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The Automotive Industry
Growth Opportunities For Minority-Owned Businesses
MED Week 2001
This Report Was Written And Produced For:
By:By:By:By:
The Asaba Group, Inc.Lakeview Office Park www.asabagroup.com214 North Main Street, Suite 207 Tel. 508.655.8100Natick, MA 01760 Fax. 508.655.1955
U.S. Department of Commerce
Minority Business Development Agency
Ronald N. Langston
National Director
This analysis on the automotive industry was prepared by The Asaba Group and is the Group’s interpretation of the economic trends of the automotive industry. The study is not a Commerce Department report, but was developed for the sole purpose of discussion amongst industry experts. The conclusion and analysis of the report do not necessarily reflect the views of the U.S. government.
Express Gratitude And Acknowledgement ForContributions To The Project:
Minority BusinessDevelopment AgencyRonald N. Langston
General MotorsDavid AllenBob KuftaGarrett Quarles
Daimler ChryslerJethro Joseph
Ford Motor CompanyRenaldo JensenElliot Hall
Johnson Controls, Inc.Barima Opong-OwusuReginald LaytonBridgewater Interiors, Inc.Ron Hall
VitecBill Pickard
Saturn Electronics and EngineeringWally Tsuha
Piston AutomotiveVinnie Johnson
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
4
Project Charter
It should place emphasis on the following:
� Industry trends and issues with the industry
� Market opportunities for growth
� Growth strategies and critical success factors
� Address current issues/challenges to Minority Business growth
The Asaba Group Retained To Assist InIdentifying Growth Opportunities And Strategy
Develop A Report That Identifies The Opportunities ForMinority-Owned Businesses In The Automotive Industry
5
Project Approach
IndustryOverview
Supply Chain Realities
Competitive Insights/Implications
Growth Opportunities
Key Strategies/Tacticals
6
Executive Summary
Automotive Industry experiencing a slowdown in sales from record sales year in 2000
� Industry analysts forecast continued sales decline through 2003
Slowdown has created a difficult business environment for small to mid-sized businesses
� Minority suppliers not immune to these problems
Evolving Supply Chain roles present challenges to MBE’s in Tier I positions� Higher degree of cost surveillance, higher demands for investment in innovation and
manufacturing
� Some MBE’s will have to focus on Tier I and II Suppliers to achieve sustainable growth
� Tier I Suppliers beginning to push cost pressures down the Supply Chain
Operating risks associated with industry sales slowdown can be reduced through diversification
� By platform, customer group and targeting Tier I Suppliers
Growth opportunities identified in different areas of the Supply Chain� Will require focused strategies to achieve sustainable value creation
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
8
Key Highlights
Industry experiencing a slowdown in sales from a weakening economy� Auto manufacturers sustaining 16 Million sales run rate by increasing marketing expenses
� Rising fuel prices and and unemployment weakening demand for new vehicle purchases
� Industry analysts forecast continued sales decline through 2003
U.S. Automotive market seeing increased competition from foreignmanufacturers
