Small Auto Suppliers May Consolidate: Reuters

Car parts suppliers have successfully emerged from the 2009 automotive industry crisis, but some consolidation among smaller players may still be to come, experts told the Reuters Global Autos Summit.
Carmakers and suppliers are looking to Asia and other fast-growing regions for growth to offset stagnating demand in Europe where scrappage schemes designed to boost car sales have nearly all expired.
Jacques Aschenbroich, CEO of French car parts maker Valeo told the summit he could not rule out hiking the group’s mid-term targets as business picked up again faster than expected.
While industry experts predicted a wave of crisis-sparked consolidation among carmakers and their suppliers as they sought to eliminate costs when the downturn was in full swing, relatively little M&A activity has so far taken place.
Support for suppliers from governments and carmakers explains the lack of deals so far among smaller players, said Moelis global head of automotive and steel Meyrick Cox, adding that larger suppliers were already well consolidated.
Large European auto suppliers, including France’s Valeo and Faurecia as well as Germany’s Continental and Robert Bosch ROBG.UL, are already well consolidated, Cox said.
He thought much more consolidation among Tier 1 suppliers was unlikely, but Tier 1 players might start to look at their smaller, often more profitable, Tier 2 suppliers as potential targets.
“There’s been a lot of invisible support provided to the suppliers through the course of the last couple of years. Some of the big manufacturers had teams in place analyzing the financial security of their suppliers,” Cox told the summit.
“There is a raft of small suppliers who have been supported considerably by the OEMs and I cannot see the OEMs being comfortable in the longer term with that.”
Frost & Sullivan senior consultant Nicolas Meilhan said he thought the rise of new emissions reduction technologies including electric vehicles and hybrids, would spark consolidation among suppliers.
“I think what’s going to be important is that the car is going to change over the years,” he said.
“Today, vehicle manufacturers are mostly assembling parts, designing and manufacturing the engine and gearbox, but most of the parts are done by suppliers,” Meilhan said, adding that consolidation would take place as suppliers sought paths in to new areas.
“We’re definitely going to have some consolidation. Some people, if they are not able to develop it internally, are going to be willing to acquire some expertise on batteries, electronic components or chargers,” Meilhan said.
Cox said he thought the spur for consolidation was simpler: “It’s just commercial reality, times are tough and if you can get together with someone else and drive costs out that way, you’re going to do that.”
In October, French ministers warned that local authorities should be prepared to help struggling suppliers, as the industry faced a bleak outlook.
Valeo’s Aschenbroich said he had not seen any problems with his own suppliers.
“We have tried to help our main suppliers go through the crisis. It doesn’t mean that some of them didn’t disappear. But I think we have today a stronger supply base of suppliers than we had before the crisis.”
He added: “Do we, as Valeo, have some suppliers back in trouble? We don’t see that for the time being.”
Last year was an “exceptional” year with a lot of public intervention, he added.