Posted on 04/19/2006 11:17:55 PM PDT by sully777
DETROIT (Reuters) - Rising oil prices are driving up the cost of shipping parts to General Motors Corp. plants, just as the auto maker is grappling with higher prices for other key components like aluminum, steel and resins, a GM executive said on Wednesday.
GM purchasing head Bo Andersson said each $1 increase in the price of a barrel of crude oil adds $4 million to GM's logistics costs.
The world's largest auto maker is now paying an average of about $550 per vehicle for steel and more for aluminum, which has run to a near 20-year high in price, Andersson said at a conference sponsored by the Federal Reserve's Detroit branch.
High fuel prices have crimped sales of sport utility vehicles in the U.S. market, a profitable niche for GM, which is banking on the success of a new line of redesigned SUVs this year.
But Andersson said the impact of higher oil prices had also trickled down to resins used in a range of parts, forcing GM to look at ways to better source such materials.
Oil prices on Wednesday held near record highs above $72 a barrel. Crude for May delivery on the New York Mercantile Exchange has surged by over $13 since mid-February on fears over global oil supply.
Andersson said that buying all of the 10 million tons of steel that GM uses per year would be cheapest in China, but quality and shipping problems made that impractical.
But fixed rates on electricity and aluminum from the Chinese government have made aluminum wheel exports from China highly competitive. "We are the largest buyers of wheels from China," Andersson said. "If you want to buy wheels from China, you can buy them from me."
GM, which deals with some 3,200 global suppliers, handles some 160,000 parts per day in its plants, Andersson said, almost four times the number at Toyota Motor Corp. (7203.T: Quote, Profile, Research), which is famed for its production efficiency.
"The complexity thing is a real issue," he told an audience of industry executives and analysts. "I applaud Toyota as the leader and the master."
Andersson said GM expected its suppliers to deliver a 3 percent gain in productivity each year, equivalent to $2.5 billion in savings.
But he conceded the auto maker's relations with its suppliers have sometimes been rocky amid a broad downturn for the sector. More than 20 large U.S. auto parts suppliers have filed for bankruptcy since 1999, according to the Federal Reserve.
"I admit we have a lot of issues. Clearly we have, and we are working at them every day," he said. "We have suppliers that have been angry at us for 12 years."
Andersson said GM was looking to reward suppliers for innovative and cost-saving designs by granting such firms "lifetime" contracts for the duration of a model's production.
He said GM could target awarding up to a quarter of the content in each vehicle line to such longer-term contracts in a bid to help stabilize business for its best suppliers.
"It's hard to get, but we want them protected," he said.
Ok, but did you know that the pontiac torrent's engine is made in china presumably from chinese steel and iron.
It says all steel supplies...one assumes that QA is on top of the quality issue in specified engines runs. However, it is fuel for thought.
My BIL used to have a crass name for steel nails made in Taiwan, S. Korea, or Japan. The nails would bend and snap when hammered. He bought only North American brands.
That looks like a fun job. Getting to destroy a brand new car everyday and no one getting hurt.
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