What’s Behind the Auto Supplier Mega Mergers?
Intel and similar companies know they have the opportunity to claim a whole new level of relevance in the automotive market, as software and automation claims a greater share of the future automobile.
#Magna #Intel #Harman
Emerging trends like electrification are disrupting the automotive industry and leading to massive changes, not only for vehicle manufacturers, but also suppliers. In fact, automotive suppliers stand to be impacted most severely by the trends toward electrification and autonomous vehicles.
While the full force of these market adjustments won’t be felt for at least 15 years on a global scale, smart automotive suppliers are making strategic decisions now to ensure they’ll continue to win in a quickly evolving market landscape.
Old Company vs. New Company
Today there are two major categories of automotive suppliers: The first can be called Old Company (OldCo.), the business unit that relies on the production of mechanical products related to the internal combustion engine (ICE); and the second can be called New Company (NewCo.), the business unit that is strategically adopting new products and business models relevant to the future of the automotive industry.
This is not a matter of convenience for categorization. The automotive suppliers who will not only survive, but also thrive the onset of electrification are those who understand exactly how to properly their precious capital and human resources into OldCo. and NewCo. businesses.
In a shrinking market for ICE-related components, many large OldCo. businesses will be the primary drivers of industry consolidation, as two or more organizations are merged into one. The goal is to create financial synergies and competitive advantages in rapidly shrinking markets. Examples of recent consolidation mega-deals include American Axle’s $1.5-billion acquisition of Metaldyne Performance Group (MPG), Tenneco’s $5.4-billion acquisition of Federal Mogul, and Dana’s attempted and rejected $6.1-billion acquisition of GKN (GKN shareholders later chose a bid from Melrose, a private equity firm, to take the company over).
Strategies for Long-term Success
Don’t get me wrong — traditional ICE-related automotive suppliers who specialize in manufacturing are still the backbone of the auto industry. Long-term, however, these businesses are facing a challenging horizon in terms of sustainability and profitability. Demand for the products they provide will sharply decrease over the next 15 years as battery electric vehicles (EVs) become more prevalent. For example, by 2023, the top 12 OEMs will launch 182 new EV nameplates.
NewCo. businesses, on the other hand, will drive more transformative strategies. Business transformation, which has the aim to align people, processes and technology initiatives more closely with a new strategy and vision, will be instrumental in helping NewCo. businesses gain a competitive edge.
Examples of recent transformative mega-deals include Hanon’s $1.2-billion acquisition of Magna Powertrain’s Fluid Pressures and Controls group, Samsung’s $8-billion acquisition of Harman, Intel’s $15.3-billion acquisition of Mobileye, and Qualcomm’s failed $47-billion acquisition of NXP (which fell through when Chinese regulators rejected the proposal).
Room to Grow
There is tremendous space for growth in the market for NewCo. businesses, especially those that are actively looking for transformative, strategic opportunities. Acquiring smaller tech, software and other related companies that are likely to share a piece of the growing EV and autonomous vehicle boom could mean the difference between suppliers who merely survive and suppliers who thrive.
Think about this: In 2017, the global semiconductor market hit $400-billion for the first time. This market growth has started to slow down, as the advance of electronic devices such as smartphones, flat-screen monitors, LED TVs and computers starts to mature. Now consider what autonomous vehicles could mean for the semiconductor market.
Today, advanced driver systems comprise a semiconductor market of about $2- to 3-billion, but this market could skyrocket to $65-billion as vehicles migrate from Level 1 to Level 4 autonomous vehicles. So Intel and similar companies know they have the opportunity to claim a whole new level of relevance in the automotive market, as software and automation claims a greater share of the future automobile.
The Drive to Thrive
As demand for traditional parts decreases and an entirely new supplier environment emerges, traditional suppliers will no longer be able to sustain operations at the same level for the long haul. Making these kinds of bold strategic moves may be the single biggest thing suppliers can do to keep themselves afloat in the new automotive market. If suppliers do nothing, they will undoubtedly be left in the dust of their more intrepid peers.
A young(ish) guy that I’ve known for a number of years, a man who spent the better part of his career writing for auto buff books and who is a car racer on the side, mentioned to me that his wife has a used Lexus ES Hybrid.
The thing about the Wrangler Willys Wheeler: It is a toy for a grown-up boy.
Generally, when OEMs produce aluminum engine blocks (aluminum rather than cast iron because cast iron weighs like cast iron), they insert sleeves into the piston bores—cast iron sleeves.