DUSSELDORF, GERMANY - Medium-sized companies, auto-motive suppliers and small subsidiaries of larger companies that supply the North American auto industry are not expected to survive structural changes occurring in the industry, according to auto industry spokesmen. Holger Karsten, vice president for the automotive business of Arthur D. Little International Inc. of Wiesbaden, Germany, said automakers are placing new demands on their first-tier suppliers that will drive small, unfocused and midsized firms out of the business. Karsten spoke Oct. 4 at the Autoplas '95 conference in Dusseldorf.
The emerging paradigm for automotive suppliers is represented by companies that deftly combine target costing with shared cost savings, input into design, long-term partnerships and cooperative interaction, according to Bob Albert, global vice president for Dow Auto-motive, who echoed and expanded upon Karsten's remarks Oct. 17 in Venice, Italy, at the EMCRA, European Association for Business Research, Planning & Development.
Dow Automotive is a unit of Dow Chemical Co. of Midland, Mich.
Karsten said firms that will survive the supplier consolidation will be larger and have full capabilities to supply modular systems auto-makers can use directly on their assembly lines, or will have unique niche products that are necessary for new vehicles.
Albert said he believes the Tier 1 auto suppliers of the future will be those firms that lead the development of new programs and products, and deliver them to automakers.
The larger automotive suppliers will have a global presence through local assembly and local engineering facilities around the world and an ability to work with local suppliers in any major world market, Karsten said.
The producers of niche products will continue to refine their products, which they typically will supply to the first-tier suppliers, he added.
Further, he said the larger suppliers will have to attain a ``critical mass'' of sales - upwards of $750 million a year - by controlling a 10 percent or better share of their market that will support both their competitive positions, research and development and international presence.
Many companies already are reaching for that size by forming strategic alliances, through cooperative ventures or joint ventures, or by making strategic acquisitions of competitors or production facilities that have been deemed nonstrategic assets by automakers, he said.
Karsten said U.S. plastic component suppliers such as Textron, Findlay Industries, Inoac, Woodbridge and Automotive Industries have taken steps to expand their sizes to ensure their future as automotive suppliers.
The trend toward larger suppliers is being driven by six structural changes affecting the automotive industry, Karsten said.
The globalization of the auto industry, which is increasing the importance of international investment and emerging markets while decreasing the importance of home markets.
Changes, both existing and expected, in governmental regulation of the auto industry throughout the world in such matters as emission standards, safety and traffic patterns.
The concentration of automotive competition in the hands of large institutions based on international investment or specialty niche companies.
The move by most automakers to outsource production to gain efficiencies and reduce complexities. This move is forcing automakers to concentrate on single-source suppliers who can provide modular products for their assembly lines.
The drive toward cost reduction as automakers move to design one platform for production in all of the world markets, instead of distinct products for each market.
Finally, the drive toward service orientation that is expected to provide automakers a competitive edge and greater customer satisfaction in the future as they develop new markets.