� Domestic Automotive manufacturers losing share to foreign manufacturers– Historical profit centers, Minivans, Pickups and SUVs, face eroding profits
Automotive manufacturers cutting production levels in response to slowing sales and reducing fixed costs
� DaimlerChrysler announcing plans for 40% cost reduction over next 5 years– Plans 15% cut in overall production level in 2001 compared to 2000
� GM and Ford have announced company-wide cost reduction between 10% and 16%
� Production plans cut about 15% on average compared to 2000
Diversified conglomerates continue to divest automotive operations � Textron, Inc. – divest its automotive business in the wake of a slowdown
� Small to mid-size businesses experiencing difficulty in this environment
9
Automotive Sales On A Downward Trend After Record Year In 2000
6.0
6.5
7.0
7.5
8.0
2000 2001
January to May Sales
Units(MM)
SOURCE: Automotive News, Asaba Group Analysis, Autopolis, Merrill Lynch
14.0
15.0
16.0
17.0
18.0
2000 2001E
Units(MM)
Annual Sales
% Change(5.6%)
% Change(8.0%)
17.4 MM
16.0 MM7.1 MM
7.5 MM
Strong Impact On Industry Performance
10
Current Year Sales Maintained By Increased Levels Of Marketing Incentives
SOURCE: Lehman Brothers, Merrill Lynch, Automotive News, Asaba Group Analysis
16.4
15.3
16.0
17.0
17.2
15.8
17.0
15.0
15.5
16.0
16.5
17.0
17.5
Nov'00
Dec'00
Jan'01
Feb'01
Mar'01
Apr'01
May'01
Seasonally AdjustedAnnual Rate (SAAR)
Units (MM)
1,341
1,4171,367
1,462
1,7621,825
1,931
1,200
1,400
1,600
1,800
2,000
Nov'00
Dec'00
Jan'01
Feb'01
Mar'01
Apr'01
May'01
$/Vehicle
Average Incentives/Vehicle
11
Existing Inventories Have Dropped In Response To Incentives And Reduction In Production
78
89 8995
70 6875
0
20
40
60
80
100
Nov-00
Dec-00
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Big 3 Inventories (Days Supply)
Days Inventory
SOURCE: Automotive News, Asaba Group Analysis
Units(000)
Big 3 Domestic Production
60Days
687
588 560620
837
761
920
0
200
400
600
800
1,000
Nov-00
Dec-00
Jan-01
Feb-01
Mar-01
Apr-01
May-01
Implications For Minority Suppliers?
12
15.5 MM
16.9 MM
17.4 MM
16.0 MM
14
16
18
1999 2000 2001E 2002E
Industry Slowdown Forecasted For 2001 And 2002
Vehicle Units (MM)
SOURCE: Merrill Lynch, Automotive News, Asaba Group Assessment
How Will This Affect Minority Suppliers?
13
Industry Slowdown Creates A Difficult Business Environment For Small And Mid-Sized Companies Example: Trucking And Logistics Companies Have Been Vulnerable
$0.28$0.32
$0.00
$0.10
$0.20
$0.30
$0.40
4Q1999 1Q2001
$1.27
$1.60$1.45
$0.00
$0.50
$1.00
$1.50
$2.00
4Q1999 4Q2000 4Q2001
WagesPerMile
DieselFuel
Prices
Rising Fuel Prices
Rising Wages
295
601700
1,300
1,000
1,150
0
200
400
600
800
1,000
1,200
1,400
4Q1999 1Q2000 2Q2000 3Q2000 4Q2000 1Q2001
Trucking Company Failures
Minority Suppliers Not Immune To These PressuresSOURCE: A.G. Edwards, Wall Street Journal
Number of Company Failures
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
15
Key Highlights
Automotive Manufacturers (OEM’s) declining profitability will increase focus on cost reduction
� Tier One Suppliers remain under price pressure and cost surveillance from OEM's
� Grow in importance through innovation and manufacturing large modules and systems
Manufacturers reducing costs and levels of investment capital (Fixed Costs)
� Reducing number of car platforms
� Outsourcing more to large suppliers (Product, Technology Development, Product Testing, etc.)
