Guide to Top Suppliers - S3

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Suppliers endure dicey times around the world

Alexa St. John
astjohn@crain.com

he world's biggest auto parts suppliers
have their hands full this year. But for
many of them, the challenges were already piling up in 2019.
Well before the coronavirus pandemic brought
down global vehicle production in March and
turned suppliers' operations upside-down, the
parts industry was taking it in the gut over a steep
business decline in China, a protracted labor
strike at General Motors and a fraught reordering of product plans in Europe where regulators
are clamping down on the production of traditional CO2-emitting vehicles.
But even as parts makers navigated those market potholes last year, they managed to remain in
much the same competitive ranking as they have
for the past two years, according to this year's Automotive News top supplier ranking of the industry's largest parts companies.
Bosch, Denso, Magna, Continental and ZF
Friedrichshafen remain the world's five biggest
suppliers, as they have for the last two years.
Of the top 10, only two - Lear Corp. and
Faurecia - changed rankings last year. They
swapped positions on the list, with Faurecia
now No. 8 and Lear No. 9.
"Last year we really were at the back end of a
long, strong growth cycle for the automotive
industry," said Dietmar Ostermann, U.S. automotive advisory leader at PwC, which tracks
global automotive activity globally.
And all of last year's challenges compound
the struggles suppliers now face as they tread
water from pandemic-induced liquidity issues
and parts shortages, he said.
"It blows enormous holes into those auto
suppliers, and some of them will not make it,"
Ostermann said.

The results
The industry's suppliers examined their
roles in electrification and autonomy last year
as they looked toward the future.
"Clearly the transition of the industry and

Making its debut on the list is Marelli, formed
after Fiat Chrysler Automobiles sold Magneti
Marelli to Japan's Calsonic Kansei last year.

refocus of the industry started to really gain
momentum and speed outside of the industry," said Jeff Schuster, LMC Automotive president of the Americas and global vehicle forecasting. "That left a lot of suppliers questioning
the longevity of their business. If they were focused in the space of ICE, they're scrambling
to try to transition or expand or refocus while
not knowing when the market will actually
flip."
Several suppliers considered significant investments in electrification, vehicle light-weighting, connected-car activity and anything related
to autonomous driving last year, Ostermann
said.
They seemed to place their biggest bets in
electrification and self-driving commercial vehicles.
Dana Inc., the Toledo, Ohio, producer of transmissions and axles, completed its acquisition of
Nordresa Motors Inc. in 2019 to gain additional
capabilities in electrified powertrain systems.
Last year, German parts giant ZF Friedrichshafen
announced plans to acquire trucking brakes supplier Wabco Holdings Inc. ZF expects the acquisition, completed in May, will lead to a better position in self-driving commercial-vehicle development.
"People were aggressively making acquisitions; some of those probably were riskier
than others," Ostermann said. "The riskier ac-

quisitions that were big to swallow hurt those
suppliers now."
In Japan, Honda agreed to merge three affiliated suppliers - Keihin, Showa and Nissin
Kogyo - with Hitachi Automotive Systems to
create a global megasupplier of electrified vehicle drivetrains, electronic control units and
other components.
"All of this at the same time created microcosms of challenges in various parts of the
world," Schuster said, "and I think that's really
difficult sitting on top of this need to invest in
the future."

Perfect storm
Last year presented the perfect storm of
megachallenges that put pressure on the supply base in an unprecedented way, Randy
Miller, global advanced manufacturing and
mobility leader at EY, told Automotive News.
As a result of troubles in China and Detroit,
many suppliers reported sizable declines in
revenue.
Panasonic Automotive Systems Co. sustained a nearly 22 percent decline in total
global sales to automakers in 2019.
Mexican supplier Nemak, which reported
major losses from the UAW strike, took a 15
percent hit to sales, falling six places in the industry ranking to No. 58.
And Thyssenkrupp fell five places to No. 21
this year after an 18 percent drop in sales.
On the flip side, some suppliers did relatively well despite the choppy circumstances.
Delphi Technologies reported a nearly 14
percent boost in sales last year. The South Korean lighting supplier SL Corp. reported a 33
percent increase in sales from the year before.
Making its debut on the list of top suppliers
is Marelli - formed after Fiat Chrysler Automobiles sold its parts unit Magneti Marelli to
Japan's Calsonic Kansei in a $6.5 billion deal
last year. The combination of the two companies yielded the industry's 14th largest supplier, with total global sales to automakers of

$14.94 billion in 2019.
The gains were all the more remarkable in a
year when issues clobbered companies ahead of
the even more disruptive pandemic to come.
The decline in vehicle demand in China
knocked sales at Lake Forest, Ill.-based supplier Tenneco, slashed full-year production forecasts for Garrett Motion and largely was responsible for slowed sales growth in the first
half of the year for ZF.
The lengthy GM UAW strike hurt several suppliers. The interruption took $57 million out of
third-quarter sales at Detroit-based driveline and
drivetrain supplier American Axle & Manufacturing Holdings, Inc.; dropped Nemak's third-quarter earnings and total revenue by 13 percent and
16 percent, respectively; and cost Faurecia $25.5
million in the third quarter last year.
The enormity of stricter emission regulations in China and Europe also hit parts makers. Continental said last fall it was going to
start restructuring and cutting as many as
20,000 jobs worldwide, because of European
market challenges in particular.
"The continued emergence and maturity of
new business models and alignment around
new mobility frameworks - that evolution
and the decline in investment in some of those
business models - was a big contributor to
the challenges," Miller said.
"When you take the strike into context of the
market slowdown that we were seeing at the
end of last year, then you also factor in the volatility of the trade agreements in some of the
biggest markets, that's when you start to get
almost a perfect storm to come together. It
puts everybody in an even tougher position
with COVID hitting," he said.
Ostermann observed that last year's challenges will make 2020's all the more troubling
for many larger suppliers.
"They typically would have been in the financial position to survive COVID-19," he
said. "If those companies right now are struggling, it is because of fundamental problems
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they had before." m

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