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A PRTM Study of the Winning and Losing Auto Suppliers
2 Regional Factors..2 Winners and Losers.11 Study Methodology......1 Industry Backdrop...Table of Contents Executive Summary. Barry Neal ...4 The Road Ahead...12 Authors: Dietmar Ostermann.
Our findings indicate: n n Global 100 European suppliers and Chinese suppliers will be among the top global consolidators. Chinese suppliers will play a top role in consolidating within the interior systems segment. Only one U. which will intensify as the global credit markets continue to loosen within the next 12 months. n n |1 . Based on more than 20 financial and qualitative criteria. page 12). while two Chinese suppliers are on the list.a prtm study of the winning and losing auto suppliers Executive Summary This report highlights the results of a recent PRTM study of more than 350 global automotive suppliers. supplier is among the top 10 potential global consolidators. Several large Global 100 North American suppliers are currently at risk of going bankrupt. North American and European suppliers will be the biggest consolidators in powertrain systems. The study reveals that the economic crisis and the resulting downturn in the global auto industry have caused a significant shift in the automotive supply chain. These bankruptcies will be followed by a period of consolidation. The chassis and electronics sectors will experience the strongest bankruptcy and mergers and acquisitions activity.S. Bankruptcy & Consolidation in the Global Automotive Supply Industry assesses trends within the sector and identifies possible winners and losers (see sidebar. n n n The number of automotive supplier bankruptcies has grown significantly since 2007 and is continuing to grow.
companies from these regions scored. 2| . Although the economy may be improving. Japan. have forced many into bankruptcy. there is another side to this picture. The sharp disparities in business conditions have left automotive suppliers on shaky ground. consumers have stopped buying high-ticket items like cars in an effort to limit cash outflow. sales volume in several major geographies. and refocuses on emerging markets. has resulted in mortgage defaults. Current and predicted global vehicle sales volume paints a clear backdrop of how badly car makers have been hit—and how they must adjust planning and supply chain processes to account for continued weak demand. on average. North America’s Global 100 suppliers fared worse than the population overall. the highest and are in the best position to become buyers (Figure 1). Europe. To better understand what is happening in the industry and to identify which companies may fare better or worse than their competitors. and South Korea. a tight credit lending market. Without cash and borrowing clout. Regional growth may explain. and will constitute the largest percentage of bankruptcies and divestitures. To date. South America. PRTM studied more than 350 global suppliers from North America. Based on our analysis of various financial and qualitative criteria. By contrast. China’s vehicle sales. China and emerging markets like Brazil are experiencing an uptick in auto demand.5 million units that were common during the earlier part of the decade. Given the incredible growth during the last few months—more than 30%—it’s possible that this progress may be realized much sooner. India. China. and a drop in consumer spending. for example. and European suppliers. and nearly seven times that of North American suppliers (Figure 2). Japanese. massive job losses. China’s auto suppliers grew at an average compounded rate of about 20% from 2004 to 2008—more than double the rate of Indian.5 million units within the next five years. particularly in North America. PRTM predicts sustained lower vehicle sales volumes for most regions going forward. in part. PRTM anticipates even more bankruptcy and M&A activity among the global auto supply base. sizes up near-term demand and production capacity. where it is estimated that longer-term light vehicle sales volumes will mature around 13 million units per year—a far cry from the 16. and in the last year. are estimated to increase by more than 50% from 2008 levels of approximately 9. followed by a severe worldwide recession. reduced compensation. However. The housing bust. has dropped about 40% from 2007. why some geographies have better-performing companies.bankruptcy & consolidation in the global automotive supply industry Industry Backdrop The financial crisis has left an indelible mark on the automotive sector. The most significant scenarios point to: n n An accelerated pace of bankruptcy filings An industry-wide consolidation led by large European and Chinese suppliers A noticeable shift in winners and losers on a regional level n Regional Factors European and Chinese suppliers will be the major industry consolidators. except for China. As the industry begins to assess the impact of restructurings and bankruptcies. Our analysis shows several scenarios likely to unfold in the coming quarters.
