Detroit — Auto component suppliers around the world are tearing themselves apart.
They are convinced that by no longer being conglomerates, they will gain favor from investors and industry customers. And so, like amoebas under a microscope, parts makers are splitting in two, separating self-driving operations from drivetrain business units, old technologies from new, or selling off divisions deemed inessential for growth in the new era of electrified, connected and autonomous vehicles.
In the past 24 months, the industry has witnessed such "de-mergers" at Delphi, Johnson Controls Inc., Autoliv and Faurecia SA. Honeywell International Inc. has put its turbocharger division on the block. GKN plc tried to stave off a hostile takeover by splitting its automotive and aerospace divisions, and that scenario is still unfolding. Even the German technology giant Continental AG is considering a structural overhaul. There are several reasons for the global trend, executives and analysts say. For one, Wall Street and the rest of the world's investment sector believe there is greater earnings potential in the high-tech trends that are roiling the auto industry — autonomous drive, electrification and connectivity — than in nuts-and-bolts auto parts, however profitable they may be now.
Suppliers themselves say that by separating out a tightly focused and independent business, it won't have to fight for resources within a diverse conglomerate. And smaller, single-purpose companies also can be quicker to adapt to a fast-changing landscape, whether it's new tech or old tech.
Supplier R&D is running hotter than ever, with technology the focus of SAE World Congress in Detroit this week.
Automakers are leaning heavily on their parts companies to come up with the necessary innovations to make vehicles drive themselves, deliver better fuel economy and talk to each other in traffic.
Not every supplier is following the same script on how to obtain the needed cash and profit margins to deliver whatever it is the auto companies will need over the next decade. But they agree that they need keen focus on their core competencies in an increasingly complex business, analysts said.
"The supplier that was everything to everybody — that's becoming a much more difficult business model," said Michael Robinet, a managing director at IHS Markit Automotive. "Even the larger suppliers are looking inward and saying, 'Where can we see the added value? Where can we see the margins and return on investment that we targeted?'?"