� Driving investment efficiency with Facilities and Tooling related decisions
Tier One Suppliers that survive industry consolidation will drive for cost reduction at lower tiers
� Most planning rationalization of supply base (Tier II and III Suppliers)
� Minority Suppliers need to focus efforts on big suppliers to achieve sustainable growth
16
Auto Manufacturers Have Experienced Declining ProfitabilityLikely To Continue With Declining Sales And Overcapacity
2.2%
4.5%
2.2%2.2%
3.5%
4.2%
5.7%
3.4%
4.5%4.5%
3.2%
2.3%
3.4%
3.9%
3.5%
3.8%
4.3%
3.6%
4.3%
4.9%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
1997 1998 1999 2000
SOURCE: Valueline Investment Report
Net Profit Margin %
Cost Surveillance/Squeeze Will Continue On Tier I Suppliers
17
27
1717
8
24
17
7
15
0
10
20
30
1997 2004
Automotive Manufacturers Continue To Rationalize Car Platforms
Implications
� OEM's achieve greater part/system commonality– Increases economics of scale
� Limits OEM's ability to achieve huge profit differentiation
� Increases dependency of few large suppliers
Number of Platforms
SOURCE: Standard & Poor’s, The Office for the Study of Automotive Transportation at University of Michigan, Asaba Group Analysis
Increase Concentration Of Purchasing With Larger Suppliers
18
Automotive Manufacturers Moving Large Chunks Of The Vehicle To Fewer Suppliers
General Motors announces outsourcing of complete interiors business
� A single supplier for each vehicle program
� Suppliers (System Integrators) must be able to design, engineer, and manage all other
suppliers and components
� Suppliers are expected to identify minority supplier partnerships and content in order to be
considered
� Key System Integrators are:
Visteon, Delphi, Magna, Faurecia, Johnson Controls, Inc., Lear and Venture
Minority Suppliers Should Understand These Dynamics
19
Large Automotive Suppliers Getting Bigger To Meet Demands Of OEM'sDriven By Continued Industry Consolidation And Divestitures
Top 10 Suppliers (Revenue)
1. Delphi ($25 B)
2. Visteon (18.5 B)
3. Dana ($9.5 B)
4. Lear ($14 B)
5. Johnson Controls ($11.8 B)
6. Magna ($10.1 B)
7. Bosch ($17.8 B)
8. TRW ($11 B)
9. Denso ($16.4 B)
10. Eaton ($4.0 B)
54.2B
83.5B
0
30
60
90
1994 2000
Revenue ($ B)
SOURCE: Automotive News
CAGR94-00
7.9%
Top 10 North American Auto Suppliers
20
The Consolidation Has Led To 3 Or 4 Global Suppliers For Each Major System
Engine/Transmission/Torque Management
� Bosch
� Lucas
� Denso
� Delphi
Cockpit Systems/Driver Interfaces/Interior Trim
� Johnson Controls, Inc
� Faurecia
� Lear
Rolling Chassis/Drive Train
� Dana
� Magna
� Thyssenkrupp
� Delphi
Corner Modules and HVAC
� Delphi
� Visteon
� Valeo
� Behr
Minority Suppliers Must Focus On These Suppliers For Growth
21
Tier One Suppliers Beginning To RationalizeTheir Supply Base
4,500
2,500
0
2,500
5,000
Current Planned
Delphi Spend: $13.5 B ArvinMeritor Spend: $8.1 B American Axle & Mfg Spend: $4.7 B
# of DirectSuppliers
2,000
1,000
0
750
1,500
2,250
Current Planned
# of DirectSuppliers 330
230
0
200
400
Current Planned
# of DirectSuppliers
SOURCE: The Economist Intelligence Unit Automotive Report, PricewaterhouseCoopers, Automotive News
22
Large Suppliers Bear Increased Responsibility For Cost Reductions
Most will cut costs by 20 to 30%
Will drive shake-out and consolidation in the lower tiers
Capturing effective responsibility for technology, design, manufacturing and sourcing choices
Pushing standardisation across customers and avoiding being backed into supplying the ‘tail’ of low-volume, non-standard products
Both cutting cost and investing in capabilities
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
24
Key Highlights
Top line risks can be mitigated by revenue diversification• Focus on high volume platforms, i.e., greater than 500,000 units