9 3.1 5.0 $6.0 2.2 3.9 5.1 3.9 $1.7 $0.1 3.4 Divest 4.6 4.7 Fail 4.6 3.9 $0.3 4.2 3.1 3.a prtm study of the winning and losing auto suppliers FIGURE 1: Supplier Scores by Region Region Global Global North America North America Global Europe Europe Japan Brazil India China South Korea Total/Average of All Number of Companies 93 31 30 38 52 97 10 33 24 35 355 Buyer 5.7 $0.6 3.1 4.2 4.9 $12.0 5.3 3.4 3.7 3.0 FIGURE 2: Supplier Financial Results by Region sales CAGR ‘04–’08 Global 100* North America Europe India China Japan South Korea Brazil 8% 3% 9% 8% 22% 9% 8% 19% ebitda CAGR ‘04–’08 6% 4% 5% 10% 37% 10% -3% 16% Avg.3 3.5 5.1 4.0 4.8 4.2 4.1 5.1 $1.0 3.4 4. 2008 ($B) $1.7 3.0 Seller 3.2 4.5 4.4 4.4 3.1 $0.5 $2.8 4.1 4.5 5.2 $9.2 $0.4 $0.1 EBITDA % of Sales** 11% 12% 12% 15% 10% 10% 15% 15% * Global 100 companies also counted in regional numbers ** Average sales per company compared to average EBITDA per company |3 .5 5.7 4.5 $0. 2008 ($B) $17.3 4.1 $0.4 Avg.2 3.
FAWER Automotive Parts Limited Company. Ltd. China. in Guangzhou. are considered to be among the top 10 potential global consolidators. As a result. Winners are defined as companies that have the financial wherewithal to lead consolidation and buy weaker companies or competitors’ assets.bankruptcy & consolidation in the global automotive supply industry Winners and Losers By all indications. which will gain momentum as credit markets loosen. Some are now strong enough to acquire other companies. divest assets because of financial troubles. is in the top 30. Hella KGaA Hueck & Co. Chinese suppliers. or go out of business. the parts maker partially owned by state-owned auto maker First Auto Works (FAW) in Changchun. (lighting). Companies such as ZF Friedrichshafen AG (transmissions.. Losers are companies that will file for bankruptcy. operating in a booming market and. They will be in a dominant position to lead consolidation globally. have consistently improved their global market share in recent years and are displaying improved profitability. divestitures of non-strategic business. benefiting from central government support. particularly German suppliers. Guangzhou Automotive Components. and Weichai Power Co. BASF SE (paint). on average. Guangzhou and FAWER are the components divisions of two of the largest state-owned automobile manufacturers. It 4| . Winners: European and Chinese Suppliers Our study found that large European and Chinese suppliers. Guangzhou has actively been buying automotive assemblers and suppliers. a state-owned diesel engine manufacturer in Weifang. China. A third Chinese supplier. suggesting they will continue down this route in the immediate future. a division of the highly profitable 51% state-owned automobile manufacturer Guangzhou Automobile Industry Group Co. and Benteler AG (body and chassis) are the most likely consolidation front-runners. the winners and losers on the worldwide stage will also change. and supplier mergers and acquisitions. Chinese suppliers have already taken steps toward consolidation. Various European companies. steering). in some cases. the next several quarters will mark an increase in bankruptcies. China. will be the biggest winners. appear on PRTM’s top 25 potential global buyers’ list (Figure 3).
Only one of the top 10 potential global buyers is from the United States: PPG Industries Inc. Four other U. Ltd. And FAWER—which last year changed from a state-owned company to a holding company recapitalized at one billion Chinese yuan renminbi (about $146 million)— is a solid profitable company. and Honda Motor Co. several of which are Toyota Keiretsu companies lead by Denso Corp. on score of 0–10. Japanese suppliers are also not expected to be consolidation leaders. (powertrain and seals). suppliers also rank among the top 25 potential buyers: Cummins Inc. longtime industry stalwarts.0 0. Likewise.S.a prtm study of the winning and losing auto suppliers FIGURE 3: Top 25 Suppliers by Consolidation Score 10. however. a French maker of diesel engines and gearboxes. a Pittsburgh. PA-based diversified glass and paint supplier. See Study Methodology. Gentex Corp. El DuPont de Nemours (paint). as well as one recently-formed joint venture with General Motors for light trucks. giving it more influence with and access to key modern manufacturing and product development capabilities. North American suppliers. Eight Japanese suppliers made the top 25 potential global buyers’ list. (exterior. even though they have strong buying scores. generally did not score as well as potential buyers. |5 .0 4. Based on their histories and our industry experience.0 2.0 US-based companies 8. and Federal-Mogul Corp. we believe they will not engage in mergers or acquisitions in any significant way..0 has also formed joint ventures with Toyota Motor Corp. electrical).0 China-based companies Other Consolidation Score* G ua ng zh ou Au 6. and Toyota Boshoku Corp. to m G obi ro le up To yo De ns ta Bo o sh ok Jo u hn so Z n M F at th ey SK F BA SF W ei ch PP ai G Po Ta we r ta G ro u Ai sin p Se iki H el Cu la m m M ag ins Ai na ch In iM t’l ac hi N ifc ne o In du st ry N S TS K Te c Be h nt el e D r Al uP ps on El t ec tr To ic m kin G s Fe en de te ra l-M x og ul M ah le *Potential of company to make acquisitions. in China. (diesel engines). Weichai Power recently bought Moteurs Baudouin SA. It has access to modern technology via FAW’s two established vehicle assembly joint ventures with Volkswagen AG and Toyota.
