We make our livelihoods in the automotive business, a business born in steel foundries and petroleum refineries.
That's exactly why the market is seeing dire pronouncements from manufacturers as they release their quarterly earnings statements. Many justifiably blame sluggish bottom lines on the cost of the very stuff they need to make and deliver the products you and your customers need to stay in business.
Just over the past week, I've read on the industry's electronic news source aftermarketNews.com about major manufacturers from all sides of the industry struggling with this. Here's a small sample of the bad news:
Federal-Mogul says rising costs of raw materials for the first three months of the year resulted in a $21 million decline in gross margins for quarter.
Timken's Automotive Group, which recorded a loss in the first quarter of 2005, reported the "loss was due primarily to higher raw-material costs."
From the tire side of the industry, "Cooper attributed the decline to the impact of...higher raw material costs..."
OE supplier, Lear, reports that "high raw materials costs...caused most of the pain."
Steel prices, in particular, are among the major contributors of this pain. According to the Motor & Equipment Manufacturers Association, distortions in the steel market, including the record high price of steel, are causing a crisis that has impacted automotive and heavy-duty suppliers across the country, triggering unprecedented bankruptcies and job losses. U.S. steel prices still remain at a premium to the rest of the world. For example, the January 2005 price of hot-rolled steel in the U.S. was $695 per ton, compared to China, which were $510 per ton.
And it's not just steel. Other materials - such as fuel - are rising. In fact, according to AAA, the average price for 87 octane fuel is now $2.25, up from $1.78 a year ago, making your own fleet of trucks a major source of increased costs every time you gas up to do a hot-shot delivery.
At some point, someone will have to eat these costs. As you ask yourself whether you should pass on increased costs to your customers, you can bet manufacturers are considering the exact same thing.
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Counterman has added a new section to the magazine! Import Insights will cover all the issues concerning running a successful import parts business. The author is Gary Garberg, from Las Vegas import parts specialist Meyers Auto Supply. As Garberg writes in this month's issue, the import parts world is certainly different, but it's also an essential segment of the ever-changing vehicle population.
Travelin' Notes: A special hello to the staff and members of Kansas-based program group APA, who hosted Counterman managing editor Mike Freeze and I at their convention in New Orleans. A complete report on the APA Convention appeared in last month's issue.