used in cars can seem attractive, the terms and conditions of doing business in the industry is tough. Suppliers need to bid for work years ahead of when a car goes into production and typically need to lay out money in advance for equipment and materials. A standard business practice in the auto industry is that money doesn't go to the supplier until a vehicle is actually in production.
Now our sister paper Automotive News reports that Stellantis, the company that owns Chrysler and Jeep brands, has a new contract in place that requires suppliers to pass along any savings they may find through better materials contracts or improved production. But the automaker won't reciprocate with extra funds if prices rise — such as the spike in polypropylene resin prices in 2021.
They expect their suppliers to absorb those hits," Nicholas Ellis of the Detroit law firm Foley & Lardner LLP told AN. "That's the source of a lot of friction in the supply chain these days. Given the inflationary environment we're in ... and rather than trying to accommodate that, Stellantis essentially has kind of run in the opposite direction and doubled down on this idea that all of the risk of any cost increases remains on you."
You can check out Vince Bond's story on the Plastics News website here. It may give you second thoughts about whether you want your company to get involved in the auto industry, or if you're already an auto supplier, it may make you rethink your customer base.