2005–2009 40 35 Number of Bankruptcy Filings 30 25 20 15 Actual bankruptcies Projected bankruptcies 40 10 5 0 35 30 25 20 15 10 5 2005 2006 2007 2008 2009 0 6| . The number of supplier bankruptcies is accelerating (Figure 4). FIGURE 4: Automotive Supplier Bankruptcies. will be auctioned or sold. The filings in 2008 were roughly double the number seen in 2007. Prominent large North American suppliers currently in bankruptcy—Visteon Corp.bankruptcy & consolidation in the global automotive supply industry Losers: North American Companies The study also found there is likely to be an increase in bankruptcy filings and divestures of nonstrategic business units. TRW Automotive Holdings Corp. Flex-N-Gate Corp. auto industry was so much stronger than in most other regions and. ArvinMeritor Inc. The North American suppliers that face potential bankruptcy risk include: American Axle & Manufacturing Holdings Inc.. many of the North American suppliers are in weaker financial positions. we believe these companies will go through reorganization. 2009 filings will surpass 2008 levels significantly. and Lear Corp. by our estimate.. according to our analysis. These events will add greater risk and instability to the automotive supply chain over the next few months..S. Metaldyne Corp.. or will divest certain businesses. Bankruptcies.. since 2009 year-to-date bankruptcies have already reached prior-year levels. since the downturn in the U. On the basis of our analysis. We anticipate that large North American suppliers that are part of the Global 100 suppliers will constitute a larger percentage of bankruptcies. And...—also appear on PRTM’s list of top 25 global bankruptcies (Figure 5). Hayes Lemmerz International Inc.
.. based on score of 0–10.S. Ltd.. It is likely that Schaeffler will try to divest several businesses. According to our analysis. a German producer of bearings and many other components.. have close ties to the former Detroit Three automakers. Several North American and European suppliers may try to escape the threat of bankruptcy by divesting certain assets or businesses (Figure 6). electrical/electronics. electronics firms that have financial difficulties stemming from the downward slide in consumer electronics purchases may decide to shed their automotive businesses. See Study Methodology. powertrain. This includes companies such as Clarion Co. Divestitures. Schaeffler encountered financial difficulties as a result of acquiring Continental AG.a prtm study of the winning and losing auto suppliers Tenneco Inc. Previously in good financial health. Schaeffler KG.intensive footprint. Ltd. |7 . These companies all have three things in common: they provide capital-intensive subsystems. interior. two segments face the greatest consolidation pressures. Major Developments by Vehicle System Within the six main vehicle systems (exterior. Based on the number of total suppliers by vehicle system and the number of possible strong FIGURE 5: Top 25 Suppliers by Bankruptcy Score 10 9 8 US companies Others Supplier currently or recently in bankruptcy 60 50 Bankruptcy Score* 7 6 5 4 3 2 1 0 40 30 20 10 0 D e er lph ica i n Ax l H ay Vis e es te on Le m m er Ac z er Ku m tec bo Ti r D Ch e ia m as on ys d El ec tri c Le a Br r em b C o Ar lar vin ion M er it Sc Fa or ha ur ef e fle cia r/ Co W nt ilh i el m TR Ka W rm an n Ci e Au Fl ex t -N o Ka -G sa ate iK o M gyo et al dy Te ne nn ec o Sh ilo h Va le o Be hr ED AG Am *Company's risk of bankruptcy. and Shiloh Industries Inc. and maintain a U. is a special case. and Koninklijke Philips Electronics NV. like Conti’s tires or rubber products. Alps Electronics Co. to mitigate the situation. chassis. and body).
