Interrupting payment mode poses a heavy burden on automotive mold manufacturers

NOVI, Michigan, USA - In order to achieve the expected new product production goals, the North American automotive industry will need to target high-quality tool and mold manufacturers in the future.

Industry observer Laurie Harbour said that the question is whether the expected shortage of mold production capacity is enough to change the standard payment structure of mold manufacturers.

On October 31st, Harbour Results Inc. held a media briefing on the latest research from automotive supplier mold suppliers in 2013, saying, "As a mold manufacturer, you may start a production project in January of a certain year and may not have received payment by the following spring. Such companies are in a mode of interruption in receiving payment and receiving treatment within the industry

Harbour Results has found through research that if car manufacturers intend to change their mold payment system and lock in future production capacity to preferred suppliers, they can reduce mold costs by millions of dollars.

This issue involves the standard business practices of the North American automotive industry, where mold manufacturers are selected through car manufacturers and top suppliers.

Although the mold itself belongs to the car manufacturer, the mold manufacturer only has the right to receive payment after the mold is completed and passes all quality and production tests - a process commonly known as PPAP (Production Part Approval Process). Harbour said that payment usually takes 60-90 days at this time, which means the payment period may even be longer.

She said that multinational car manufacturers also adopt this approach, and they may completely adopt a completely different system in their own country.

Due to the fact that most mold manufacturers are small companies with an average sales revenue of  million, they cannot afford their own materials and production costs and must rely on loans to pay off production expenses until they receive payment. Meanwhile, precisely because most mold manufacturers are small-scale private enterprises, they have to pay at least 6% loan interest.

Harbour said, "This is a pain that every mold manufacturer here can't shake off

Dave Andrea, Senior Vice President of Industry Analysis and Economics at the American Original Equipment Suppliers Association, said that in comparison, payment terms for car manufacturers and large suppliers are much more favorable. Toyota recently announced that its loan interest rate may only be 0.7%.

Due to mold manufacturers including loan costs in mold prices, car manufacturers ultimately have to pay higher loan interest. Harbor Results reported that in 2012, the interest expenses on mold loans in the automotive industry reached 0 million - equivalent to approximately  per vehicle.

Enabling an alternative payment system will provide mold manufacturers with the necessary funds during the production process, allowing them to avoid loans. Harbour said that this "progressive payment" method will first pay 30% of the amount to the mold manufacturer to purchase the steel needed for the mold, then pay 30% during the production process, pay 30% after the mold is delivered, and finally deliver 10% after the PPAP is completed.

This approach helps to reduce the cost of mold manufacturers, thereby lowering the cost of the final mold. Harbour said that the change in payment terms can also encourage mold manufacturers to prioritize taking on the company's work, providing a guarantee for the important mold production capacity of car manufacturers and suppliers.

She said, "For any mold manufacturer, the most important factor in ensuring production capacity is to agree to adopt a progressive payment method

However, the issue of payment terms is highly sensitive in the industry. The research by Harbour Results shows that although progressive payments are sometimes adopted or implemented as part of pilot projects, car manufacturers are currently unwilling to make changes.

Harbour said that the current payment system allows car manufacturers to record mold development costs on their books only after the cars are put into production - in order to please stock analysts.

She said, but as the North American mold industry considers tightening production capacity in the coming years, the time is ripe for change.