Already battling to hold on to market share and contain labour costs, General Motors and Ford Motor have another big challenge on their hands: the cost of components used in their cars and trucks.
Several parts makers that have sought bankruptcy protection in recent months have forced the carmakers to agree to price increases or face the threat of supply disruptions of essential components.
"It's almost where suppliers are using Chapter 11 as a strategy rather than its traditional purpose for survival," says Jim Gillette, analyst at CSM Worldwide, a consultancy. "It's a very tough spot now for GM and Ford."
The latest to complain about low prices is Dana, the 104-year-old Ohio-based maker of suspensions, axles and transmissions that filed for protection from creditors last Friday.
Dana said in a court filing that GM and Ford, its two biggest customers, had "relied upon an unprecedented level of incentive programmes to stimulate sales and remain competitive and, as a result, have exerted increasing pricing pressures on, and obtained other concessions from, Dana".
Dana joins dozens of other North American suppliers that have either sought court protection or gone out of business. The casualties are not confined to parts makers.
Allied Holdings and Performance Transportation Services, the continent's biggest vehicle hauliers, filed for Chapter 11 protection this year. The two companies depend on GM, Ford and DaimlerChrysler's Chrysler division for more than 70 per cent of revenues.
"Dana's bankruptcy is likely just the tip of the iceberg given the burdensome high fixed cost structure facing the domestic auto industry," John Murphy, analyst at Merrill Lynch, says. "We expect GM and Ford to lose market share in 2006 and the next few years, which means that things will likely get worse before they get better for suppliers and vehicle manufacturers alike."
The Detroit carmakers have typically insisted on annual price reductions of about 3 per cent in recent years. A GM programme that ended in 2005 provided for price cuts totalling 20 per cent over three years. More recently, however, the carmakers have been forced to backtrack on those reductions.
Chrysler disclosed this week that it had set aside $120m in 2005 and $70m this year for extra payments to Collins & Aikman, a maker of acoustic equipment and interiors that has been in bankruptcy protection since last spring. DaimlerChrysler took another Euros 13m ($15.5m) charge for price increases in Europe. Tower Automotive, specialising in vehicle frames, is seeking $10-25m in price relief from its customers.
GM last November agreed to "interim financial support" for Delphi, its biggest parts supplier, in the form of a reversal of previously agreed price reductions. Delphi has threatened to tear up its contracts with GM unless further concessions are forthcoming. GM spent about $11bn on Delphi parts last year.
Chris Ceraso, analyst at Credit Suisse, predicts that "one of the first things that will come out of (Dana's) bankruptcy process is likely to be a re-pricing of contracts with its customers. This is bad news for most global vehicle manufacturers, but particularly so for Ford, GM and Chrysler."
The pressure for higher prices comes at a time when Detroit-based and European carmakers are trying to put relations with suppliers on a more stable footing.
Instead of seeking components from a wide variety of potential suppliers, the carmakers are increasingly forging long-term partnerships with a few preferred companies.
David Vasak of PA Consulting in Frankfurt says the vehicle manufacturers are following a pattern set by Toyota, which results in the carmaker paying higher prices for parts in return for more reliable technology and more security in long-term planning.
GM has a policy of withholding new business to suppliers in bankruptcy protection, with the exception of Delphi. Mr Gillette says this may become increasingly difficult to enforce as more parts makers head for the courts.
Still, as restructuring of the North American industry proceeds, financially healthy groups - generally those with a relatively low exposure to the Detroit-based carmakers - could grow in size and gain more negotiating clout.
Analysts name Johnson Controls, Magna International of Canada and Germany's Bosch among those set to benefit. Mr Vasak says that Bosch's vaunted technology puts it in an especially strong negotiating position.