5 Toyota Boshoku Denso ZF Hella Top Buyers Top Divestors Top Sellers Top Bankruptcies Strength as a Consolidator 6.5 2.5 1.bankruptcy & consolidation in the global automotive supply industry FIGURE 6: Global 100 – Selected Winners and Losers 9.0 6. Eaton Alsin Seiki Timken Alpine Electronics Cummins Freescale Semiconductor Sumitomo Electric JCI Brose Linamar Clarion Behr Flex-N-Gate Metaldyne Valeo Schaeffler Conti Mahle Wilhelm Karmann TRW Tenneco Faurecia Lear Martinrea International Hayes Lemmerz ArvinMeritor Visteon American Axle Delphi FIGURE 7: Potential Supplier Consolidation by Main Vehicle System 120 Number of Suppliers 100 80 60 40 20 0 Chassis Electrical Interior Companies in sector Companies in strong acquiring position Powertrain Exterior Body 8| .8 7.5 7.5 3.0 1.0 8.0 4.5 4.0 5.5 5.0 0.5 8.0 TS TECH Federal-Mogul Magna Int’l Du Pont Hyundai Mobis BASF SKF Saint Gobain Magneti Marelli PPG NSK Benteler JTEKT Bayer Marne TI Group Auto.0 3.0 2.5 0.
etc.a prtm study of the winning and losing auto suppliers FIGURE 8: Automotive System Sensitivity to Volume Risk 40 35 30 Sensitivity Score 25 20 15 10 5 0 Chassis Powertrain Risk Level High Medium Low Interior Body Exterior Electrical/ Electronics buyers in each of these systems. This has created an unusual |9 . PRTM forecasts that the intensity of bankruptcies and consolidation will be strongest in electrical/electronics (wire harnesses. and so on. switches. In the latter category. suspensions. axles. manufacturing capabilities. Within the main vehicle systems likely to experience a high degree of consolidation of the supply base. suppliers from main vehicle systems will look to buy electrical and electronics companies to increase their electronic content know-how. customer bases. including Metaldyne. steering. In 2010. and J. Capital-intensive chassis systems providers have been severely affected by declines in demand. for example. Each has relatively high numbers of suppliers and several strong potential buyers (Figure 9). For example. The M&A activity will take place among system-level players and across systems. which suggests the segment is ready for consolidation. 68% of the volume is controlled by five large suppliers. Hayes Lemmerz. This trend will be driven by the increasingly important role of electrical and electronics components in system-level configurations. In steering systems. door systems. product and technology portfolios. CONTECH. M&A activity will take place unequally. Chassis.) and chassis (brakes.) (Figure 7). The specific consolidation scenarios that play out will be very closely tied to the following factors: strategies of the specific companies. The electrical and electronics vehicle system has a large number of total suppliers and strong possible buyers. Electrical and Electronics. electrical and electronics will account for 40% of a car’s overall value. with 120 chassis suppliers of relevant size globally and 24 strong potential buyers—M&A pressures will almost certainly increase in the future. so companies in this sector will have a hard time meeting performance expectations in the current market (Figure 8). roughly 30% were chassis system suppliers. up from 25% in 2000. within the chassis system. and steering subsystems will undergo the greatest amount of consolidation. etc. the suspension. axles.L. and most auto manufacturers generally have a “go-to” supplier. This segment is ripe for consolidation. Of the most recent wave of supplier bankruptcies. French Corp.
