“The drive to win outsourced systems and modules business has dominated automotive supplier mergers and acquisitions in the last three years”, says Ervin Schellenberg, Vice President in SchroderSalomonSmithBarney’s European Automotive Investment banking team. SchroderSalomonSmithBarney has just published an analysis of the trend to modules and systems in a new report available through just-auto.com. In the last three years there have been over 125 acquisitions and 65 joint ventures and strategic alliances as leading suppliers have positioned themselves to win this new business.
Vehicle makers have shifted a growing amount of responsibility for the development and assembly of major sub-assemblies and systems to the leading first tier suppliers. The global outsourced modular assembly business is expected to grow from $US42.7 billion in 2000, to $US73 billion in 2005, and $US111 billion in 2010, as more product lines switch over to outsourced modules and as the vehicle makers outsource more and more complex modules.
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Dana’s rolling chassis module |
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The outsourcing of modules has spread from small volume niche models assembled in Brazil or other emerging market plants, to mainstream volume models in Europe and North America. For example, new volume models such as the Ford Explorer feature outsourced cockpit modules developed primarily by the supplier. And in the next few years, the Japanese are expected to join the trend too as Nissan, Mazda and Mitsubishi follow the sourcing policy trends of their parents and start to outsource more modules, particularly at their assembly operations outside Japan.
For vehicle makers it is a way of tapping into the expertise of suppliers for developing the increasing number of variants demanded by today’s automotive markets. For first tier suppliers it is a chance to expand their volumes and ultimately their profitability. Vehicle makers are moving away from simply outsourcing pre-designed modules to outsourcing responsibility for development and integration for major areas of the vehicle. Suppliers such as Delphi and Visteon, themselves only floated off from vehicle manufacturers in the last few years, are competing with traditional suppliers such as Bosch, Johnson Controls, Lear and Valeo to emerge as the key future partners of the global vehicle manufacturers.
The capabilities required to succeed in the automotive component industry have been changed by the growing importance of modules. “Traditionally, the key criteria for supplier selection have been price and quality”, says Schellenberg. Now systems integration, second tier supplier management and logistics have been added to the list. He adds: “Vehicle makers want suppliers to be able to offer globally uniform processes and products.”
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A cockpit concept from Calsonic Kansei |
The trend clearly favours bigger and more competent suppliers. Areas such as seating and brake systems are already consolidated to just three or four major suppliers globally. “Now we are seeing the emergence of a first division of interior and exterior module suppliers”, claims Schellenberg.
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By GlobalDataThe concentration in the cockpit area is a good example of this process. The cockpit is the most complex single module within modern vehicles, incorporating the heart of the vehicle’s electrical systems with its heating and ventilation systems, the instrument panel, steering column, elements of the safety system as well as the growing array of in-car entertainment, navigation and communication systems. The outsourced cockpit module market is expected to be worth $US16.6 billion by 2010.
“The opportunity for creating value-added has attracted a large number of suppliers to this sector”, says Schellenberg, “but only a handful of companies have the range of technological capabilities necessary to design, develop and assemble a complete cockpit module.” Up to 150 suppliers may be involved in the production of a cockpit. Development costs can reach $US15-25 million, and involve 20-30 engineers at the lead supplier.
For most outsourced modules, suppliers reckon that they must have the technology to develop at least sixty percent of the module themselves, so that they interface effectively with the second tier suppliers and extract design synergies.
“This won’t be the last merger in the sector”, says Schellenberg. “Cockpits are one of the richest potential market for major automotive suppliers over the next few years and more integration between electronics and interiors can be expected.”
Recent acquisitions and joint ventures in cockpits
| Date | ghsrj |
| Oct-00 | Faurecia acquires automotive interiors business of Sommer Allibert SA |
| Sep-00 | Valeo SA and Textron, Inc, announce the formation of a joint-venture to compete in the cockpit business |
| May-00 | Valeo SA acquires Sylea wiring business from Labinal |
| Apr-00 | Siemens Automotive acquires VDO from Mannesmann following Vodafone’s decision to dispose of its automotive interests. Acquisition creates a new market leader in cockpits |
| Jul-99 | Visteon acquired cockpit business of Plastic Omnium SA |
| May-99 | Lear Corporation acquires United Technologies’ wiring business for $2.3 billion to strengthen its interior electronics capability |
Other fast growing areas of modular assembly on the interior include overhead systems and doors. Seats are a more mature segment but are expected to see further growth. In the exterior and chassis area, fast growing modules include front-ends and simpler modules such as corner suspension modules. However, vehicle makers are also looking at outsourcing more complex areas such as complete axles, which have traditionally been kept in-house as core to vehicle ride and handling.
The drivetrain area is an area that has traditionally seen major outsourcing for components such as exhausts and gearboxes. The last few years have seen rapid growth in fuel tank module outsourcing. Increasingly, vehicle makers are now looking to outsource major engine modules such as power cylinder modules.
For automotive suppliers, their ability to develop and manage integrated and innovative modules is an increasingly important element of the competitive equation. We are seeing modules and systems outsourcing shift from marginal and labour intensive operations to areas that have traditionally been seen as the heart of the look and feel of the car, as vehicle makers gather confidence in their suppliers and see the benefits that focussed suppliers can bring when given more responsibility in their core areas of expertise. By 2010, SchroderSalomonSmithBarney estimates that modules will have risen from just 20 percent of the factory gate content of the average car to over a third, opening up an estimated $US68 billion of new business in the industry worldwide.
Definitions: Modules are sets of components that are supplied to the vehicle maker ready assembled. Additionally, they are delivered just-in-time or in-sequence with the vehicle manufacturers’ final assembly schedules. The vehicle maker may also assemble modules in-house, as part of a process of reducing the final assembly line complexity, but frequently they are coupled with the growing level of outsourcing. At the early stages of modularisation, modules were simple collections of parts for off-line assembly, but increasingly modules are being designed as complex units, which incorporate multiple functions. Examples of modules include seats, doors, cockpits, front-ends and suspension corner modules. Each of these can include components from two or more major vehicle systems. Systems are groups of components within a car that are linked by function rather than location. For example, the different parts of a safety system or a braking and traction control system are located in separate areas of the vehicle and incorporated into several different modules, but they will have been designed to work together as a complete system. Increasingly, systems are becoming more complex, driven by the automotive industry’s continually growing environmental, safety, performance, reliability and durability requirements and by the emergence of new technologies, enabling a greater range of functions to be offered to the vehicle owner. |
Modules & Systems