– Ford CW170 or VW A4
• Diversify revenues by customer group; sales incentives may be masking demand weakness
– Domestic Manufacturers versus Imports
• Diversification can be achieve by targeting Tier One Suppliers
Identified growth initiatives must be articulated by value chain roles• Tiering nomenclature not adequate for strategic decision-making
• Gross profit dollars (value added) lies with component specialist and system / module
suppliers
Geographic scope of supplier competition can be defined by an optimisation• Trade-off between product-specific cost and freight
Three growth paths are available to Minority Suppliers• Largely independent of commodity and industry dynamics
– Low cost
– New categories/markets
– Solutions provider
25
Big 3 Manufacturers Sales Declining While Imports GrowingSignificant Revenue Risks Associated With Big 3 Customer Concentration
Big 3
4.5 MM
Big 3
5.1 MM
Imports
2.6 MM
Imports
2.4 MM
3
4
5
6
7
8
Jan to May 2000 Jan to May 2001
% Change00-01
(5.6%)
4.2%
(10.4%)
January To May Light Vehicle Sales
SOURCE: Automotive News, Asaba Group Analysis
VehicleUnits (MM)
7.5 MM7.1 MM
Minority Suppliers Must Diversify Revenues By Reducing Revenue Concentration
26
Minority Suppliers Can Reduce Industry Volume Sensitivity By Focusing On High Volume Platforms
Top 20 Passenger Car Platforms, 1999
0200,000400,000600,000800,000
1,000,0001,200,0001,400,0001,600,0001,800,0002,000,000
VW A4Honda V
SOVWA00
/A04GM T30
00Toyo
ta 56
0TVW B5
Toyota
414T
Honda Acc
ordGM S42
00GM W
bodyRen
ault 6
4Ren
ault 6
5GM N bodyFord BE91
Ford CW170
Fiat B
Ford DN 101
GlobalVolume
SOURCE: Autopolis
Minority Suppliers Must TargetHigh Volume Platforms To Be Successful
27
Reduction Of Top Line Revenue Risks Can Be Achieved By Targeting Tier One Suppliers
Insights
� Drives for part commonality across customers and region
� Company focuses on being a component/technical specialist
– Innovation to drive growth and margin
31%Ford
68%Americas
19%DaimlerChrysler
18%Europe
13%GM
14%Asia
4% VW
27%Others
0%
25%
50%
75%
100%
Auto Customer Region
6% Toyota
$3 B $3 B
SOURCE: Company Reports/Interviews
Example: Borg-Warner Is a Global Supplier of Components/Assembliesfor Power Train Applications
MBE's Must Seek To Do Business With These Companies
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
29
Three Identified Growth Strategies
Lowest Cost and Focus on High “Doing MoreBest Value for Growth Application for Customers”
Key Commodities
Low CostNew Growth Categories/
Markets
Solutions Provider
Each Requires A Different Strategic Orientation
Independent of Commodity and Industry Dynamics
30
Each Requires Unique Focus And Capabilities
� Injection molding
� Metal processing
� Cut & Sew/build-to-print/shoot & ship
Process/Commodity Examples
� Economies of scale
� Understanding cost drivers (ABC)
Basis of Success
� Rollup consolidation
� LBO/Acquisitions
Growth Approach/Tacticals
� Light materials
� Electronic applications
� Navigation Systems
� Engineering and design
� Application development
� Low-cost/flexible manufacturing
� Build compatibility
– JV/Alliance
– M&A
� Automotive testing (non-production)
� Subsystem assembly/development
� IT/Sequencing operations
� Commodity management
� Lower transaction cost
– Outsourced operations
� Extend geographic reach
� M&A
� JV
Low CostCommodity
Producer
New Growth Categories/
Markets
Solutions Provider
Low Cost Strategy
32
Focused On Low Value Added Commodity Group And Processes
Global Global % Change NA Sales NA Sales % ChangeSales 1999 Sales 2000 1999-2000 1999 2000 1999-2000
Supplier ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
Lacks Enterprises 255 255 0.00% 222 219 -1.35%
Becker Group 300 235 -21.67% 300 235 -21.67%
Carlisle Engineered 315 303 -3.81% 312 294 -5.77%Products Inc.
