Guide to Top Suppliers - S3

> INSIDE: Top 100 global suppliers I PAGES 4-8 I

Top 50 Europe suppliers I PAGES 9-10 I Top 100 North American suppliers I PAGES 11-15 I

The biggest suppliers beef up for change

T

Lindsay Chappell
lchappell@crain.com

he supplier world is rushing into new
technologies to deliver the grand vision of the auto industry - widespread
electrified powertrains and advanced
safety and convenience technologies that will
allow vehicles to steer, accelerate and brake
themselves.
But that transformation isn't having any noticeable effect on the global pecking order of
the industry's biggest parts companies.
Not yet, at least.
The annual Automotive News ranking of the
top global suppliers reveals that as the industry's main players build revenue, transform
and change direction, they remain in much
the same order of size as they were a year
ago.
Bosch, Denso, Magna, Continental and ZF
Friedrichshafen remain the world's five biggest suppliers, in the same order on the Automotive News list as a year ago. Only two of the
top 10 - Valeo and Faurecia - changed
rankings last year. They swapped positions
on the list, with Faurecia No. 9 and Valeo No.
10.
The main reason suppliers, for the most part,
are keeping their spots as the biggest of the
big? Wealth.
The cost of playing in the game has gone up
in the past few years, and only the biggest and
richest can afford the rising costs of acquiring
the technologies that will make the industry's
vision become a reality.

'Dominating factor'
"You can't buy anything related to autonomous vehicle software technology now that's
not in the billions of dollars," said Dietmar Ostermann, U.S. automotive advisory leader at
PwC, which tracks global automotive merger
and acquisition activity globally. "So if you
want to be in the autonomous game, the size
of your company matters massively."
Mergers and acquisitions have roiled the

segment as suppliers jockey for a seat at the table to come.
Ostermann admits to being astonished at
the amount of money that technology vendors
are suppliers add to their portfolios. According
to PwC, the combined value of supplier mergers and acquisitions has nearly tripled from a
decade ago. It averaged around $20 billion a
year for 10 years, Ostermann said. From 201417, it averaged about $50 billion to $60 billion,
before jumping to a record $97.5 billion last
year.
"Technology is the dominating factor in
supplier strategy," he said. "A few years ago,
suppliers were on an M&A drive
because automakers were moving to global platforms with
global architectures, and suppliers needed to quickly merge
and create more global capabilities to supply in all regions.
"The real need now is to be
able to support electric vehicles,
connected cars and autonomous driving."
The desire to beef up with connectivity and autonomous capabilities has triggered acquisitions for software companies
and electronics innovators,
small and large, in and out of the traditional
car business.
Last year, there were 20 deals each worth
more than $1 billion - twice the level of activity of the past three years. The sector recorded
903 merger-acquisitions during the year.
Among those that reported a deal value, the
average size was $286.8 million.
The quest for more technology is also focused on older auto parts. Even as EVs rise
on the horizon, automakers are asking suppliers to help make internal combustion engines more competitive, smaller and lighter,
requiring turbocharging and direct injection.
The same lightweighting effort is driving

opportunity among steel, aluminum and
composite material suppliers.

Where are the results?
Companies are questioning their past business segments and repositioning themselves
for new roles through mergers, investments,
divestitures and corporate restructurings -
even if the technology revolution has not
kicked in yet.
The expected revenue of that big future is little more than a trickle, compared with the
still-robust demand for good old-fashioned
brake pedals, pistons, fuel tanks, lead-acid
batteries, transmissions and
pickup bed liners.
But change is occurring nonetheless, and familiar names are
disappearing from the list of giants as suppliers carve out new
visions for their futures.
Delphi Automotive, a company that once towered as the industry's biggest supplier under
various corporate names, making parts as disparate as air conditioners, brakes and radios,
now appears on the list of giants
as Aptiv at No. 20. Aptiv plans to
focus on electronic architectures and advanced safety. The spun-off part
of the old Delphi - now named Delphi Technologies - will compete in the powertrain
corner of the industry. It ranks No. 62.
Johnson Controls, once a star supplier of
seating, interiors and batteries, has divided into separate companies - No. 13 Adient, with
an eye on seats for the autonomous age; and
Clarios, focused exclusively on the future of
batteries. Clarios did not submit a completed
survey for this year's list.
Axle and transmission maker ZF, No. 5 on
the list, grew mightier last year as a result of its
2015 acquisition of American safety systems
supplier TRW.
And Japan's Panasonic Corp., ranked No. 12,

reported a 33 percent growth in revenue last
year, thanks in part to its acquisition of the majority ownership of Ficosa, the fast-growing
Spanish supplier of cables, mirrors and other
parts.

When is the payback?
The question hanging over the heads of supplier executives: When will the new order of
electrification, connectivity and autonomous
driving begin delivering revenue and profit on
a par with the cost of restructurings, acquisitions and development investment?
Significant financial payback could be another decade away, according to several forecasts. Although automakers ranging from
Volkswagen to Toyota are rapidly developing
electrified vehicle portfolios, most forecasts
conclude that it will take until late in the next
decade before electrified vehicles equal those
powered by internal combustion engines in
terms of global unit sales.
And while lower-level autonomous driving
technologies are spilling into the marketplace
- visible in Nissan, Cadillac, Tesla, Honda,
Volvo and Mercedes-Benz vehicles - the new
science remains a distant source of dominant
supplier wealth. Automakers are still vague
about when and where fully autonomous vehicles will appear in the market.
Until then, said Daron Gifford, strategy and automotive consulting leader at Plante Moran in
Detroit, large suppliers will have to sort out the
daily challenges of the auto business the same as
small suppliers. Those include delivering flawless
parts to customers on time, running their factories efficiently and meeting the cost reduction
demands of automakers' purchasing managers.
Automakers make little distinction between
large suppliers and small, Gifford said.
"Being a big guy can be helpful, maybe in being able to drive down your own costs, or in
being able to drive innovation at your business," he said.
"But whether you're big or small, you face
the same issues." m
3



Guide to Top Suppliers

Table of Contents for the Digital Edition of Guide to Top Suppliers

Guide to Top Suppliers - Intro
Guide to Top Suppliers - S1
Guide to Top Suppliers - S2
Guide to Top Suppliers - S3
Guide to Top Suppliers - S4
Guide to Top Suppliers - S5
Guide to Top Suppliers - S6
Guide to Top Suppliers - S7
Guide to Top Suppliers - S8
Guide to Top Suppliers - S9
Guide to Top Suppliers - S10
Guide to Top Suppliers - S11
Guide to Top Suppliers - S12
Guide to Top Suppliers - S13
Guide to Top Suppliers - S14
Guide to Top Suppliers - S15
Guide to Top Suppliers - S16
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