GENERAL MOTORS has become a supplier to its suppliers of rubber and plastic.
Lower oil prices and the Southeast Asian financial crisis made it sensible for GM to do for these materials what it does for steel and advertising space: buy in bulk.
Since about 1990, the automaker has successfully used its enormous buying power to get better prices on steel for itself and its metal parts suppliers. Two years ago, it began a program to buy plastic resins in bulk, but that program has not progressed far.
By buying natural and synthetic rubber and other materials and reselling them to its rubber and plastics parts suppliers, GM has a simple aim.
It will ensure lower prices on those parts without hurting its suppliers' profit margins, said Louis Fierens, GM's worldwide chemical commodities manager. Fierens oversees the purchase of rubber materials and parts.
GM will assume the 'risks or rewards' when raw material prices fluctuate, insulating its suppliers further, Fierens said.
At the automaker's headquarters in Michigan, GM's purchasing department has its strategy mapped out on the walls of its main meeting room. Charts break down the rubber and plastics supply chains, giving department officials ideas about where GM can best insert itself.
GM officials, who discussed the project recently, said the company already has agreements with some key material suppliers. They were not named. Fierens declined to estimate how much the resale program for rubber raw materials might save the company or automotive consumers. Figures on the steel resale program are also unavailable.
Because rubber materials are so diverse, GM's implementation of a rubber resale program will be staggered, Fierens said. Some areas will be easier than others. It may make more sense to get involved with the 'out-of-the-ground' raw materials like petroleum, which has been coming down in price, and carbon black, he said.
GM will focus mainly on the materials used by rubber molders, although the company is not opposed to supplying compounders as well, he said.
The best raw material deals may be in Southeast Asia. Fierens has been searching for capacity and quality, and GM is encouraging its suppliers to 'come in with hard dollars and establish a manufacturing base in Southeast Asia,' Fierens said.
Robert Socia, GM executive director of chemical purchasing, said GM itself 'has found significant opportunities.'
In December, Mary Blair was named worldwide chemical commodity manager in charge of plastic resins.
Her job has been to get the company's two-year-old resale program for plastics back on track. GM 'walked away from (the plastics program) a bit,' Socia said.
Blair, who has made several trips to Southeast Asia, said her team has already been able to get long-term contracts - three to five years - for resins. Such contracts stabilize a molder's material costs and relationship with its raw material suppliers, she said.
'It's something we should have done a while ago,' Socia said.
GM has a head start when it comes to rubber resale. The company currently buys rubber for subsidiary Delphi Automotive Systems, which does $350 million a year in rubber parts such as engine mounts and brake hoses.