Auto firms face steel costs hit

Canoe.ca

GENEVA — Rising steel prices are causing major automakers to brace for an increase in the cost of building vehicles, a development that likely will force them to trim expenses even further. Automakers largely avoided drastic cost increases during recent steel-price hikes because of long-term contracts with producers and the large quantities they buy around the world.

But top executives for two of the world’s largest automakers say even extended contracts and other factors may not protect them from current rising prices. Steel prices have risen roughly 30 per cent in the past few months, thanks to a weak U.S. dollar and intense demand from China.

‘We have contracts in place, but steel costs are a problem,’ John Devine, General Motors Corp.’s chief financial officer, said yesterday in an interview at the Geneva International Motor Show.

He noted prices of other materials used in car production, such as aluminum, are up, too.

However, Devine said he didn’t anticipate higher material costs to result in more expensive vehicles for consumers.

‘The cost structure and revenue structure are two different things,’ he said. ‘We have to find a way of offsetting it, and that’s what we’re going to do.’

What makes the timing so bad for automakers like GM, Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group is they’ve already slashed expenses by billions in recent years in the wake of increasing competition and tight profit margins, if not losses.

The situation is tough for auto suppliers too, who are under pressure from automakers to lower their costs.

U.S. President George W. Bush revoked protective tariffs on steel in December, but so far that has not helped prices to stabilize.

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