In every nook and cranny, the automobile business is changing. On the supplier side, the change is bigger than any since World War II.
Everybody knows about Inaki Lopez and his changes in both Europe and North America. Purchasing departments around the world are tougher today than ever before. It's normal to expect price cuts from suppliers in every year of a contract. Improving productivity and reducing costs are real challenges.
That may be the biggest incentive for mergers. You can cut overhead by spreading around a lot more revenue. If you can take a couple of companies and reduce the overhead by combining corporate staffs, you'll save money. It's pretty simple, and it is a big incentive to merge.
But the other real incentive is that customers want global resources. As automobile companies develop vehicle platforms to be built around the globe, the manufacturers want the suppliers to deliver the parts worldwide. It is simply good business sense for the automobile manufacturer to deal with a single source.
But the newest wrinkle is the emergence of a couple of really huge automotive suppliers that have become No. 1 and No. 2 in the world, almost overnight.
I refer, of course, to General Motors' Delphi Automotive Systems and Ford's Automotive Parts Operation. (Ford's going to change the APO name as soon as it can come up with a bright new one.)
Those two suppliers, which used to be completely captive, are being unleashed. Not only are they continuing to fight hard to keep all their family business, but they are going after every other automaker's supplier business as well. They have become the big gorillas. They are becoming more and more independent, and they may finally be spun off to become completely separate.
Ford Vice-Chairman Ed Hagenlocker, who oversees Ford's APO, told a seminar recently that Ford APO not only plans to compete for all of Ford's business but plans to go after a lot of other global business as well. With 78,000 employees around the world and key operations in every major country, Ford is bound to become a formidable competitor. If nothing else, it's going to give Delphi some real competition around the world.
Mergers, cost cutting and huge new competitors make this supplier business more interesting than ever before.