A global study of more than 350 automotive suppliers conductected by PRTM, a management consulting firm, showed that Chinese and the largest global European suppliers scored highest on PRTM's global buyer scale, indicating these suppliers will likely buy other suppliers that are distressed.
For instance, Guangzhou Automotive Components, a division of the highly profitable 51% state-owned automobile manufacturer Guangzhou Automobile Industry Group Co. in Guangzhou, China, and Weichai Power Co., a state-owned diesel-engine manufacturer in Weifang, China, appear on PRTM's global top 10 buyer list. Guangzhou already has an active M&A history in buying automotive assemblers and suppliers. The South Chinese company is also a joint-venture partner of Toyota Motor Corp. and Honda Motor Co. in China.
Weichai Power and Toyota Keiretsu suppliers, such as Denso Corp., Toyota Boshoku Corp. and Aisin Seiki Co., are also on the top 10 buyer list, along with large, global European suppliers like ZF Friedrichshafen AG, SKF Group and BASF AG.
"Despite the fact that Toyota Keiretsu suppliers show very well as potential buyers in our study and have the financial strength and capability to be a consolidator, we don't expect them to be very busy with M&A activities. It is counter-cultural to Toyota, and I expect they will continue to grow organically or engage in joint ventures," said Dietmar Ostermann, global lead director for PRTM's automotive industry practice.
Only one U.S. supplier, PPG Industries, Inc., appears on the top 10 global buyer list. PPG, located in Pittsburgh, Pa., is a glass and paint manufacturer that serves the auto industry, but is also highly diversified into several other industry sectors. PRTM predicts that several of the remaining 31 largest global North American suppliers are most likely headed for bankruptcy or buy-out. Earlier this year, Lear Corp., Metaldyne Corp. and Visteon Corp., among others, filed for Chapter 11 bankruptcy protection. Other prominent U.S. auto suppliers, such as American Axle & Manufacturing Holdings, Inc., a large General Motors Co. axle and drive shaft supplier, could follow suit, predicts PRTM.
Interestingly, in North America, the risk of failure is higher for the 31 largest global 100 suppliers than the next largest 30 suppliers. "This is, in part, because the large, global North American suppliers have been under more intense scrutiny from auto manufacturers, and several of them are tied to Chrysler and General Motors," said Ostermann.
The intensity of bankruptcies and consolidation is anticipated to be strongest in the chassis (brakes, steering, axles, suspensions, etc.) and electrical/electronics (wire harnesses, switches, door systems, etc.). Chassis systems are usually capital investment-intensive and, thus, more impacted by volume declines, whereas electronic systems represent the future of the vehicle industry and many suppliers are trying to add electronic capabilities to their respective automotive systems. In fact, PRTM studied the accelerating pace of the most recent 122 supplier bankruptcies and found that a significant number were chassis system suppliers, such as Metaldyne, Hayes Lemmerz International, Inc., Contech and J.L. French.
"Pair that with the relatively unconsolidated supply base with over 120 chassis suppliers of relevant size globally and the fact that this segment has the largest number of strong potential buyers and weak potential bankruptcy candidates, and it tells you that the M&A pressure will be highest in chassis systems," Ostermann said.