TRAVERSE CITY, Michigan, USA — PwC's annual study on supplier mergers and acquisitions reports that 2018 activity continues at a high level. North American companies remain attractive targets for European and Asian buyers, PwC found, while industries in all regions continue to consolidate.
But Dietmar Ostermann, PwC's senior automotive partner, also reflected on an alarming aspect of the consolidation as it relates to corporate locations and headquarters.
He spoke to Automotive News News Editor Lindsay Chappell at the CAR Management Briefing Seminars here about the trend.
A question about geography: Does it matter anymore where a supplier is headquartered?
Maybe the better question is "Should it matter?" We have that strategic discussion with automakers in the United States. If you look at the Global 100 suppliers, there are really only seven or so left that are U.S. companies, excluding companies in Canada and Mexico. They're melting away. There aren't that many anymore. You have a whole bunch of German and Japanese. That's a little frightening.
There's no doubt when you look at the core supply base of a Toyota that they are very much benefiting from their keiretsu relationships. For many of the 15 or so top keiretsu suppliers, Toyota owns a 30 or 40 percent share. There's no doubt in our view that a keiretsu supplier like Denso or Aisin or Toyoda Boshoku is giving innovative solutions to Toyota before anybody else. And there's no doubt that some of the big German suppliers enjoy very cozy relations with Mercedes and BMW. So from that viewpoint, it matters. That's where the American suppliers come in. If you think about GM and Ford, where will they get their innovations? Who will be the suppliers that give them new innovations before giving them to anybody else? Who will favor GM and Ford ahead of BMW or Toyota or Honda? You could argue that Lear and BorgWarner would be biased to the U.S. automakers.
How do you ensure that innovation?
If you look at what it takes to engineer a vehicle, it's 50 percent from the automaker and 50 percent from the suppliers. In some cases, it's more one way or the other. But in some cases, an automaker only engineers 20 or 30 percent of a vehicle. Automakers need to have some core development suppliers who are supporting their brand image. And they don't need to be the same suppliers as BMW's. You don't need to own 30 percent of them. But at least you want to have a strong relationship with them. And to do that, they need to be very close at hand to provide a competitive cost.
Is the trend toward fewer U.S.-based suppliers reversible?
Well, some of it is motivated by companies seeking a tax haven in another country, and the tax portion of this issue is reversible. I think the administration is trying to make it reversible. So that portion of it may come back. It's simply not as attractive for a company to move to Luxembourg or to England for tax reasons as it was before the tax changes.