Pricing Dispute Hurts Lear Results

A customer pricing dispute increased auto-part supplier Lear’s 2005 loss by $6M, the company reported today. According the Lear, the customer made a unilateral “pricing adjustment,” withholding payment on parts ordered for a product line that is no longer in production. This dust-up follows the lawsuit filed by DaimlerChrysler against Lear last year, after the two companies could not agree on pricing. Lear wanted to raise prices. DaimlerChrysler didn’t want to pay the increase, so Lear threatened to stop shipping parts. The firms settled the case. Automakers are under tremendous cost pressure and they are putting the squeeze on their supply chain (“Strategic Sourcing”). Unfortunately, when millions of dollars are on the line, short term profit concerns can kill a good business relationship. While I do not know the details of these cases, it’s important to maintain price credibility to be willing to walk away from business.