Neil De Koker: Indian companies that buy U.S. operations face high materials costs and price squeezing from automakers.
Investment bankers say it's just a matter of time before one of them sets up an operation or headquarters in the Detroit area.
Several auto suppliers have noncore operations for sale. Delphi Corp. and Collins & Aikman Corp. have made no secret that they would like to find buyers for some of their financially distressed operations.
That pushes down prices, making it a prime time to buy a U.S. operation.
Indian suppliers are eager to be more than a low-cost option for U.S. carmakers, said Seema Chaturvedi, managing director of the Accelerator Group, of Troy, Mich. Her investment-banking and consulting firm is working with two Indian companies, an auto supplier and an engineering services firm, interested in buying U.S. operations. She would not identify them. "You cannot survive just by being a low-cost provider," she said. "You can't grow doing that, and you can't survive without growing. It's a natural progression to move up the value chain."
Indian companies were showing interest in investing in the United States before the trouble of the large auto suppliers took center stage.
In June, India's Eicher Group bought consulting firm Design Intent Engineering of Farmington Hills, Mich., though Design Intent wasn't in financial distress. In October the companies announced a $1 million investment that will move Design Intent into the prototype business and add jobs.
Bharat Forge Ltd. bought Federal Forge Inc., of Lansing, Mich., out of bankruptcy this year.
Indian interest in supplier assets goes deeper than getting in cheaply, said Mike Benson, managing director and head of the automotive investment-banking practice at Stout Risius Ross Inc., of Farmington Hills. Indian suppliers are bringing a business model with them.
U.S. automakers and Tier 1 suppliers want to push more basic manufacturing to countries with lower wages. But there's a risk in giving a contract to an unfamiliar company in a foreign country, Benson said.
Indian suppliers figure that if they can buy an established business in the United States, they can create a strong relationship with U.S. automakers. They then can help automakers decide which parts should stay in the United States and which to move offshore.
But when work moves offshore, it goes to a known partner with contact people right down the street, Benson said. "For the most part, they don't have very strong relationships with the (automakers)," he said.
"They want to be part of the sourcing strategy globally, not just in India."
Chaturvedi said some U.S. private-equity funds have set up Indian offices for these kinds of deals.
But the catch is that Indian companies aren't familiar with the U.S. merger-and-acquisition scene, Benson said. And some Indian companies aren't as familiar with the U.S. auto industry as they should be.
"Some of them don't know how to navigate a transaction well, and there are cultural issues that are hard to get over," Benson said. For example, Indian companies tend to take longer to make a decision, something that can kill a deal in the United States.
And an Indian company buying a U.S. operation could run into the same problems that suppliers here have: high raw-material costs and price squeezing from automakers, said Neil De Koker, president of the Original Equipment Suppliers Association.
"They have to have a good strategy and outline what is their reason for being here," De Koker said.
"Are you picking up technology? A new customer? You still have to deliver. Customers don't guarantee work."