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OM in the News: The Age of the Mega Suppliers of Auto Parts

May 20, 2014
Revenues of parts suppliers vs. auto makers

Revenues of parts suppliers vs. auto makers

Densco, Continental, Bosch, and Magna may not be as well-known to you and your students as GM, Ford, VW, and Mercedes.  But they can build almost every part of your car; they own the rights to tomorrow’s technologies; and they are more profitable than the companies they sell to. Welcome to the world of the auto industry mega supplier.

An ever greater reliance on this small cadre of suppliers is changing the balance of power in the car industry, reports The Financial Times (May 18, 2014). It is now the makers of the parts under the hoods, not the owners of the brand name on the grill, that are the dominant force. There are 16 major car manufacturers that sell more than 1 million vehicles a year. But those cars are built from parts supplied by just 10 major component makers – meaning that under the individually styled bodywork, cars are sharing more parts. Bosch, the world’s largest automotive supplier, says that at least one of its parts is built into almost every new car sold anywhere in the world – regardless of brand, market, price point or geography.

Decades of carmakers’ outsourcing their R&D to suppliers have left them more and more dependent on the expertise – and manufacturing capabilities – of the supply chain. And the carmakers’ need for suppliers to follow them into new markets and build their own factories in places such as China and Brazil, has meant only the largest and most cash-rich component makers have survived. Big suppliers now have the capability between them to build 85% of a car’s internal systems – leaving little more than the engine as the carmaker’s sole domain. This has made the role of a car brand more that of an assembler, rather than a true manufacturer. Crucial parts for future vehicles, such as battery and electric motor management systems, are almost exclusively developed and built by suppliers such as Continental, Denso and Johnson.

Classroom discussion questions:

1. Why do auto makers rely so heavily on these parts suppliers?
2. What are the implications of this trend?

 

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