Plastech Engineered 300 300 0.00% 300 300 0.00%Products Inc.
American Showa Inc. 736 976 32.61% 300 351 17.00%
Key Plastics, LLC 551 576 4.54% 358 380 6.15%
Average Size 410 441 7.65% 299 297 -0.73%
Plastic Processing (Injection Molding)
SOURCE: Automotive News, Asaba Group Analysis
Little or no growth in North America• Players stole share or grew by acquisition• Global growth largely acquisitions
33
Same Observation With Metal Processing –Machining And Stampings
Global Global % Change NA Sales NA Sales % ChangeSales 1999 Sales 2000 1999-2000 1999 2000 1999-2000
Supplier ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
Global Metal Technologies 225 228 1.33% 214 217 1.40%
Pilot Industries Inc. 300 260 -13.33% 246 237 -3.66%
Gibbs Die Casting 280 340 21.43% 252 282 11.90%
Talon Auto Group 290 300 3.45% 276 285 3.26%
Ogihara America 363 369 1.65% 289 295 2.08%
Harvard Industries 318 318 0.00% 312 312 0.00%
Amcast Automotive 451 500 10.86% 271 315 16.24%
Mayflower Vehicle Systems 650 540 -16.92% 406 335 -17.49%
Citation Corp. 395 409 3.54% 391 405 3.58%
Shiloh Industries 535 630 17.76% 535 630 17.76%
Average Size 381 389 2.29% 319 331 3.79%
SOURCE: Automotive News, Asaba Group Analysis
Critical Mass Appears To Be $300 MM To $400 MM
34
Opportunity In Commodity Groups With High Degree Of Fragmentation
0%
20%
40%
60%
80%
100%
Plastic Processing Revenues Metal Works Revenues
Plastics and Metal Processing Highly Fragmented and Captive to Auto Industry
(1) Includes Injection, Extrusion and Blow Molding Suppliers (2) Includes Machinery, Welding and Stamping Suppliers
Top 3Suppliers
$310 MM42.9%
Top 3Suppliers
$562 MM51.2%
$723 MM $1,099 MM
20+
$413 MM
19+
$537 MM
AverageRevenue/Company
$187 MM
$28.3 MM
AverageRevenue/Company
$103 MM
$20.7 MM
(1) (2)
SOURCE: Data based on a sample of 210 minority suppliers to major Automotive Manufacturers; Asaba Group Analysis
Consolidation/Rollup Opportunity to Attain Required Critical Mass for Cost Competitiveness
35
Heartland Industrial Partners Provides A Model From Consolidation And Tier II Growth
Heartland Industrial Partners Led by David Stockman (former OMB Director)� Focus on becoming a “Tier II Titan”
� Based on two platforms: Metals and Interiors
� Each platform expected to grow to $6 Billion within six years
Metals PlatformDesigner and supplier of low cost metal formed assembly modules
Acquired Companies to form new company called Metaldyne Corp.
� MascoTech, Inc. – $1.1 Billion in Revenues; metal forming
� Simpson Industries, Inc. – $150 Million in Revenues; precision machining
� Global Metal Technologies, Inc. – $228 Million in Revenues; castings
Interiors PlatformAcquired companies to form interior component parts supplier
� Collins and Aikman – $1.9 Billion in Revenues; interior trim and molded parts
� Becker Group – $235 Million in Revenues; plastic parts/molding
� Joan Fabrics – $NA Million in Revenues; automotive fabrics
SOURCE: Company Reports, Industry interviews, Automotive News
New Markets/Categories Strategy
37
Electronics Segment/Application Strong Area For Growth Opportunities
Key Features/Applications
� Next Generation Braking Systems
� Steering Systems
� Plug and Play capability for entertainment systems
� Climate-Control Systems
� Dashboard Instrumentation
� GPS Navigation System
� Airbag Control Modules
894
1,319
0
700
1,400
1998 2003
CAGR98-03
8.1%
SOURCE: Dataquest, Inc.
