European suppliers have bold plans for North America - plans that will further erode the market share of North American suppliers on their own turf.
A new wave of European suppliers is trying to follow in the footsteps of well-established companies such as Robert Bosch GmbH and Siemens VDO Automotive.
Companies such as French seating specialist Faurecia and TI Automotive Ltd., a fuel-system supplier in the United Kingdom, are making headway.
Faurecia jumped to $1.32 billion in North American sales in 2003, up from $180 million in 1998. TI Automotive posted $994 million in North American sales last year, up from $650 million in 1998.
Meanwhile, companies such as German lighting supplier Hella KG Hueck & Co. and Behr GmbH & Co. KG, a German engine-cooling specialist, are ramping up, trying to break $300 million in annual sales here.
From 1999 to 2003, European suppliers' North American sales jumped 29 percent. By comparison, the combined sales of North American and Asian suppliers in North America fell 3 percent, according to Roland Berger Strategy Consultants LLC in Troy, Mich.
European suppliers held $36.2 billion of the $238.9 billion North American supplier market last year, Roland Berger says. That's up from $28.0 billion of $237.6 billion in 1999.
The trend is likely to continue.
European suppliers have several advantages over North American suppliers in this market, analysts say. European companies:
Growing with Big 3
European suppliers came to North America to serve BMW AG and Mercedes-Benz. But they soon began approaching the Big 3 in hopes of growing.
"The market share of the Big 3 is declining, but it's still huge," says Mike Steventon, head of KPMG LLP's United Kingdom automotive section.
But European suppliers have struggled with the Big 3's price-driven procurement style, says Wim van Acker, a partner in Roland Berger's global automotive practice.
"Especially when you're mid-sized, not mega like Bosch, you have to start from the bottom," van Acker says. "Initial discussions are not about superior technology. They're about price."
Still, European suppliers are faring well on pricing. Their advanced technology is a big plus.
"If you have a niche technology there isn't competition for, clearly you can be more aggressive in pricing," Steventon says. "A lot of European Tier 1s are not competing on low-value elements of a car. You're not seeing many European Tier 1s going over and establishing pressing plants."
Automakers are interested in advanced technology to distinguish themselves in the marketplace, says Mahesh Lunani, a partner in Roland Berger's global automotive practice. "That's important because (vehicle) launches will average 50 per year over the next four to five years, and automakers are looking to differentiate their products," Lunani says.
|North American goals|
|Here are some of the European suppliers making a push in North America. All are German companies except for SKF of Sweden.|
|2003 N.A. sales||N.A. sales goal|
|SKF||$400 million||$650 million in 2008|
|Webasto||$369 million||$500+ million in 2006|
|Kolbenschmidt Pierburg||$320 million||$500 million in 2008|
|Mann+Hummel||$110 million||$240 million by 2010|
|Grammer||$100 million*||$200 million as early as 2007|
The bar was higher
European regulations and high gasoline prices forced many of the European suppliers' technological advances. Analysts consider European suppliers ahead of North American suppliers in several products because of their advanced technology. That includes powertrains, fuel systems, fuel-control technology, emission controls, safety systems, heating and cooling systems, electronic brake controls and weight-reduction methods.
One analyst pointed to Behr's expertise in heating, ventilation and cooling. Other examples: Webasto AG's sunroof business and Brose Fahrzeugteile GmbH & Co.'s window regulator systems.
European suppliers also are ahead of North American suppliers in diesel engine technology.
"If diesel takes off, it will be a huge loss of value for North American Tier 1s," Steventon says. "They will have difficulty catching up on 20 years of European history."
The strong euro and weak dollar also have played a role in European suppliers' success.
"There is a window of opportunity to invest in the U.S. at a discounted rate," van Acker says.
The exact profit margins of European suppliers are hard to determine, Steventon says. But it's clear that North American suppliers' margins are shrinking, he says. "And when there's low profitability, it's difficult to put the funds aside for the next round of development costs," he says of North American r&d budgets.
Regardless of the Europeans' recent and planned success, "U.S. automakers will not have their U.S. suppliers slaughtered in their home market," van Acker says.
Meanwhile, North American suppliers seeking the best use of limited r&d dollars should consider niches that European suppliers don't yet fill, analysts say. Those include hybrid powertrains and fuel cell technology.