EDITORIAL

Auto supplier consolidation: Caution advised

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ZF Friedrichshafen's bid to acquire safety specialist TRW Automotive raises questions about where automotive suppliers are headed.

If completed, the deal would create a global megasupplier second in automotive revenue only to Robert Bosch.

Because the bid bucks the recent trend of suppliers slimming down by selling noncore operations, the prospect of competing against a larger ZF with more areas of capability sets the scene for a new wave of supplier consolidation.

Industry reaction has been cautious. IHS Automotive says that adding TRW's safety and autonomous driving products to ZF's powertrain and mechanical parts emphasis would focus the combined company on high-growth fields.

UBS analyst Colin Langan says there are few cost savings for ZF because the companies' product lines don't overlap. He also worries that financing the deal would force ZF to take on lots of debt.

But this isn't the 1990s when many suppliers set out to build broad competencies and skills. The idea was that dominating specific vehicle modules or systems would create pricing power with automaker customers. The expected synergies largely didn't materialize, and automakers resisted yielding that much control of their vehicles to third parties.

With fewer and larger parts makers these days, the number of suppliers with deep enough pockets to bulk up is limited.

ZF and TRW are proceeding cautiously. So should other suppliers when considering similar steps.

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