Bosch is raising part prices for Detroit automakers: What it means for you
Auto supplier giant Bosch is renegotiating contracts with automakers to increase what it charges them for supplies, a move that could mean car buyers will see yet another boost on window sticker prices during this pandemic.
Automakers and suppliers typically have locked-in rates in contracts but war, COVID-19, inflation and other factors have forced Bosch to reopen the contracts early and set new rates, something that hasn't happened in the last decade, executives said.
“The contents of the contract did not reflect the situation we’re in and that’s why we’re sitting around the table to work out an agreement that is satisfying to both sides,” said Markus Heyn, chairman of the Mobility Solutions business sector for Robert Bosch GmbH, the global headquarters in Germany.
Bosch started meeting with automakers in the second half of 2021 to renegotiate prices, Heyn said, and has had to call for new meetings as its costs continue to escalate this year. He said the price increases could last beyond 2023.
Bosch's U.S. executives are alsohaving "a lot of extremely transparent conversations" with the automakers about the impact from higher raw material costs, Paul Thomas, Bosch's executive vice president of Mobility Solutions for the Americas, said in an exclusive interview with the Detroit Free Press.
Bosch, which supplies to automakers across all brands, makes components and systems for driver-assistance technology, brakes, steering controls and powertrains for gas-operated vehicles, as well systems and components for electric vehicles. In North America, its headquarters are in Farmington Hills.
Thomas said the cost of logistics to move products around the world is rising. Also climbing are the costs for energy and labor.
Thomas and Heyn said they could not provide a specific amount or range by which Bosch's prices will rise, saying it depends on the raw material used, the product and the vehicle program involved. But Heyn added, "It is in a significant range that we have to discuss it with our customers."
With a major supplier raising its costs, will automakers offset the added expense by passing on higher new vehicle prices to consumers?
"As the material costs go up, we’re trying to be more efficient with our customers to reduce costs in other areas of the value chain," Thomas said. "We hope that ultimately that can be reflected in consumer pricing, but at the end of the day, we don’t sell directly to the consumer, so we’re watching what our customers are doing."
An auto analyst at Morningstar said consumers can likely expect higher manufacturer's suggested retail prices.
"It seems every supplier needs relief from higher input costs," said David Whiston of Morningstar in an email. "It probably leads to some price increases all the way downstream. I can’t say how much."
He said most automakers will not pass on all of their higher costs to consumers because the vehicle still has to be affordable.
"I heard a few years ago GM did not pass on the tariff costs for the Envision made in China and exported here," Whiston said. "So it doesn’t always mean full pass-through to the consumers. New content in vehicles like for autonomous tech or safety can help justify a higher cost to consumers."
Bosch CFO Markus Forschner said Wednesday that the current cost pressure in the industry is "immense."
"It’s not just automakers that have to pass on price increases, but especially suppliers such as us as well," Forschner said. "To explain the enormous cost pressure relating to raw materials, let me give you the example of the indexed development of flat and round steel, two materials that are very important for us. Their prices have approximately tripled since 2020."
The steel price hike is due to the war in Ukraine, given the the key role Russia plays in supplying raw materials, especially to Europe, Forschner said.
"This means we must prepare for continued high prices and very volatile markets," Forschner said.
“No one is happy when prices rise, but ... it is unreasonable to say, ‘If all the prices of raw materials are going up so dramatically, that parts of the supply chain can compensate for that,' " Heyn said.
Heyn said since the beginning of the year, the average price for a new vehicle in Germany has gone up 8%, which he said reflects the higher prices for parts and materials.
“The price increase has already happened,” Heyn said of European window stickers.
Detroit 3 prices
General Motors, Ford Motor Co. and Stellantis were asked to comment on whether they foresee prices for their new vehicles rising to offset any increases in supplier costs.
Stellantis declined to comment, as did Ford spokesman Ian Thibodeau. "We don’t typically comment on supplier relationships," said Thibodeau.
