Supplier landscape shifts as companies seek global strategies
The Michigan-based Delphi Automotive Systems Corp.'s move to purchase a 5.9% stake in the Tokyo-based Akebono Brake Industry Co. caused ripples among Japanese automakers.; Tony Takeuchi, president, Denso International America, Inc.
By Brian Milligan -- Purchasing, 1/13/2000
The automotive supplier landscape is changing as global companies scramble to form close relationships with foreign-based original equipment manufacturing suppliers that once pledged allegiance to big automakers like Toyota Motor Corp.Analysts say these shifts are going to happen in the aftermath of the Asian economic crisis. They say the bigger companies may still hold a lot of power, but their once exclusive relationships with key suppliers could be changing. For example, they expect a wave of acquisitions in Japan's 9-trillion-yen auto parts market as companies take advantage of the aftermath of the Asian economic crisis.
The Michigan-based Delphi Automotive Systems Corp.'s move in July to purchase a 5.9% stake in the Tokyo-based Akebono Brake Industry Co. caused ripples among Japanese automakers. Akebono Brake Industry Co. is the number-one supplier of wheel brakes to Japanese vehicle manufacturers, and an important supplier to Toyota.
These concerns were amplified by the Germany-based Robert Bosch GmbH's decision to increase its stake in the Tokyo-based Zexel Corp., an independent maker of fuel-injection pumps and car air conditioners. The move made Zexel a subsidiary of Robert Bosch GmbH. This was the first time a major Japanese auto parts maker became a subsidiary of a foreign company.
Both of these companies raised their stake in Jidosha Kika KK, a Toyota brake systems supplier, in April. The move added fuel to the fire.
Toyota representatives would not comment. But some suppliers say they are feeling pressure from Toyota as it considers what moves to make next. Marlene Goldsmith, a spokesman for Michigan-based Denso International America Inc., a supplier of airflow sensors and fuel injectors for Toyota, says her company senses that Toyota is attempting to rally its suppliers.
"Toyota is trying to reinforce the network of Toyota group companies so they can concentrate power and resources on winning mega competition in the global automotive market," says Goldsmith. "Denso is willing to make as much of a contribution as we can to help Toyota maintain their competitiveness, but we have not yet been informed on what Toyota's objective and vision is."
But Goldsmith cautions that while Denso wants to work with Toyota, it also won't be bullied into avoiding possible alliances with other companies.
"It is absolutely wrong to think that Toyota can prevent us from doing business with other customers," says Goldsmith. "Our business with each customer is independent from our business with Toyota. It is true that they are our biggest customer, and we are sure they will be in the future, but we have to be competitive."
Growing unease
Analysts say this growing prickliness between suppliers and manufacturers is just a sign of things to come. Bill Windle, vice president of Chicago-based A.T. Kearney Inc., says he understands Toyota's concern to some extent. And he has seen evidence that Toyota would like to gain more control. "I think Toyota is making a move to consolidate its core technologies," he says.
"I would anticipate that is what they will do with their suppliers," he continues. "In areas they believe are core to their vehicle, they will try to control. In other areas that they don't think are too important, they will be less concerned."
Windle adds that he doesn't blame Toyota--or other Japanese automakers--for being concerned. He says the company is probably concerned about protecting technology that these suppliers provide. Close alliances with suppliers that lead to joint research and development can lead to important parts technologies for the automaker.
And much of the consolidation has involved parts-specific companies. Windle notes that there has been a lot of consolidation in brake suppliers. "You name four top players, and you've got 75% of the market," he says.
The analyst says that agreements with suppliers become that much more important to companies like Toyota as they attempt to shorten their leadtime on car making. The company made headlines in August 1999, when company representatives announced that they hope to shorten the time it takes to build customized Camry Solaras at its manufacturing plant in Canada. Representatives say the company has developed a way to produce the car within just five days of receiving a custom order.
Toyota has since backed away from that promise. But Windle says the original announcement shows that Toyota is thinking along those lines and needs good suppliers that can help make it happen.
Anything that could jeopardize the company's relationship with key suppliers is certainly cause for concern, he says.
"They will probably be concerned about insight into their technology," Windle says. "Typically, the new technology is where the rubber meets the road.
"The only threat is if there is a clear technology leader among the suppliers, and it has an exclusive arrangement with another OEM," he continues.
Windle says he doubts that Toyota will attempt to create any sort of holding company that would influence its suppliers. He says it would be impractical, if not impossible, for Toyota to gain control of $30-billion companies like Delphi Automotive.
Overblown concerns
Windle says Toyota's concerns may be overblown. Consolidation among tier-one suppliers certainly is nothing new, and it isn't going to stop. In fact, it will occur more and more in specific sectors, he says. "I don't think this is something that has just happened," Windle says. "We've been following industry consolidation for years."
Windle says many of the larger suppliers right now are trying to position themselves strategically for the increasingly global market. By gaining interest in places like Asia, they can have their portfolios geographically balanced so regional downturns in different countries' economies won't affect them as much.
That's exactly why Delphi Automotive Systems purchased a stake in Akebono Brake.
"The reason we acquired the equity position in the company is because of a desire to increase our share of business in the Asia/Pacific region," says Steve Gaut, spokesman for Delphi Automotive. "We are increasing our ability to develop broader customer relationships with their customers in that region."
Suppliers in Asia, meanwhile, are now reaching out to make alliances with other parts of the world following Asia's recent economic downturn. Zexel joined up with Robert Bosch GmbH, for example, after widening its net loss forecast for the year ending in March 1999. The company also needed a cash injection to buy equipment needed to produce next-generation fuel injection pumps for diesel engines.
Problems like these are only increasing the frequency of these consolidations, and companies are now reaching into Asia to make alliances with good suppliers that were previously locked into agreements with Asian OEMs.
"They are reaching out because of some of the business problems they had in Asia," Windle says. "They are trying to counter-protect themselves, and so I think it's a natural thing that these relationships in Asia evolve a little bit.
"They are rising to become more defined as the market becomes more global," he continues. "How can anyone take five years of downturn in the Asian economy? It's brutal."
Tony Takeuchi, president and CEO of Denso International America, agrees that the market is ripe for changes now. And he notes that Denso is part of those changes.
He notes that in March, Denso acquired the Italy-based Magneti Marelli's Rotating Machines Division. The company manufactures engine electrical equipment such as starters and alternators.
"Yes, the market is right for acquisitions," Takeuchi says. "Car manufacturers are becoming more global, and the pressure on cost reduction is stronger and stronger.
"At the same time car manufacturers are becoming global, parts manufacturers must then become global because we could not survive otherwise," he continues.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
