If you want to run with the biggest in the global automotive supplier business, two things would help: Sell electronic components, and do it in North America.
Of the 50 biggest suppliers in the world this year, 24 are based in North America, and several of the European and Japanese firms derive more than 10 percent of their sales from this market.
The 1997 Automotive News ranking of the world's largest suppliers reveals that at least 26 of the world's top 50 rely on vehicle electronics for some part of their global business. For example, Denso Corp., which is ranked No. 4 and is Japan's biggest supplier, obtains most of its revenues from electric motors, fans and engine controls. TRW Inc., which is No. 5, produces airbag sensors and anti-theft systems in addition to seat belts and suspension parts.
Ten of the top 12 firms got where they are with some help from electronics.
The biggest supplier of them all remains Delphi Automotive Systems, with 1996 revenues of $26 billion. That's nearly $10 billion ahead of the No. 2 supplier, Ford Automotive Products Operations. Next year, Delphi will pull even further ahead when it merges with its sister General Motors subsidiary, No. 12-ranked Delco Electronics Corp. At 1996 levels, the combination will yield a $31.5 billion-a-year giant.
Auto industry observers believe that the two general characteristics of the Top 50 point to trends that are reshaping the supplier world today:
1. Major-league suppliers are scrambling to diversify geographically to serve their automaking customers in multiple markets. It is no accident that Denso has mustered $2.5 billion in sales from North America. That is where many of its key customers - notably Toyota Motor Corp. - have staked their own growth.
At the same time, the two biggest U.S. suppliers are vigorously seeking new sales in Asia, Latin America and the developing markets of the world. Their key customers are also on the move.
2. Electronics are now fundamental to vehicle construction - and they are rapidly pushing open the door to far more advanced, computer-based components. The age of electronic traction, brakes and steering has already arrived. General Motors is now marketing a Delco-based communications system that eventually may be capable of transmitting engine-maintenance orders while the vehicle moves down the highway.
As parts and systems become more sophisticated, the companies that create, design and innovate them will inherit new power.
'We've all read that suppliers are under intense pressure from the automakers to reduce costs,' said John Casesa, auto industry analyst for Schroder Inc. of New York. 'But as the OEMs hand off more responsibility to suppliers, and as the technologies become more complicated, that pendulum will swing. Eventually, the suppliers themselves will be calling the shots on pricing.'
Those may be unbelievable words for a parts industry hell-bent on slashing costs at every turn. Suppliers from Cleveland to Dusseldorf are now marching to the same industry orders: improve technology and reduce costs.
Martin Anderson, director of Supply Chain Programs at Babson College in Massachusetts, agreed that a technological shift is taking place.
'Cars are becoming electronic components,' said the professor and researcher.
'Historically, mechanical engineers controlled the destiny of the vehicle. Now it is the electrical engineer.'
But even that reality is evolving, according to Anderson. As electronic technologies incorporate more micro-computing power, a new role will be carved out for the creators and purveyors of computer software.
'We will see the Hewlett-Packards and IBMs of the world among the major automotive suppliers,' Anderson predicted. 'And we will see a power struggle between carmakers and software suppliers over who owns the software architecture of the car.'
If you can update an engine's performance by downloading a new software program, Anderson asked, whose engine is it?
This year's Automotive News ranking witnessed a number of changes among the world's key suppliers. Last year, the ranking found Britain's Lucas Industries PLC at No. 20, with global OE sales of $3.9 billion. This year's ranking finds Lucas merged with North America's Varity Corp. to form the $7.2 billion global entity called LucasVarity PLC. That company moved into the No. 7 spot.
Suppliers have been scrambling to reorganize themselves to do global battle in recent years. Last October, Ford Motor Co.'s in-house component makers were molded into Ford Automotive Products Operations, with sales of $16.4 billion. The reorganization moved the Ford group up from No. 4 to No. 2.
That bumped it ahead of German-based parts conglomerate Robert Bosch GmbH, despite an estimated 13 percent increase in Bosch's worldwide sales for the year. Bosch's jump was itself due to its buy-out of Allied-Signal's antilock brake operations, a move that gave the German company 24 additional factories.
Bosch is among the most globalized of the world's major suppliers. More than half of its business volume now comes from foreign sales, including some 18 percent in North America alone.
Dana Corp. of Toledo, Ohio, No. 14 on the list, aspires to that same level of overseas business. Currently, about 18 percent of its sales comes from outside North America. Under the company's 'Beyond 2000' program, half of its business would.
Growing overseas protects the company against cyclical downturns in the home market. But increasingly, major suppliers must commit resources to foreign markets in order to serve home-market customers who want to produce vehicles overseas. Dana is currently building a Brazilian plant to supply a complete chassis to Chrysler Corp.'s Brazilian-built Dakota pickup in 1998. Failing to step up to the Brazilian project could have had ramifications for its U.S. relations with Chrysler.
'Automakers are investing $19 billion in South America at the moment,' observed Dana spokesman Gary Corrigan. 'There are risks to following them, but it's where the business is.'
For many suppliers, mobilizing to get overseas quickly has meant buying up foreign firms. North American firms have been acquiring European suppliers in recent months. In April and May, seating makers Lear Corp. (No. 9) of the United States and Magna International Inc. (No. 20) of Canada each acquired European seating companies. Acquisitions helped boost Magna's business volume by more than a third from last year's list, to $4.3 billion on the new ranking.
How many suppliers will be left once the acquisition pace slows?
In the late 1980s, the often-cited number was 30,000 companies.
'I've been saying 8,000 for the past few years,' noted supplier consultant Donna Parolini, president of International Business Development Corp. in Troy, Mich. 'But now I can't find 8,000. There aren't 8,000 anymore.'
Some of the world's largest players remain fixed on their home markets. Chrysler Corp.'s in-house operations generate about $2.7 billion a year in sales, making it one of the world's biggest. But 96 percent of that volume goes into North American vehicles.
Ford has predicted that there will be only 85 global suppliers by the time the industry shake-up has stopped. Parolini said that number is far too high.
'When we talk about suppliers that are doing business globally, I can identify only 50 or so now,' she said. 'And some of those will probably merge.'
She predicted the number ultimately will fall to between 25 and 30.