Think of them as the leapfrogs of the automotive supplier world.
A handful of aggressive suppliers defied the competition and rapidly expanded their companies in 1998 even as several giant conglomerates bailed out.
Take Tower Automotive Inc. In 1995, it was ranked No. 87. But it placed No. 18 on Automotive News' new list of the top 150 suppliers of original equipment in North America, with sales of $1.8 billion.
'You can't get there fast enough' said Dugald Campbell, CEO of Tower, which is based in Grand Rapids, Mich. Growth by acquisition is necessary for the global presence, product offerings and new technology that his customers demand.
Despite rapid growth by companies such as Tower and Federal-Mogul Corp., the faces among the top 10 have not changed much. Delphi Automotive Systems and Visteon Automotive Systems remain first and second despite flat sales in 1998. Following the two behemoths are the usual giants: Johnson Controls Inc., Dana Corp., Lear Corp., Magna Interna-tional Inc. and TRW Inc.
Those companies have cemented their positions by snapping up competitors. Smaller rivals such as Tower are defending themselves by joining the acquisition binge. Another example is Federal-Mogul Corp.
It jumped from No. 80 to No. 27 on the current list, thanks to Dick Snell's 'Big Hairy Audacious Goal,' which set a sales target of $10 billion by 2002.
WALL STREET CHILLY
He is well on his way, almost tripling the company's North American original-equipment sales from $429 million in 1997 to nearly $1.2 billion last year. To fuel its growth, Federal-Mogul last year acquired T&N PLC, Fel-Pro and Cooper Automotive.
Applause? Not from investors. Wall Street feared Federal-Mogul would fail to deliver Big Hairy Audacious Earnings. Federal-Mogul's shares plunged as much as 20 percent in early March but recovered slightly to $43.16 last Wednesday, April 7, down from a 52-week high of $64.86.
The stock market has been skeptical about Tower and several other hard chargers, too.
Tower's revenue has increased twentyfold since its 1993 founding. But its share price fell to $17.63 last Wednesday, near its 52-week low. In a consolidating industry, investors expect big deals, and Tower has not made one since 1997.
Cummins Engine Co. jumped from No. 22 to No. 10 after its revenue rose 44 percent to $2.3 billion. But the diesel engine maker's share price has fallen from its high since 1995 of $80.60 to Wednesday's close of $38. Cummins' third-quarter earnings were disappointing, and it has embarked on an expensive rollout of new products.
Yet another example is wheel maker Hayes Lemmerz International Inc. North American revenue rose to $956 million last year, raising the company from No. 48 to No. 33.
But its share price plunged from $32 in late January to $20.50 before recovering slightly to $24.63 last Wednesday. Hayes Lemmerz's fourth-quarter earnings were disappointing because of problems in Brazil.
THE RICH GET RICHER
Meanwhile, the megasuppliers have not allowed a deflationary market for parts to cramp their growth. TRW's rank on Automotive News' 1999 list will rise substantially as it completes its $7 billion acquisition of LucasVarity PLC (No. 19). Lear is preparing to acquire UT Automotive Inc. (No. 16). The changes will be reflected on the 1999 list.
Johnson Controls, Dana and Lear - ranked third, fourth and fifth, respectively - increased their revenues an average of 13 percent last year, primarily through acquisitions.
They are riding the automotive trend toward modularization, in which automakers let suppliers assemble entire 'chunks' of a vehicle, such as the cockpit or suspension and brakes.
For large suppliers that have consolidated their industry segments, it is a growth strategy that has paid off.
A decade ago, Johnson Controls of Milwaukee was known mainly as a supplier of auto batteries and industrial controls.
But its focus on supplying entire automotive interiors has propelled it from 10th place to the top-ranked independent North American automotive supplier last year.
The dealmaking that built Lear and Dana into leading independent suppliers also wiped others off Automotive News' annual list.
You won't find ITT Automotive, once part of a giant conglomerate. It was 13th last year. The company's parent sold most of its automotive assets to Valeo Inc. and Continental AG.
Gone too is Echlin Automotive. It was the 46th-largest supplier in 1997, but it was gobbled up by Dana when Echlin faced a hostile takeover.
CONGLOMERATES FADE
Last year also was marked by still more conglomerates bailing out of the automotive business.
UT Automotive, with $3 billion in sales last year, will be sold to Lear. Parent company United Technologies Corp. had demanded strong and consistent profitability from its divisions.
Cooper Industries Inc. unloaded its original-equipment and aftermarket lights, spark plugs and wipers business.
Tenneco Inc., another conglomerate, could spin off its automotive unit this year. If so, there will be many potential buyers.
Most analysts believe more upheavals will happen. Merger mania will continue because it allows quick growth in an industry saturated with overcapacity, said David Strickler, an industry analyst for Bowles Hollowell Connor, a division of First Union Capital Markets Corp. in Charlotte, N.C. He added: 'It's more efficient to expand by acquiring new products and customers.'