Driven by Continued Innovation in Automotive Safety, Comfort, and Entertainment
Electronic Content Per Car
$
Strong Growth Compared To Industry Growth Of 2% to 3%
38
Emerging Electronic Applications And Technologies
• Access Control
• Burglar Alarms
• Roadside Emergency Assistance
• On-Demand Content
• Audio
• Video
• Games
• Mobile Internet
• In Car Entertainment
• Remote Diagnostics
• Brake
• Headlights
• Suspension
• Dash board Instrumentation
• Dynamic Navigation
• Traffic Information
• Concierge Services
Minority Suppliers Must Consider Partnering With Companies With Core Technology Expertise
TelematicsVehicular FunctionsInfotainmentSecurity
39
Telematics And Navigation Are Highest Growth Opportunities
$4.2 B
$24. B
$47.2 B
0
25
50
2000 2005 2010
Worldwide Telematics Market
$ B
SOURCE: UBS Warburg
30
500
3,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1998 2000 2005
Units(000)
Navigation Systems (US)CAGR00-1027%
CAGR00-0543%
Key Suppliers To Target• Bosch• Fujitsu• Delphi• Visteon• Siemens
Purchased Components• Dashboard Displays• Driver Interface Boards• Software and Database Services• Higher Voltage Batteries
40
Minority Suppliers Must Position Themselves In Core Areas Of The Value Chain
Components Sub-Assemblies
ElectronicModules
Systems/Functions
• Passives
• Sensors
• Fasteners
• Offshore Manufacturing
• Asia, Africa, Latin America
• Cables
• Wire Harnesses
• PCB
• Low Cost Manufacturing
• Mississippi, Ohio
• Mexico
• Honduras/Philippines
• Application Modules
• IC Integration
• ASIC/Optical
• Design/Engineering/ Test/Qualification
• Manufacturing
• Mexico
• Fuel Systems
• Navigation Systems
Electronic Commodity Value Chain
HIGH VALUE
41
Electronic Category Shows Strong Growth In U.S. And Globally
Global Global % Change NA Sales NA Sales % ChangeSales 1999 Sales 2000 1999-2000 1999 2000 1999-2000
Supplier ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
Hitachi Auto Products 390 422 8.21% 386 418 8.29%
Sumitomo Electric 400 499 24.75% 380 474 24.74%Wiring Systems
Saturn Electronics 250 500 100.00% 245 490 100.00%and Engineering
Stoneridge Inc 675 700 3.70% 574 581 1.22%
Osram Sylvania Inc 600 689 14.83% 396 455 14.90%
Alps Automotive 677 780 15.21% 310 359 15.81%
Clarion Corp. Of Am 931 992 6.55% 298 268 -10.07%
Hella NA Inc 1,438 1,625 13.00% 259 349 34.75%
Stanley Electric U.S. 1,710 1,790 4.68% 434 422 -2.76%
Electronic Components/Sub-Assemblies Suppliers
Average Size 786 889 13.10% 365 424 16.27%
SOURCE: Automotive News, Asaba Group Analysis
Growth Due To Increased Content Per Vehicle
42
Electromechanical Applications Are EvolvingInto Electronic Solutions
Global Global % Change NA Sales NA Sales % ChangeSales 1999 Sales 2000 1999-2000 1999 2000 1999-2000
Supplier ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
Motorola Inc. 2,680 2,700 0.75% 1,822 1,701 -6.64%
Panasonic Auto 1,950 2,100 7.69% 604 630 4.30%Electronics Co.
