Global sales of outsourced front end modules are expected to more than double by 2008, which could put a new joint venture between Hella, Behr and Plastic Omnium on a steep growth trajectory.
But despite receiving approval from the European Union in May, the joint venture owned equally has yet to get off the launch pad.
HBPO needs similar clearance from Slovak Republic officials because of its existing facilities in that country. But Tomas Hedenborg, who takes the HBPO CEO role once the legal entity is formalised, is confident this is only days away.
HBPO merges the existing activities of Hella-Behr Fahrzeugsysteme (HBF), the joint venture created by the two German suppliers in 1999, and Plastic Omnium’s auto exterior bumper (fascias) and related operations.
It cranks up competition in the growing front end module sector significantly.
Hella will provide lighting and electronics to the new company; Behr will install air conditioning and engine cooling systems; and Plastic Omnium will have responsibility for body parts, bumpers and other impact absorption parts.
Definitions of front end modules vary among OEMs and suppliers but the most complete one includes the front end carrier, bumper beam and bumper, cooling fan unit, water and engine oil cooling radiators, air conditioning condenser, radiator grille and headlights.
Some suppliers stretch this list to include the wiring harness and connectors and various sensors, usually related to safety systems.
Despite the ownership structure, HBPO will function as an independent company capable of working with competitors of the shareholders if required by OEM customers.
Plenty of potential
HBPO’s growth prospects over the next few years are impressive. Expected sales in 2004 are around €350 million, entirely legacy business already in place at Hella-Behr Fahrzeugsysteme. But this level should double to close to €700 million in 2007 based on business already booked.
The figures exclude Valeo Plastic Omnium (VPO), the joint venture created by the two French suppliers to supply Renault’s current Mégane/Scénic programme.
With new business resulting from the HBPO joint-venture relationship starting to emerge from 2005/06, revenue of €1 billion is possible by the end of the decade.
HBPO will begin life with a 30% share of the estimated five million unit global market for outsourced front end modules. Three million of these are in Europe, with one million each in Korea and NAFTA.
By 2008, Hedenborg believes this global market will grow to 11.5-12 million units with much of the growth occurring in Korea and North America. Where front end modules are used in these regions, they are 100% outsourced.
In Europe, Volkswagen (at Wolfsburg and Emden) and DaimlerChrysler (Sindelfingen and Bremen) retain significant volumes of front end module assembly in-house. This is unlikely to change in the short term despite DCX’s decision to outsource front end module assembly to Decoma for the forthcoming A-Class replacement.
Golf V production at Wolfsburg relies entirely on a front end module assembled in-house. Smaller volumes for the same model are currently shared by Hella-Behr Fahrzeugsysteme at Mosel and Decoma in Brussels.
The upcoming new Passat output at Emden will also rely on a module assembled in-house.
HBPO will already have three contracts with Kia (Cerato and Picanto) and Hyundai (Tuscon) in place once it becomes operational, giving it market leadership in the country.
The Hyundai group’s strategy is to go for 100% outsourced front end modules on future programmes.
Although Mobis, Hyundai’s associated supplier, will move into gear in September this year with a front end module contract for the Sonata successor, the growth prospects for HBPO appear significant.
HBPO is also a frontrunner for Kia business at the assembly facility currently being built in the Slovak Republic. Mobis has won contracts at the Montgomery, Alabama, plant in North America.
Poised in North America
Business in the NAFTA region also appears set to grow. HPBO will have a market share of over one-third in 2004, based on current business with Volkswagen in Mexico and future revenue from the Futura which will be assembled in Hermosillo, Mexico, where HBPO is currently building up its facilities.
Nissan, the only Japanese OEM so far fully to embrace the front end module concept, is also using outsourced modules from Calsonic Kansei and Lextron-Visteon at its Canton, Mississippi and Smyrna, Tennessee, plants in the US.
More importantly, the Big Three in North America appear poised to follow Europe’s example, helped by more flexible working agreements recently concluded with the UAW.
Chrysler is taking the lead and has already awarded its first front end module programmes to suppliers. Front end module programmes will be adopted across Chrysler’s entire vehicle portfolio. GM appears to be close behind, focusing on the modules for its light trucks.
The true scale of this shift in strategy is likely to emerge in the next 12 months and may also have positive growth implications for the European market. To date, Ford and GM have been willing to see rivals take the innovation role.
Functionality on front burner
HBPO’s birth comes at the right time. There are strong growth prospects in the front end module market and an increasing trend towards OEMs assigning fuller integration responsibilities to the major suppliers.
Rivals such as Faurecia, Valeo, Decoma, Visteon, Calsonic Kansei and Denso are under pressure to review their business models in the light of current developments.
Some argue that formal ventures bringing together bumper (fascia), lighting and cooling suppliers together on a permanent basis are unnecessary and that current high levels of directed sourcing by OEM customers dictate looser short-term alliances based on individual customer and programme needs.
But such a stance creates danger in a sector where improved module functionality is now on the front burner and directed sourcing by OEMs appears to be easing.
Long-term associations between specialist suppliers leverage individual capabilities to a higher level and improve functionality much more efficiently.
A French alliance?
Valeo’s future position in the front end module sector looks exposed. The VPO joint venture is unlikely to become part of HBPO and, therefore unlikely to endure beyond the life cycle of the current Renault Mégane programme.
Similarly, Faurecia’s limited capabilities beyond front end module carriers, bumpers and cooling fans suggest it may also have to review its future strategy.
An all-French partnership to counter HBPO’s growing strength might be part of management thinking at the respective corporate headquarters.
Other major players may be having similar thoughts.