FRANKFURT, Germany - Several suppliers to the Micro Compact Car Smart and the Mercedes-Benz A-class have refused to lower their parts prices as Daimler-Benz has asked.
Daimler-Benz wants suppliers to share some of the extra costs that resulted from modifications to both vehicles after they had shown instability problems last year.
To correct instability problems, Daimler-Benz spent about DM300 million ($168 million) more on the Smart than planned, and about DM400 million more on the A-class.
One supplier executive said the cost overrun on the Smart was more than 30 percent.
He said some was attributed to the stability problem. But he attributed some to bad project management because many changes were required after the design freeze.
Daimler-Benz Chairman Juergen Schrempp gave no details of the cost-cutting program when he announced it at the Daimler-Benz shareholders' meeting on 27 May. He did say 'the MCC Smart will not be profitable in the product's first lifecycle.' MCC says the first life cycle will be six or seven years.
'There will be no increase in pricing for the customers,' said Schrempp. 'In the first two or three years we will have to put pressure on production costs.'
Suppliers are part of that savings plan. One supplier said it was asked for price cuts of 2-3 percent.
However, suppliers don't feel responsible for the extra costs.
'We have our contracts and we will stick to them,' said Siegfried Wolf, chairman of Magna Europe.
Magna is a supplier to both programs.
The chairman of a German supplier to both vehicles, who asked not to be named, said: 'Daimler-Benz is asking us to share the pain. We expect tough negotiations, but we will not change our pricing.'
The German supplier compared this extra price-pressure with a special tax Germans had to pay after the reunification of East and West Germany to help build up the eastern part of the country.
Cost pressure on suppliers is normal, said another supplier executive, 'but in this case it's going too far. We can't and won't go down with our prices for the A-class and the Smart.'
Daimler-Benz would not comment on the cost-reduction program, except to say that the company wants to reduce production costs.
A spokesman for MCC said, 'We are working to find ways we can coordinate the costs together with our suppliers.'
Some suppliers are looking again at their costs. An executive of CEPlastics, which supplies Dynamite-Nobel with material for the exterior panels on the Smart, confirmed the price pressure from Daimler.
'Currently we are talking to our partners producing the modules,' he said, 'to find a solution.'
A spokesman for another major supplier admitted that internal cost adjustments were possible.
'We are always interested in a good atmosphere between our customers and us, which is not always easy, he said. 'Due to our size and our global activities, we always have the chance to shift costs and compensate them inside the company and use some little economic tricks.'
A sales executive from another supplier to both cars said that 'Daimler is one of the fairest carmakers in the country in terms of price policies.'
For this year, he said, 'we have our contracts, but in 1999 we expect hard negotiations. As a supplier you are always close to getting black-mailed and there is not much that we can do about it.'