None of us like surprises, especially in our business dealings where they could cost us money. So, I thought it might be wise to introduce a subject here that already is painful for some in our industry and soon could be just as painful for even more of us.
I’m talking about steel prices.
They’ve risen dramatically this year, long-term guaranteed prices are a thing of the past and supplies are limited, in some cases. One West Coast accessories maker told me he’s stockpiling steel, something he’s never done before, to protect against price increases and to guarantee delivery. Historically, he’s purchased raw materials on a just in time basis to limit costs.
As prices rise dramatically to aftermarket manufacturers, they are faced with cutting their margins or passing on the increase to distributors and dealers or some combination of both.
Since most aftermarket makers sell through distributors, those operations also will be faced with the same decisions.
Fred Fox, chairman of LeMans Corporation that owns Parts Unlimited and Drag Specialties, said his company doesn’t plan any price increases. The distributor, which has more than 1,000 suppliers, has been able to make major purchases from key suppliers to guarantee prices.
“We’ve known about this for some months,” he said, “and in most cases where suppliers said we could be price protected, we bought heavily.”
The Janesville, Wis., distributor has a policy of not departing from its catalog prices and doesn’t plan to do so now. “We’ve always told dealers they could depend on us, and this was a time for us to step up,” says Fox.
No word yet on price increases from other distributors, but as one aftermarket manufacturer told me, dealers shouldn’t be surprised if they get some hefty increases this year.
Unfortunately, dealers also may have to pass on at least a portion of those increases to their customers. And those customers could be unhappy if they are looking at first quarter or fourth quarter 2003 pricing. Dealers should be prepared for a possible customer backlash.
What kind of price increases are we talking about? According to one published report, hot-rolled sheet steel, the stuff used by car makers and others, hit $605 per ton in April, up from $360 in December.
Cobra Engineering hasn’t decided on how it will handle the cost situation, but it has been hit with steel price increases of 17% in the fourth quarter last year and 22% in the first quarter this year. It’s estimating a second quarter hike of 36%.
Since most of his products are made with aluminum or steel, that’s tough to swallow.
And chrome plating costs are jumping, too.
Ron Hickman, president of Cycle Country Accessories, the large Milford, Iowa, maker of ATV accessories, says he’s seen a big change since January, with his steel costs climbing in the range of 15%. “And last year,” says Hickman, “we could lock in prices for a year. Now three months is the most you can get.”
Hickman says at least some of that price increase will be passed on through the distribution channel, but no decision has been made about the extent of the price increase.
Why the price hikes?
It’s not entirely clear to me why U.S. steel producers are pushing the calculator buttons the way they are, although several reasons are mentioned.
The “G” word (as in price gouging) is mentioned, of course. Some claim that steel producers are taking unfair advantage of an increased worldwide demand for steel.
Others say that as a result of tariffs imposed by President Bush on imported steel, foreign producers looked for other markets. They found those in China’s booming manufacturing sector. The tariffs were dropped last year.
A shortage of materials used in making steel, such as scrap steel and coke, has limited production and driven up the costs of production, goes one popular theory.
Much of these raw materials are being purchased by foreign steel producers.
So, what’s the bottom line here? What does it mean for dealers at the end of the distribution channel? Perhaps very little. If distributors such as Parts and Drag don’t increase prices, or if they keep these price increases very low, there will be little impact at the dealer level this year. Much will depend upon future steel pricing. We’ll have to wait and see. psb
Copyright 2004 Powersports Business