While the auto industry hotly pursues new technologies, some suppliers are picking up lucrative business from staunchly 20th-century hardware.
Internal combustion engine parts and other precision metal components are offering new rewards -- even as the industry plots a shift from the metal-heavy internal combustion engine, according to Michael Simonte, president of American Axle & Manufacturing.
"The OEMs are spending an increasing amount of their energy and attention and capital dollars on newer technologies," Simonte told an audience of financial analysts earlier this month at the Citi Industrials Conference in Boston. "And they're looking to the more established, capable supply base to take over some of the more traditional activities."
Simonte said automakers and large parts suppliers are off-loading parts business they historically considered high-value-added core activity -- including precision part machining and other capital-intensive metalwork.
He said Detroit-based American Axle and some of its competitors have been taking over a growing list of tasks that used to be in-house work at auto companies, such as engine-part machining, heat treating and powertrain module subassembly.
He said American Axle is picking up incremental content in transmissions as those systems grow increasingly complex. That is occurring as part of the industry trend toward more fuel-efficient transmissions with additional gears requiring precision work. The automakers and their transmission suppliers are not keen to invest in the added work.
"Look at the content per vehicle that we enjoy on the four- and six-speed transmissions of the past, and then compare that to what we're doing on the eight-, nine- and 10-speed transmissions," Simonte said. "We are taking five, 10, 15, 20 bucks a vehicle and turning it into 30, 40, 50 bucks a vehicle -- in some cases more.
"You're seeing this with a couple of our competitors and you clearly see it in our business," Simonte told the audience. The trend represents "major opportunities to expand our role in those value streams."
American Axle has deepened its investment in the field. In April, it completed a $3.3 billion acquisition of Southfield, Mich.-based Metaldyne Performance Group. The acquisition makes American Axle's product lineup more diverse and makes the combined company much less dependent on American Axle's biggest customer, GM.
Metaldyne products include suspension components, connecting rods and turbocharger housings. American Axle makes components such as drive shafts and transmission gears, as well as axles.
For the first quarter, American Axle reported net income of $78.4 million, up from $61.1 million a year ago.