The automotive industry is changing dramatically with respect to the customer needs such as autonomous driving and achieving driver’s efficiency and with respect to innovations in all domains of automotive. Automakers are hitting hard with the requirement and suppliers are identifying the solution to address the requirement but this evolution is a bit hard to achieve and requires consolidation.
The action of consolidation is quite fascinating and requires a diverse skill set. So to tap the growth opportunities, the majority of suppliers are looking forward to the mergers and acquisition. Whereas few suppliers who lack the skillset and separated their business from the automotive. In addition, automakers are looking forward to the low-risk product portfolio from their internal suppliers.
Automotive suppliers are operating with synonymous M&A strategy. The suppliers are employing this strategy to identify the target supplier which further helps them be relevant in the long term. The M&A majority of bidders are from China and Germany. At present, the German suppliers are leading the initiative of consolidation. Whereas in the future, Chinese firms will lead this strategy of consolidation through merger or acquisition. China is giving importance to innovative manufacturing with their program called Made in China 2025. M&A is the shortcut to tap the growth and be aligned with the China manufacturing initiative. But the M&A by the Chinese supplier should not be left for ignorance.
The other strategy for consolidation is a spin-off. Johnson Controls (JCI) has opted for the spin-off strategy. The company is more involved in China and focused on the technology-heavy and asset-light concept. The company’s energy division will be spun off to focus on energy storage and building efficiency. The main aim of the company is to shift from automotive parts business with low margin and focus more on technology advancement. The company’s automotive division was highly profitable but still, the company opted for spin-off rather than position themselves for the acquisition. This is the unique approach opted by the company rather than following the herd of acquisition and merger.
Ford, Toyota, and GM had internal suppliers such as Visteon, Denso, and Delphi. To make a low-risk product portfolio and leaner manufacturing, the supplier separated itself from the auto OEM’s. With respect to 2007-2010 global recession, Delphi and Visteon filed for the bankruptcy protection. If these suppliers were part of the OEM, it could have hampered the position of OEM’s.
The Fiat Chrysler Automotive (FCA) understood this issue within the time. Thus to create a more efficient and leaner organization, FCA detaches itself from the supplier which was registered internally to create more liquidity. FCA owned suppliers such as Comau, Teksid and Magneti Marelli, so the company needs to sell its assets to create more liquidity and leaner organization. FCA identified these suppliers as the Cash Cow.
The landscape is taking different shapes at a dramatic pace, so for automotive suppliers, the future is consolidation. The most common form of growth will be M&A. By 2030, the spin-off will be the main traction, and the automotive division will separate itself from the non-automotive supplier umbrella. The internal supplier in the future will have a capability to consolidate and emerge as the mega-supplier in future.