DaimlerChrysler's disposal of component operations in North America looks a lot like what went on at Mercedes-Benz in Europe in the 1990s.

Even as former DCX chairman Edzard Reuter was building up Daimler-Benz's disastrous transportation technology conglomerate, Mercedes-Benz was focusing on its core car and truck competences. Mercedes sold its engine component, instrument panel, cockpit and wiring businesses.

Suppliers were brought in to handle modules and systems at the European plants. The most extreme example was the Smart plant in Hambach, France, where suppliers set up facilities on site.

Now DCX has sold its Huntsville instrumentation, control units and audio operations to Siemens VDO. The operation had sales of $US1 billion in 2003.

The sale to a supplier is an obvious move and one that had been expected for more than two years.

Almost no other carmaker still has the kind of operation that DCX runs at Huntsville in-house now, says Jochen Siebert, vice president Europe, at CSM Worldwide.

Together with the other major disposals of the DCX group in the last two years, the sales value of the component operations amount to almost $4 billion - excluding the vehicle assembly operations sold to Magna Steyr in 2002 - with wholly-owned New Venture Gear and other operations still to go.

The Huntsville deal does not dramatically reshape the way DCX is valued in the way the Delphi and Visteon spin-offs seemed to affect General Motors and Ford. But in the long run it will offer more durable benefits.

Competitive suppliers are key to DaimlerChrysler's turnaround in North America. Without a competitive and innovative supplier base, Chrysler has no hope of overcoming its size disadvantage versus Ford and GM in North America.

Siemens VDO is the global market leader in instrumentation, with a 20% share. Huntsville makes the kinds of product that Siemens VDO does in Europe.

The supplier produces control units for engines and gearboxes in Regensburg, instrument clusters in Babenhausen; and body control units in Toulouse, France. Those facilities offer Huntsville economy of scale and technology transfer potential.

"What they are doing (in Huntsville) is our core business," said a Siemens VDO spokesman.

Growth in North America

The acquisition makes Siemens VDO the second largest European-owned supplier in North America. It already has €1.8 billion in sales in North America, and expects to win additional business through the acquisition.

"There is no exclusive supply agreement," says the spokesman.

That makes for opportunities in southeastern United States. In addition to the nearby DaimlerChrysler plant, and the growing BMW plant in South Carolina, a new Hyundai plant is being built in Alabama. Siemens VDO already supplies half of Hyundai's instrumentation worldwide.

In its financial year through to Sept. 30, 2003, Siemens VDO reported sales of €8.4 billion. The Huntsville acquisition - which translates into €800 million in additional turnover - would put Siemens VDO just behind Valeo in annual automotive revenues.

SupplierBusiness.com