DAVID SEDGWICK

Pressure builds on suppliers to team up

COMMENTARY
David Sedgwick is a special correspondent for Automotive News.
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When ZF Friedrichshafen AG announced plans to acquire TRW Automotive, media reports focused on their combined sales of about $40 billion, which would rival behemoths such as Bosch, Denso and Magna.

Fair enough, but it might make more sense to focus on their combined r&d expenditures, which topped $2 billion last year.

If the ZF-TRW alliance is going to create a product portfolio for collision avoidance and driverless vehicles, the r&d budget will make or break it.

Last month, TRW showcased its latest package of collision-avoidance radar and cameras at the Hockenheimring test track in Germany.

There aren't a lot of companies that can afford to spend that kind of money -- especially if the return on investment is five to 10 years away.

Can we expect more alliances as suppliers bulk up to compete with the big boys? Sure.

Herbert Demel, Magna International Inc.'s former strategy chief, spelled out the need for such alliances last month at the European Automotive Congress in Barcelona, Spain.

According to IHS Automotive's weekly supplier newsletter, Demel told the gathering that suppliers should emulate their customers -- the automakers -- and save money by sharing purchasing, r&d or production facilities.

In Demel's view, Western companies could pair up with Asian suppliers so that both partners would gain access to new markets.

There is some precedent for this. Years ago, Freudenberg of Germany and NOK of Japan formed a joint venture to do business in North America.

But the benefits of sharing intellectual property could prove even more important than access to new regional markets. Automakers depend on suppliers to develop new technology for infotainment, collision avoidance and fuel economy.

Suppliers that have that technology enjoy considerable clout. They can expect long-term relationships, early access to automakers' product plans and global production deals.

The overriding importance of technology could trigger an industry consolidation over the next five years or so. Increasingly, automakers are deriving their product lineups from a limited number of global platforms.

Among suppliers, there will be a few winners and many losers.

You can reach David Sedgwick at dsedgwick@crain.com.


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