The chief executive of a major U.S. automotive supplier urges peers to rise up against conflicting price pressures from automakers and steelmakers created by the steel tariffs. Tim Leuliette, chairman and CEO of metal parts supplier Metaldyne Corp. of Plymouth, Mich., says auto parts suppliers should rise up against the steel tariffs, even if it means "bringing Detroit to its knees."

At an auto industry conference in August, during a speech entitled "Detroit, We Have A Problem," Leuliette also slams the steel industry, which has been raising prices as much as 40% from 20-year-lows with the assistance of tariffs on imported steel imposed by the Bush administration. He also has harsh comments about unexpected—and unexplained—tight supplies of sheet steel. The primary types of steel used by Metaldyne this year are subject to a 30% tariff, which Leuliette calls "patently dishonest."

Steelmakers have defended the tariffs and price increases as necessary to ensure their survival. The Metaldyne CEO contends that automakers—who have long-term, fixed-price contracts with steel companies—have left parts suppliers to fend for themselves. Metaldyne is a $2 billion/year supplier of steel and nonferrous metal-based components, assemblies and modules for chassis, engine, driveline and transmission applications.

"We expect steelmakers to reduce prices next year in line with our cost reductions to the automakers," Leuliette says. "We don't have the means to support you. If you want price increases, you will need to make your case to the OEMs (original equipment manufacturers)." Leuliette says the steel tariffs, "which the Big Three view as a problem just for parts makers, must become the auto industry's problem." His point: "Suppliers cannot and must not be forced to absorb price increases legitimized by the politically driven tariffs. If we must bring Detroit to its knees over this, so be it."

Before the conference even convened in Traverse City, Mich., Peter Peterson, automotive marketing director for U.S. Steel Corp., told Reuters news service that the auto industry had enjoyed the benefit of record low steel prices for years.

"If they (suppliers) thought there was no end to prices going down, and the collapse of the domestic steel industry was not going to have an effect on the prices of the goods they bought, I'm sorry they built a business plan on that," according to Peterson.

And that is partly behind Leuliette's comments. Tier 1 and other auto suppliers are enjoying the fourth straight year of high production, but profitability is near historical lows. The cause is not hard to identify: profit projections of General Motors Corp., Ford Motor Co. and DaimlerChrysler's Chrysler Group rely on cutting parts costs by billions of dollars annually for the next several years.

So, at a conference usually steeped in the relaxed atmosphere of a northern Michigan resort surrounded by three golf courses, Leuliette's battle talk stood out and even was interrupted by applause by his peers. "The Big Three cannot return to their past glory by having the supply community financially subsidize their inability to address their own problems," Leuliette says.

With much of the global auto industry's overcapacity aimed at or in the U.S., automakers in North America face declining prices for new vehicles. Chrysler's economist, Van Jolissaint, tells the seminar, the situation is not expected to improve this decade. "That's going to continue to put pressure on the automaker-supplier relationship," he said. However, since suppliers employ 80% of the people now building vehicles in North America, and invest over half the capital, the problem is that "unfortunately, the supplier community often behaves as if it has no leverage," Leuliette says. "We're far too tame," he says, adding that this attitude must change.

A survey released in mid-August by the Original Equipment Suppliers Association found that among about 50 suppliers, the average of operating earnings as a percent of sales has fallen 30% in the past three years. The study suggests half of all auto suppliers "should feel significant urgency" to improve profits, with 15% of suppliers "severely unprofitable." Analyst Jay Ferron at PriceWaterhouseCoopers says: "The industry is destroying wealth. Participants are operating as if this industry is a good hobby."

Most automaking executives that spoke at the annual Automotive Management Briefing conference praised suppliers as equal partners in their business and expressed concern with their survival. "We don't want to put the squeeze on anybody," says GM's Vice Chairman, Bob Lutz. "It's like the cattle rancher who decided he could maximize profits if he could just reduce the amount of food for the cattle...the plan looked great on paper—projected profits were sensational—until the day the cattle all fell over dead. Dead suppliers don't do anybody any good. We want all of us to win together."

Still, David Cole, director of the Center for Automotive Research and organizer of this annual management seminar, says the pressure will force suppliers and automakers to come up with a new model for doing business. Still, Leuliette provides one maxim he thinks suppliers should live by: "We're not here to make cars or car parts. We're in business to make money-making car parts."