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Auto Chiefs Mull Cost Cutting, Environment at Annual Summit

January 31, 1995

DAVOS, Switzerland (AP) _ Heads of leading auto makers and suppliers on Tuesday ended a two-day summit that focused on cost cutting.

Deals weren’t cut and there was no communique from the closed-door meetings of the Automobile Governors’ Conference at the World Economic Forum in this snow-covered Alpine resort.

But the gathering allowed for one-of-a-kind discussion among 40 leaders representing $600 billion of auto business and 80 percent of the world’s automobile production.

The conference was attended by Volkswagen President Ferdinand Piech, Toyota President Tatsuro Toyoda and Chrysler Chairman Robert Eaton, among others.

``One of our biggest challenges is that customers don’t pay us as much as they did. We have to provide more to them for less,″ said Klaus Beyer, chief executive officer of German auto parts supplier ZF. ``We need to come up with more customer value, and there’s no way we can raise prices. So we need to change the way we cooperate.″

The automotive CEOs talked in particular of how to reduce or eliminate costs between manufacturers and so-called first-tier suppliers, which provide ready-to-install components such as brake systems and transmissions.

``Our biggest problem is that within the last 90 days, steelmakers raised prices 10 percent,″ said Tim Leuliette, president of ITT Automotive, which supplies $5 billion worth of components around the world. ``If we allow that, it puts a pinch on the first tier and all the way down.″ Suppliers are categorized down to the fourth tier, such as iron ore and rubber producers.

Eagle-Picher Industries of Cincinnati, Ohio does $500 million in business a year in vehicle component systems and hopes participation at the governors’ meeting helps propel it to being a more global company.

``The real meaning of Davos is you meet people outside of your own sector,″ said Andries Ruijssenaars, Eagle-Picher’s CEO. ``We met with government, environmental, financial people who influence our industries through interest rates and boosting our economies.″

Traditionally low-cost Japanese manufacturers are battered by the stubbornly high yen and aside from Toyota stayed away from the retreat.

Chrysler, once near bankruptcy, stands out as the success story of the 1990s, having hammered down production costs and squeezed out an enviable profit margin per car estimated at more than $1,300.

``Chrysler is the model. A lot of people were talking to Bob (Eaton), asking him questions,″ said Leuliette. ``The paradigm of insulated, global-threatening Japanese automakers is old.″

But he warned, ``The half-life of competitive advantage is about three or four years.″

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