Automotive News - Traverse City - August 7, 2019 - 11

AUTOMOTIVE NEWS CAR MBS DAILY

WEDNESDAY, AUGUST 7, 2019

The biggest suppliers beef up for change
Who else can afford the cost of new tech?
Published June 24, 2019,
in Automotive News

Lindsay Chappell
lchappell@crain.com

he supplier world is rushing
into new technologies to deliver the grand vision of the auto industry - widespread electrified powertrains and advanced
safety and convenience technologies
that will allow vehicles to steer, accelerate and brake themselves.
But that transformation isn't having any noticeable effect on the global pecking order of the industry's
biggest parts companies.
Not yet, at least.
The annual Automotive News ranking of the top global suppliers reveals
that as the main players build revenue, transform and change direction, they remain in much the same
order of size as they were a year ago.
Bosch, Denso, Magna, Continental
and ZF Friedrichshafen remain the
world's five biggest suppliers, in the
same order on the Automotive News
list as a year ago. Only two of the top
10 - Valeo and Faurecia - changed
rankings last year. They swapped positions on the list, with Faurecia No. 9
and Valeo No. 10.

Hefty costs
The main reason suppliers, for the
most part, are keeping their spots as
the biggest of the big? Wealth.
The cost of playing in the game has
gone up in the past few years, and only
the biggest and richest can afford the
rising costs of acquiring the technologies that will make the industry's vision become a reality.
"You can't buy anything related to
autonomous vehicle software technology now that's not in the billions
of dollars," said Dietmar Ostermann,
U.S. automotive advisory leader at
PwC, which tracks global automotive merger and acquisition activity
globally. "So if you want to be in the
autonomous game, the size of your
company matters massively."
Mergers and acquisitions have
roiled the segment as suppliers jockey for a seat at the table to come.
According to PwC, the combined
value of supplier mergers and acquisitions has nearly tripled from a decade
ago. It averaged around $20 billion a
year for 10 years, Ostermann said.
From 2014-17, it averaged about $50
billion to $60 billion, before jumping
to a record $97.5 billion last year.
The desire to beef up with connectivity and autonomous capabilities
has triggered acquisitions for software and electronics companies.
Last year, there were 20 deals each
worth more than $1 billion - twice
the level of activity of the past three
years. The sector recorded 903 merger-acquisitions during the year.
Among those that reported a deal value, the average size was $286.8 million.
The quest for more technology is
also focused on older auto parts.
Even as EVs rise on the horizon,
automakers are asking suppliers to
help make internal combustion engines more competitive, smaller and
lighter, requiring turbocharging and
direct injection. The same lightweighting effort is driving opportunity among steel, aluminum and
composite material suppliers.
Companies are questioning their

past business segments and repositioning themselves for new roles
through mergers, investments, divestitures and corporate restructurings - even if the technology revolution has not kicked in yet.

New roles
The question hanging over the
heads of supplier executives: When
will the new order of electrification,
connectivity and autonomous driving begin delivering revenue and
profit on a par with the cost of restructurings, acquisitions and development investment?
Significant financial payback could

be another decade away, according
to several forecasts.
For now, said Daron Gifford, strategy and automotive consulting leader at Plante Moran in Detroit, large
suppliers will have to sort out the
daily challenges of the auto business
the same as small suppliers. Those
include delivering flawless parts to
customers on time, running their
factories efficiently and meeting the
cost reduction demands of automakers' purchasing managers.
"Being a big guy can be helpful,
maybe in being able to drive down
your own costs, or in being able to
drive innovation at your business,"
he said. "But whether you're big or
small, you face the same issues." m

Top 10 global suppliers

Ranked by 2018 original-equipment parts sales to automakers
worldwide
(2017 RANK)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Robert Bosch
Denso Corp.
Magna International Inc.
Continental
ZF Friedrichshafen
Aisin Seiki Co.
Hyundai Mobis
Lear Corp.
Faurecia
Valeo

†Fiscal year

*Estimate

(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(10)
(9)

Source: Automotive News Data Center

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Automotive News - Traverse City - August 7, 2019

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