TRAVERSE CITY, Michigan – ArvinMeritor Light Vehicle Systems President Phil Martens said the companys Tier 2 suppliers in Western Europe are facing more financial trouble than their counterparts in the United States.
Where we have most of our concern is not in the United States; its not Asia-Pacific; its not in Brazil. Its in Western Europe, primarily in Germany and France, he told Crains Detroit Business in an interview here at the Management Briefing Seminars. We have seen more challenged Tier 2 suppliers there than anywhere else right now.
Tier 2 suppliers in North America are contending with rapidly shrinking vehicle production rates, falling sales and increasing raw material costs. The supply base in Western Europe faces many of the same woes.
But troubled ArvinMeritor suppliers in Western Europe are facing bankruptcy to a greater degree. Martens contrasted that with North American suppliers who, grappling with rising material costs, end up in contract disputes with customers.
Material economic changes, take steel, have moved so fast, there is no choice but to pass the cost up the value chain, eventually to the consumer. That process, I think, will work its way through, he said. We realize that we cant absorb them all. I think the OEMs realize they cant absorb them all and I think our suppliers cant absorb them all.
ArvinMeritor CEO Chip McClure sent a letter to customers in May announcing the company would begin on June 1 to pass along rising steel costs to customers as a surcharge.
Martens said the letter gleaned mixed reactions from industry executives.
But now I think theyre taking a step back and saying, he made the right move -- and he did, Martens said.
Martens is the CEO designate for yet-to-be Arvin Innovation Inc., the light vehicle systems business unit of ArvinMeritor which is expected to be spun-off as a standalone company by May 2009.