Mitsubishi Electric 3,000 3,090 3.00% 720 742 3.06%Auto America
Siemens Automotive 3,600 3,700 2.78% 1,260 1,295 2.78%
Calsonic NA Inc 2,717 3,826 40.82% 519 800 54.14%
Eaton Corp. 4,200 4,000 -4.76% 2,940 2,800 -4.76%
GKN Automotive Inc 3,900 4,300 10.26% 1,404 1,548 10.26%
Electronic Modules Suppliers
Average Size 3,150 3,388 7.57% 1,324 1,359 2.66%
SOURCE: Automotive News, Asaba Group Analysis
Large Suppliers With Design And Integration Skills– Possible Joint Venture Partners
Solutions Provider Strategy
44
Minority Suppliers Who Aspire To Be Solutions Providers Must Think Like Their Customers: Systems Integrators!
Collaboration Customer-Centricity
Product/Services Hybrid
How They
Fulfill
Their
Promises
(Shared Risks, Early Involvement,
& JIT/ILVS)
How They
Interact
With Their
Customers
(Co-location, Global Footprint &
“Doing More”)
How They Differentiate Their Offerings
(Consumer-oriented, Proactive Innovations/solutions, & Application Development)
45
411
3,253
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000 2004
Most Opportunities Are Linked To Large Tier One Suppliers Focused On Delivering Total Systems
Key Suppliers
• Johnson Controls, Inc.
• Delphi
• Faurecia
• Lear
• Venture
Some Opportunities
• Sub-Systems and Modules
• Components/Parts
• JIT and Sequencing
SOURCE: Automotive News, Asaba Group Analysis
Example: Interiors/Cockpit Systems
North American Cockpit Market
Units(000)
Estimated at $140 Billion Globally
In Most Situations, These Are OpportunitiesTo Create JV’s With Suppliers
46
Non-Production Opportunity – Automotive Testing Services
Estimated at $15 Billion globally and growing about 3-5% yearly
� U.S. Market size estimated at approximately $6 to $8 Billion
Market boundaries not well defined
� Automotive manufacturers in-source large portions of the testing needs
– With value chain reconfigurations and OEMs’ new focus, expect willingness to outsource most in-house functions
– Most large suppliers preoccupied with OEM product development issues
� Current outsourced market highly fragmented and in “low-tech” areas
Value proposition exist in ability to provide specialized know how, shorten time to market and lower economics
� OEM’s – Seeking third party validations and standardsWant Tier I suppliers to perform full systems testing
� Tier I – Looking for turnkey solutions for testing needs, both at componentand sub-system level
47
Automotive Testing Is A Fragmented Marketplace
Industry Observations
Involve all activities• Testing Raw Materials
• Components
• Systems and Modules
• Prototypes
Most companies are under $100 Million in revenuesFull-service engineering and design firms offer testing services
• Much larger in revenues0%
50%
100%
US Market Segments
SOURCE: McKinsey & Company, Asaba Group Analysis
U.S. Testing Market
$6-8 Billion $6-8 Billion
500 SmallCompanies
andFew FSS
Companies
Standardized
Consultative
Specialty
Minority Suppliers Should Capitalize On This Opportunity
Content
Project Overview 3-6
Industry Overview 7-13
Supply Chain Realities 14-22
Competitive Insights/Implications 23-27
Growth Strategies 28-47
Joint Ventures/Alliances 48-56
49
Joint Ventures And Alliances Are CommonGrowth Vehicles Similar To Mergers And Acquisitions
11,00010,10011,10011,500
10,200
12,500
8,8008,000
7,000
5,200
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1996 1997 1998 1999 2000
M&A Transactions
JV's/Alliances
SOURCE: Forbes, Thomson Financial
M & A’s vs. Alliances/JVs
Number ofTransactions
CAGR96-00
JV’s/Alliances: 18.1%M&A: 1.9%
Minority Suppliers Must Leverage AlliancesTo Grow And Achieve Tier One Status
50
An Approach To Develop Alliances
The process has four major dimensions. They are:
Careful attention must be paid to each dimension to give an alliance the properfoundation for success
