Market and product
Manufacturers raise prices as input costs surge
A growing number of North American industrial companies are pushing up prices – and warning of further increases to come – in the wake of fast-rising raw material costs.
John Byrne, director of common commodities at Boeing, the aircraft maker, which is the US’s leading exporter, said: “Any time you have raw material price increases, it ripples through the whole system.”
Chris Liddell, General Motors’ chief financial officer, said at the Detroit car show last week: “We’ve got cost pressures all around.” Lewis Booth, his counterpart at Ford Motor, said the number-two Detroit carmaker expected a steady rise in fuel prices.
David Leiker, automotive analyst at RW Baird, said his clients were asking increasingly about the impact of rising commodity prices on the profitability of car industry suppliers. Mr Leiker estimated that raw materials made up about $3,500 of a car that sells for $28,000.
The biggest items are steel (an average of 2,100lb), aluminium (400lb), plastic (250lb), rubber and glass.
Goodyear raised tyre prices by up to 8 per cent last October, and rubber prices have climbed to new records since then. The company said when it published third-quarter earnings that it was “aggressively” substituting natural with synthetic rubber.
Mr Leiker said: “The issue is how much of a lag is there between absorbing the higher costs and seeing the offset in margins at the suppliers.”
Pat Campbell, chief financial officer at 3M, said last month: “We’re going to have to be more aggressive in the marketplace going after price ourselves...We have businesses that are up 10 per cent on raw material costs and they obviously have to do more on price.”
3M makes an array of products from Scotch tape and Post-it notes to electronic components and street signs.
Mr Leiker noted that materials were usually bought under long-term supply agreements, limiting price volatility. Some big manufacturers responded to volatile commodity prices in 2007-8 by stepping up hedging and insisting on more robust provisions in supply contracts to ensure their production plans were not harmed by dramatic price increases.
John Deere, the world’s biggest tractor maker, expects raw material and logistics costs to be $250m higher this year compared with 2010.
Along with other manufacturers of heavy duty equipment, such as Caterpillar and Agco, John Deere is implementing significant price increases, although much of that reflects the extra cost of vehicles designed to meet stricter emissions regulations.
