Private equity investor Wilbur Ross today told an industry conference at the IAA that he believes there are big opportunities ahead in supplier sector restructuring and that he sees long-term profitability as a result of further consolidation and the removal of overcapacity.
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Ross, an investor with a reputation for turning around unfashionable industrial enterprises, told SupplierBusiness conference delegates that he believes there will be a continuing trend towards fewer and more globalised vehicle platforms and that will increase pressures to further simplify supply chain management.
Ross noted that his own automotive interiors company – International Auto Components (IAC) – now has operations in 17 different countries and said that there will be further cross-border consolidation in the interiors area, with IAC continuing to act as a consolidator.
“Five years ago, who would have thought that Delphi, Lear and Visteon would all be in bankruptcy at the same time? This phenomena will reduce the overcapacity and high yielding breakeven requirements that have plagued the industry,” he said.
Ross also maintained that the nature of consolidation in the supplier sector is changing.
“In the past consolidation consisted of suppliers diversifying into other automotive segments, but this became a difficult model because OEs were less willing to help your weakest division if they also buy from your more profitable ones,” he said.
“Instead, future acquisition objectives will be the expansion of geography, technology and customer mix within narrowly defined product segments,” Ross said.
“There will also be heavy two-way traffic between developed and developing countries. The competitive position of smaller local entities will weaken.”
Ross painted a picture of a restructured supplier industry made up of fewer and larger firms working in better partnerships with vehicle makers.
“Larger scale also facilitates supplier financed R&D, making the suppliers better partners for the OEs,” he said.
And he believes that well-capitalised global suppliers earning a reasonable rate of return should not be feared by the vehicle makers.
“As long as there are two or three competitors, the OEs need not fear oligopolistic pricing.”
David Leggett
