Sometimes it's a foundering supplier that needs rescuing. Or two parts-makers have a good idea to combine their strengths for mutual benefit. Or a deep-pocketed financier makes an offer that a small independent supplier just can't refuse.
Whatever the reason, mergers and acquisitions within the automotive supply chain make the financial pages just about every day. But in the background stands the real motivating force that often drives these deals: an automaker.
Motor Co. played matchmaker in the industry's latest corporate marriage, a joint venture between Japan's Corp., the No. 1 producer of wiring harnesses, and Germany's Siemens Automotive, an electronics powerhouse. Together, they will develop advanced electrical distribution systems (EDS) for vehicles with an eye on simplifying wiring complexity.
wants more systems capability from its EDS suppliers. The No. 2 automaker told suppliers that by 2005 it would award new contracts for electrical systems only to suppliers that could take responsibility for the entire body electronics architecture.
“Ford said anyone who does wiring harnesses without full service electrical/electronic systems needs to buy an electronics company to stay in the supply base,” says George Perry, president and chief operating officer ofNorth America Inc. and former Siemens Automotive president. “Everyone started talking to each other.”
It appears three others also are positioning to satisfy Ford:Automotive Systems, Corp. (through its purchase of wiring expert UT Automotive) and Corp.
The big loser, sources say, could be Alcoa Fujikura Ltd. (AFL), which recently supplied some 40% of Ford's wiring harnesses in North America but lacks a strong electronics partner.
Nimble EDS suppliers can help automakers avoid headaches during vehicle launches. During most programs, the electrical architecture can change three or four times as new features are added, Mr. Perry says. With the arrival of telematics, this problem won't go away.
But a supplier with true systems capabilities can anticipate the arrival of navigation systems and palm-top computer cradles and design greater flexibility from the beginning, Mr. Perry says.
The Siemens-Yazaki pairing makes sense in other ways: Both companies can better prepare for the arrival of 42-volt architectures. Yazaki isn't strong in electronics — Siemens is. EDS is a core competency for Yazaki — not for Siemens.
The joint venture also is a convenient way for Siemens to back out of its wiring harness business. As part of the deal, Yazaki assumes 75% control of Siemens wiring harness plants in Michalovce, Slovakia; Plzen, Czech Republic; Klaipeda, Lithuania; Chennai, India; Madanya, Turkey; and Irati/Bahia, Brazil. Siemens also is negotiating the fate of four other wiring harness plants.
Yazaki gets control of six plants that employ 5,000 people and recorded total sales last year of $214 million. Siemens was not prepared to upgrade the facilities, but Yazaki was eager to have a greatly expanded presence in Europe.
“We didn't want to make the investment to be No. 1 or No. 2 or No. 3. Even with all those plants, we didn't have a top spot in the market,” says John Sanderson, president and chief executive of Siemens Automotive. “Our focus is on the architecture and where it's going from a system standpoint, and the role that EDS plays in that system.”
Mssrs. Perry and Sanderson say they expect few cultural difficulties because each company is enthusiastic about the deal, as opposed to a party drawn in unwillingly.
One joint venture will be based in the U.S., the other in Germany, both overseen by a common supervisory board with equal voting power for each company. Yazaki will appoint the North American chief executive, while Siemens appoints the European chief.
KP Plans 9M Piston Modules for Ford
German-based supplier Kolbenschmidt Pierburg AG, which is gaining new business by providing complete piston modules for automakers, reports that its contract with Ford Motor Co. could grow from a current 1 million piston modules a year to 9 million. The company is investing $50 million in a new production line and for additional capacity in North America and is considering an acquisition for production of piston rings and connecting rods. Kolbenschmidt Pierburg also supplies the electronic throttle control system forCorp.'s new Vortec 4200 inline 6-cyl. engine. Despite the growth, reduced volumes in automotive have forced the company to delay the opening of its new Auburn Hills, MI, technical center by a year. Plans originally called for completion this spring.
Around the Industry
Corp. is building a new 211,000-sq.-ft. (19,600-sq.-m) plant in Longview, TX, to produce S-10 pickup truck frames for the Assembly Plant in nearby Shreveport, LA. The facility will be complete by March 2002 and employ about 450 people. Production begins in late 2002. Dana will not use hydroforming to produce the frame.
Corp., anticipating growth in the European air-conditioning market, completes the acquisition of Magneti Marelli Climatizzazione SpA, the thermal systems unit of Italy's largest automotive supplier. And in July, Denso will consolidate two of its manufacturing companies of automotive air conditioners in Australia.
Collins & Aikman Corp. will purchase plastic components supplier Becker Group LLC for $60 million in cash, 17 million shares of Collins & Aikman common stock and warrants for 500,000 shares at an exercise price of $5.00 per share. The deal also includes an $18 million non-compete agreement paid out over five years.