Similarly, GM spokesman David Barnas said, "Our discussions with suppliers are confidential and we’re not going to speculate about future pricing.”
But in its first-quarter earnings release last month, GM CEO Mary Barra said the automaker remains confident in the demand for its vehicles, especially as it launches the new 2023 Cadillac Lyriq EV and updated full-size pickups. Barra told analysts that GM can maintain high pricing across its lineup and that GM will boost global production by 25% to 30% over the year.
GM's production volume increased 12% from the fourth quarter, said CFO Paul Jacobson, and most cars continue to sell as soon as they arrive at dealerships.
More: Sticker shock is a real thing for car shoppers right now: Here's why
But the average transaction price nationwide for a new car in March was $45,927, up 12.9% or $5,247 from the year-ago period, according to new data released by Kelley Blue Book, a Cox Automotive company.
Car buyers paid above the manufacturer's suggested retail price in 82.2% of new-vehicle purchases in January compared with 2.8% in January 2021,according to Edmunds.com, a car shopping analyst and data company, in a report it released earlier this year.
The high prices are due, in large part, to the industry's unusually low new-car inventory amid a global shortage of semiconductor chips, which are used in many car parts. Adding to that is the high consumer demand for new vehicles especially as 3.9 million vehicles are due to come off lease this year.
More: Everything you need to know about the chip shortage that's plaguing automakers
EVs create jobs
Thomas said pricey and hard-to-get parts mean limited new car production and with high consumer demand and low supply of cars on dealership lots, the prices soar. But he can't say a rise in material costs at a supplier will lead directly to new-car price hikes.
"Naturally if material costs go up, you would think the price of the vehicle would go up," Thomas said. "But it’s hard for me to make a one-to-one comparison if the vehicle price is going up with material because we’re trying to offset it with streamlining common products and reducing development costs."
As demand for EVs increases, however, the automakers and suppliers are transforming operations to help meet that demand, including hiring more workers with technology skills. Bosch plans to hire 10,000 software engineers to accommodate the shift to EVs and is competing with automakers looking to do the same. GM, for example is hiring for 8,000 technology-related jobs.
In the U.S., Thomas said Bosch is making electrification "a very prominent focus to support the market growth in this region," while still meeting demands for parts for internal combustion vehicles.
The move by many automakers to EVs is creating a drive to hire software engineers, Thomas said, noting Bosch is hiring "across the board to deliver software to these new vehicles because their controls become a little more complicated."
Recently, Bosch hired 300 software engineers to the global team, which will help support the U.S. market, Thomas said. Bosch expects to fill more than 500 software engineering positions in the North American region this year and the company said it plans to hire 10,000 software engineers globally. But finding that talent is tough.
"If we could find 100 or 200 engineers, we would hire them," Thomas said. "There is a small supply and demand issue related to labor because you’re not only competing within the automotive industry, but against the consumer electronics and the big tech companies for those types of skills."
In January, GM said it will hire more than 8,000 people across various technology teams and other areas of the company. In 2020, GM hired 3,000 engineers to help accelerate its development of EVs and self-driving cars. Last year, GM said it hired 10,000 people globally. GM employs 50,631 people in Michigan.
Recently, Ford cut 580 jobs as it made adjustments in select U.S. engineering teams. CEO Jim Farley has said Ford needs different talent going forward.
Bosch has an apprentice program to develop people out of college and it is "re-skilling" existing employees to learn more about software.
As of Dec. 31, the Bosch Group employed 402,614 people worldwide, up by 7,580 over 2020. This increase was seen in Europe, the Americas and Asia. In research and development, Bosch hired 2,949 people for a total of 76,121 employees.
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Contact Jamie L. LaReau at 313-222-2149 or firstname.lastname@example.org. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.
This article originally appeared on Detroit Free Press: Bosch to up part prices on Detroit automakers, hire 10,000 engineers