Strategic alliance needs to be firmly grounded in a clear strategic understandingof current capabilities and those needed in the future to be successful
Alliance planning process that can establish objectives and evaluate alternatives
StrategicRationale
Configurationof an
Alliance
PartnerSelection
Managing theAlliance
51
Alliance Planning ProcessDimension #1 –– Strategic Rationale
� Globalization
� Deregulation
� New markets
� Developments in technology
� Changing Demographics
� New entrants
StrategicRationale
Configurationof an
Alliance
PartnerSelection
Managing theAlliance
1
SituationAnalysis
� Internal trends
� Own strengths
� Own weaknesses
� Time as a competitive weapon
Identification ofStrategic
CooperationPotential
� Contribution to free cash flow
� Value drivers
Evaluation ofShareholder
Value Potential
Strategic Rationale
52
Alliance Planning ProcessDimension #2 –– Configuration of an Alliance
� Horizontal, vertical or diagonal direction
� Research and development, marketing and sales, production and logistics, procurement, or recycling
StrategicRationale
Configuration ofan Alliance
PartnerSelection
Managing theStrategicAlliance
Field ofCooperation
� Time horizon
� Resource allocation
� Degree of formalization
Intensity ofCooperation
� Systems
� Processes
� Products/services
� Competencies
� Brands
Analysis ofOpportunities for
Cost/BusinessProcess Overlaps
2
Configuration of an Alliance
53
Alliance Planning ProcessDimension #3 –– Partner Selection
� Common intention
� Compatible visions
� Balanced positions of power
� Mutual gains
� Controlled risks
� Potential for increasing shareholder value
StrategicRationale
Configuration ofan Alliance
PartnerSelection
Managing theAlliance
FundamentalFit
� Harmony of business plans
� Common specification of appropriate configuration
� Similar planning horizons
� Global market fit
StrategicFit
� Assimilation
� Transfer
� Resistance
� Decision processes
� Entrepreneurial
CulturalFit
3
Partner Selection
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Alliance Planning ProcessDimension #4 –– Managing the Alliance
� Form of contract
� Legal entity
� Political, tax, legal and cartel aspects
StrategicRationale
Configuration ofan Alliance
PartnerSelection
Managing theAlliance
ContractNegotiations
� Levels of coordination
� Task-oriented management
� Interaction-oriented management
CoordinationInterface
� Active consensus and crisis management
� Adaptation of structures and processes
� Organizational learning
� Continuous improvement
Learning,Adaptationand Review
4
Managing the Strategic Alliance
55
Keys To Success
Build Knowledge
The up-front analysis prior to negotiations lays the groundwork for building asolid base:
� Assessing mutual needs
� Establishing share risk
� Developing common goals in an environment of trust between potential partners
Gain Experience
Enabler of success is a function of people selected by each organization. The more experienced and capable, the greater likelihood of success.
Leverage Credibility and Success
Manage the partnering process as a portfolio leverages the knowledge, learning and key competencies developed from prior experiences. Leverage it.
56
Framework To Guide Alliance/JV/M&A Decisions
GrowthOptions
PrimaryBusinessRationale
Commodity/Processing
Supplier
Sub-System/Sub-ModuleAssembly
Component/TechnologySpecialist
ModuleDeveloper/Solutions
• Strategic Investor
• Strategic Investor
• ---• ---• New technologies
• New applications
• Joint venture
• Shared resources
• ---• 3rd party sourcing alliance
• ---• New capabilitiesSolutions Provider
• Acquisition• Acquisition• Joint venture• ---• New Products/ Categories
• Joint venture• Joint venture• Joint venture
• Acquisition
• Acquisition• Geographic Markets
New Growth
• ---• ---• ---• Acquisitions/ Roll ups
• Economies of Scale
Low-CostCommodityProducer
Minority Supplier Options
57
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