ameri resources


Need an office in metro Detroit, Alabama or Toronto? Office suites, meeting rooms, virtual offices, network access




free downloads
USA: "Report: America's Dynamic Workforce - August, 2007"

USA: "Report: America's Dynamic Workforce - August, 2007". 55-page report by U.S. Department of Labor.

proceed to download
eJournals





back to index backAMERItalk August,  2005


Consolidation to Accelerate Amongst Lower Tier (U.S.) Suppliers

The automotive industry is facing intense competitive pressure on a global scale, which is translating into severe pressure on the North American vehicle supply chain, even as vehicle sales and economic growth in the region remain strong.

North American-based automakers are struggling with cost disadvantages compared to their foreign counterparts due to labor and related benefits costs, as well as huge pension legacy costs. The lack of new competitive products from these manufacturers is translating into declining market share and the need for profit-sapping sales incentives to keep up production levels.

Read on for our Spring 2005 analysis of current industry transaction activity and then learn about:

* Key Issues & Trends

* Industry Focus

* Contacts

Smaller Suppliers Unable to Compete. Suppliers are facing a formidable competitive environment of their own, with surging raw material prices and relentless pricing pressure from customers constraining profitability.

Several mid-sized suppliers have been forced to seek bankruptcy protection,and even the largest suppliers are experiencing capital constraints, lack of an appropriate return on capital, reduced business valuations, and threats from offshore manufacturers.

These impacts are magnified for the smallest suppliers and the makers of commodity products, which are increasingly unable to compete. As a result, consolidation among the lower tiers of suppliers is expected to increase as greater numbers of companies are unable to continue operations in such an environment, and opportunities arise for more streamlined competitors to acquire market share and seek operational cost savings via larger economies of scale.

The consensus view among both industry participants and observers is that over the next three to five years, hundreds of automotive suppliers will either be sold, restructured, or liquidated. Transaction activity in the automotive industry has slowed in the last few years as companies have dealt with the debt and integration issues coming out of the consolidation wave of the late 1990s. However, activity should accelerate as this shakeout among lower tier suppliers fosters acquisition opportunities for certain companies in various automotive component niches. Early indications of such acceleration are appearing; M&A deal activity among U.S. automotive suppliers was up in the first quarter of 2005 compared to the same period in 2004.

Key Issues and Trends

Raw Material Pricing. Most suppliers are unable to pass on increased raw material costs resulting from increases in commodity prices. Suppliers that are dependent on steel and/or resins for their component production have recently seen large cost increases that they have been unable to recoup from customers.

Pricing and Cost Pressures. Domestic OEMs, beset by increasing healthcare and pension costs and severe market share pressure, have been aggressively looking to cut costs. This has translated into several rounds of mandated price cuts to their suppliers over the last several years, as well as restrictive contract provisions that allow manufacturers greater flexibility to pull work from suppliers that refuse to match any lower prices that are found.

Oil/Gas Prices. Average gasoline prices in the U.S. have recently surged well above $2 per gallon, and the repeated price spikes in the past year are beginning to impact the new vehicle market. Consumers are beginning to buy fewer of the largest and highest priced trucks and SUVs that OEMs depend on to enhance overall profitability.

China. China is casting an ever-growing shadow over the worldwide automotive industry. "World pricing" standards have placed domestic suppliers in direct competition with suppliers from lower-cost areas, especially China. Many suppliers are faced with the need to relocate production to these markets or partner with suppliers already there to compete.

Increased Responsibilities. OEMs continue to shift responsibility and costs to their suppliers where possible, in areas such as product development, warranty, and tooling, where costs were historically borne by the OEMs.

Source: Ernst & Young - GAI


previous page

go top
search our site


Loading

AMERItalk

Other articles from the same issue (August,  2005).

Consolidation to Accelerate Amongst Lower Tier (U.S.) Suppliers
play read on

Ontario: Keys to Success
play read on

Grade Deflation: Looking for a U.S. state with a business-friendly climate?
play read on

Employer's take note of expanded reporting requirements under the Labor Management Reporting & Disclosure Act
play read on

Out of Exile
play read on

Some Employers Linking Employee Premiums to Health Screening Programs
play read on

Demystifying U.S. Import Classification
play read on

Logistics and Transportation Play Part in Financial Compliance of Corporations
play read on

Questions and answers on Machine Readable Passport requirements for all Visa Waiver Countries
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120