Hydro Aluminium has become the latest diversified company to announce its exit from its automotive operations - following Motorola and ThyssenKrupp earlier this year.

Eivind Reiten, Hydro's president and CEO, said that car manufacturers "are opting for products made by cheaper metals or materials" due to decreasing margins.

Hydro's automotive components business employs 3,600 making cast aluminium engine blocks and cylinder heads, and body components such as bumper beams.

The company said last year that the automotive business had "struggled for several years" although casting operations in Germany and Hungary had performed satisfactorily in 2005.

Hydro will continue to supply the automotive industry with aluminium tubing for radiators, and other rolled and extruded aluminum products.

Hydro has decided to divest its automotive operations as a strategic shift in its aluminium business after a portfolio analysis that started in December 2005.

The decision is part of the company's overall strategy of divesting some of its downstream activities - in October Hydro announced the closure of a large magnesium plant in Canada, following the sale of some of its specialised magnesium operations in Germany and China.

Third tier suppliers, over a long period, seem to swing from building up their downstream activities to divesting them, and to an extent this divestment is part of a long term cycle and due to company-specific factors that have nothing to do with the automotive sector.

But the exit of another strategic investor in the automotive sector is bad news for its customers, competition and innovation in the automotive industry as a whole as the number of players committed to the sector dwindles.

 Edmund Chew - SupplierBusiness.com