These trends will encourage suppliers to form new partnerships with other companies. Delphi’s Saginaw Steering System was sold into a GM temporary trust in July.. but will soon be back on the block as part of “Old GM” assets (assets being sold in the GM bankruptcy proceedings). Two of the weaker companies in the steering subsystem have already begun the consolidation process. 10 | . Strong potential buyers include Chinese firms like Guangzhou Automotive and FAWER. Suppliers will use these alliances to fill in gaps in their technology portfolios and more closely link steering to braking. However.bankruptcy & consolidation in the global automotive supply industry FIGURE 9: Forecasted Consolidation Within the Chassis Subsystem 40 35 Companies in sector Companies in strong acquiring position Number of Companies 30 25 20 15 10 5 0 Fuel Tank Suspension Axle Steering Pedals Wheels Brakes Exhaust degree of stability on the M&A front in this subsystem. and a mid-term shift to steer-by-wire total chassis control systems. key new trends are emerging: the rapid growth of Indian and Chinese players. acceleration. as well as Sona Group Ltd. the development of low-cost country steering subsystem manufacturing footprints by several participants. India’s largest steering subsystem supplier. and suspension control. Metaldyne’s chassis business was similarly purchased by private equity firm The Carlyle Group as part of the troubled company’s Chapter 11 restructuring in August. a near-term shift from hydraulic to electrical power-steering.
will have to watch their already weak footing. both of which have shown interest in Conti tires in the past. S. IAC Yazaki Benteler | 11 . for example. Omnium (HBPO) Lear ArvinMeritor Schaeffler/ Continental Pirelli Potential Buyer Behr Hella Mahle. there will be a wave of M&A—the next phase of industry consolidation. and the Michelin Group. however. Schaeffler will need to shed assets to generate cash after purchasing Conti.p. European and Chinese suppliers will gain ground during this intense shakeout and emerge as top potential buyers. Potential buyers include Pirelli & C. As part of the study. or Veyance Technologies. In our view. As credit becomes more widely available and companies are able to secure liquidity. In the tires subsystem. The current number of suppliers engaged in the six main vehicle systems could be reduced by 25% or more. Supplier bankruptcies constitute the first wave of restructuring and the rate of bankruptcy filings will continue to accelerate in the near term. and developed consolidation scenarios on a vehicle subsystem level. The chassis and electronics segments are likely to face the most intense bankruptcy and M&A pressures. Behr.a prtm study of the winning and losing auto suppliers The Road Ahead Over the next few quarters. The high number of total suppliers and number of possible strong buyers reinforces PRTM’s expectation of increased activity in these areas. FIGURE 10: Top Divestors and Potential Buyers Subsystem Thermal Lighting Wipers Automotive Components Division Front-End Modules Wire Harnesses Chassis Tires 10 8 Divestor Score 6 4 2 0 Delphi Visteon Valeo Guangzhou Automobile Group TRW Faurecia Hella. the global automotive supplier industry will come under greater pressure to consolidate. North American suppliers. The more probable divestitures of financially-troubled suppliers and the potential buyers are shown in Figure 10. several more are likely heading towards bankruptcy and divestiture. PRTM identified the consolidators and distressed suppliers for several subsystems. predicted bankruptcies.A.
cash flow.bankruptcy & consolidation in the global automotive supply industry Inc. truck business) Ownership structure and management (evaluation of the company’s historic acquisitiveness.. Study Methodology The 2009 PRTM study included 357 global suppliers from North America. The study took into account more than 20 financial and qualitative criteria in eight main categories. South America. KG and CalsonicKansei North America. business with bankrupt OEMs. Based on these criteria. senior management strategy. China.and long-term capital structure. The automotive supplier industry is in the early stages of what will prove to be a major industry restructuring.S. and its OEM criticality. and percent of revenue from car vs. which is a good fit for ContiTech. based on an assessment of supply chain and technology) Capital structure and health (a measurement of a company’s short. Delphi. and degree of corporate distress) Commodity structure (an assessment of the company’s commodity portfolio) Business health (an evaluation of EBITDA growth. in terms of revenue. and the favorability of structure to acquisition. bankruptcy protection under new ownership. may decide to focus its business activities even further and shed its thermal division. a score was developed to rate each company’s 1) risk of bankruptcy or 2) ability to acquire other companies. The categories are as follows: n Size and criticality (the measure of the relative size of the supplier. Companies that understand how they rank visà-vis their competitors will be well positioned to prevail in the years ahead. divestiture. Japan. using those assets to expand their geographic and customer reach. and environmental issues) n Business flexibility (measured against R&D and capital intensity and manufacturing flexibility) Customer base (a review of nonautomotive business. union participation. emerging out of Chapter 11 U. regional sales. India. market solvency. and/or sale) Pricing (EBITDA multiple and price/earnings ratio) n n n n n n 12 | . and South Korea. are potential buyers. Europe. litigation. sales and profits relative to assets. In the thermal subsystem. Inc. Behr GmbH & Co.
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