Strategic retreat of North American auto parts suppliers

As the global automotive industry enters a new cycle, Globally, there are many variables in the auto parts industry, one obvious sign is the contraction of American parts companies, Typically, 1) Honeywell Group, a world-renowned manufacturer of aero-engines, security systems and special materials, announced the formal spin-off of its non-core turbocharging business, Turbocharging Systems, to form Garrett, a new company. Honeywell formally pulled out of the low-margin value-added auto parts industry. 2) Johnson Controls will exit the auto parts business and sell its power solutions business, which makes car batteries (about a third of cars worldwide use the company's lead-acid batteries), to Brookfield Commercial Investments in a deal worth $13.2 billion. Johnson Controls will focus on building technology and solutions. It was the departure of Johnson Controls in 2016 after it split the auto business into Adient. On the whole, this is also in line with the overall development trend, Here are a few main features: Japanese spare parts enterprises: Japanese spare parts companies are built around the whole vehicle enterprise system, operating profit margins are mastered by Japanese automobile enterprises, Except for a few companies relying on foreign business (mainly European and American car companies), most of the turnover is the product of Japanese car companies' agreements, and the overall profits are lower for German and European parts companies: with German companies expanding around the world, especially with a large luxury car supporting European parts companies, The profit margin is moderate, but also with European car companies, because of the existence of several large ecological giants, So there is no Japanese-dominated North American component supplier: as shown in the figure, the situation of American spare parts enterprises, that we need to see from house to house, Because North American parts companies are concerned about operating margins, So, in many areas, we're abandoning the global auto parts industry revenue and profit margins. Overall, the plight of North American suppliers Since 2005, after a period of trough and recovery in the automobile industry, American suppliers have not completely squeezed into the supply chain of European automobile enterprises, nor have they accounted for a large share in Korean and Chinese automobile enterprises. Delphi, spun off from GM, slimmed down all the way. Delphi's split of the powertrain business, renamed Ambow, will be known as Delphi Technologies, which will focus on the powertrain and aftermarket, while Ambow will specialize in active safety technology, car networking and driverless vehicles. Ford spun off Visteon in the face of fierce latecomer competition for automotive air conditioning, entertainment systems, in-car electronics and lighting systems. In the process, things like TRW were acquired by German companies. Figure 2 More than a Decade of Changes for North American Suppliers Lear, a supplier of seats ($15.9 billion) and electronics ($4.6 billion), is now the largest supplier of components in the United States. Major players like andolto are mainly in the seating business. In The interior and seating sectors require significant capital injections to sustain growth. It is surprising that this is a strategic area for both US companies. Figure 3 Both leading U.S. Components companies rely heavily on the seat business Lear's long-term development plan, which began in 2008, is to shift to a new electrical and electronics business with a strategic goal of increasing electrical and electronics sales from 30% to 40% by 2012. As shown in the following figure, In fact, the facts are not entirely satisfactory, Expansion into electronics, electricity and new-energy vehicles has been hampered, Harness suppliers from Japan and Europe are in a better position to improve technology and manufacturing processes for new electrical systems, and as Tesla-led harness simplification moves, there is some scepticism about the growth of low-voltage power distribution and harnesses. It's also a shame to get up early in the morning and catch up on the late-night episodes in the new-energy-vehicle component sector, such as car chargers and Mode 2 charging cables. Fig. 4 Ten-year Change in Business Composition of Lear Europe, Japan and Korea Parts and Components Markets Open Generally speaking, before the rise of China, the U.S. Auto market was the largest in the world, while U.S. Parts and components companies relied on the good life of the three largest U.S. Auto companies in the domestic market. With the passage of time, Japanese and Korean automobile companies enter the United States market, European luxury cars enter the United States, constantly squeeze the North American auto market, from the absolute number of American spare parts companies in the local survival space is constantly squeezed. In Europe and Japan, zero The survival space of component enterprises has been more and more opened up. Fig. 5 Market Share of the Three Major U.S. Automobile Companies in the U.S. Market Strategic Transformation The automobile industry has developed for more than a century, and some of its values have already experienced a "trailing effect". With the popularization of electric vehicles and the future development trend of self-driving, the original industrial chain is undergoing dramatic changes. The automobile industry will be stratified in the future, such as the continued separation of product value premiums from structural and technological to automotive electronics and software, Content-based development around consumers will allow powerful automotive companies to consider hardware and software separately at the top, building a new division of value in traditional chassis, engines, safety features, and future autonomous driving and car networking. Around the automotive industry, the parts industry also needs to adapt to this cyclical industry, will experience demand growth and shrinkage of matching models, the product itself will have a boom-bust period, which has a very high demand for the company 's cash flow. And the development of cars, but also the need to inject more capital and technology in certain areas, Uncertain returns on investment and business trials by former customers, parts and components companies in Europe, are the reasons why U.S. Diversification ultimately decided to say goodbye with pain and shift to other businesses with higher returns. Summary: Sometimes we look at manufacturing in general, as young people and capital in the United States pursue new things, with Tesla as the representative of the new American automotive power in the world to consider the major suppliers, the road taken and the previous American car companies Routines are different, and this is the inevitable choice of optimal supply relationships around the world.