Automotive component suppliers will be hit sooner than expected by Rover’s tough new sourcing policy, industry experts warned this week.
Werner Samann, the Rover chairman, told suppliers they would have to cut costs by 15-20% per year and deal with the company in euros, in order to share the financial pressure the BMW-owned car maker is under. He also said there would be no minimum UK content in any of Rover’s vehicles.
The move is unusual because it will affect the Rover 25 and 45, formerly the 200 and 400, midway through their production.
David Malpas, coordinator of the automotive supply chain improvement programme Accelerate, said: `To do this halfway through a product’s life is much more difficult. You can design for cost, but it is hard to make savings on an existing product.’
`The perception at BMW was that they had put more money into Longbridge than expected. Consequently, they had to realise savings on the current models. It’s unreasonable, but that’s life,’ said Malpas.
Suppliers without a particular expertise or the ability to cut costs could be in trouble, Malpas warned. `Firms like GKN and Johnson Controls are world-class. But there is a threat to other first-tier suppliers,’ he said.
Suppliers further down the chain are expected to be hit even harder, because they are less likely to be able to hedge costs by manufacturing in euro-zone countries. They are also expected to suffer as multinational first-tier suppliers pass on the reductions in costs.
Ian Roberston, motor industry analyst at the Economist Intelligence Unit, said: `Second and third-tier manufacturers will struggle to find a place in a global supply chain. Many will be swallowed up, unless they have a technological edge.’
Peugeot and Ford are also believed to be imposing similar cost cuts on suppliers as profit margins are hit by the sterling’s strength and consumer pressure for lower car prices.
David Botterill, chief executive of the Engineering Employers’ Federation West Midlands, said: `Cost-down is a fact of life in the industry. But these percentages seem disturbingly high if you are a supplier.’