As the automotive industry hurtles toward its high-tech future, consolidation is out and specialization is in. That is the message from some of the industry's largest suppliers.
In the last 18 months, big names such as Delphi, Johnson Controls, Autoliv, Honeywell and Faurecia have sold or spun off entire divisions. Others, including Continental and GKN, are pondering similar moves.
Not every supplier is following the same script, but what they share is a desire to focus on their core competencies in an increasingly complex automotive industry, analysts said. "The supplier that was everything to everybody -- that’s becoming a much more difficult business model," said Michael Robinet, managing director with IHS Markit. "Even the larger suppliers are looking inward and saying: 'Where can we see the added value? Where can we see the margins and return on investment that we targeted'?"
Cool technology wins
Suppliers are trying to balance short-term profits with investments in connectivity, electrification and autonomous driving solutions, which are largely not yet generating significant revenues. In addition, they are now competing for business, talent and capital with pure technology companies in these areas instead of just each other, said Brett Smith, assistant director of the manufacturing, engineering and technology group at the Center for Automotive Research in Ann Arbor, Mich.
"The things that are selling and making profits are not interesting to Wall Street right now. The things that may not make a profit for decades are the exciting stuff," Smith said. "If you can rebrand yourself as cool technology and not automotive, your stock price goes up almost immediately."
Johnson Controls spent decades building up its automotive seating business into the industry leader through acquisitions and investment. But in 2016, JCI turned its seating division into a new company called Adient. The fresh start has energized Adient, which ranks No. 10 in the Automotive News rankings of global suppliers.
"It's been very good for us on a few different fronts,” said Byron Foster, Adient's executive vice president in charge of seating for the Americas, Europe and Asia Pacific. "We've committed to investing in the business again. The last three to five years under Johnson Controls we were seen more as a cash cow."
Adient has won $3 billion worth of new business, Foster said, adding that it is developing technologies for autonomous vehicles. "Our clear strategy is to win at what we think we're world class at, and that's automotive seating," he said.
Strategic realignments
Delphi, No. 11 on the ranking of the world's largest suppliers and itself a spinoff from General Motors, in December divided itself into Delphi Technologies, which makes powertrain systems and components, and Aptiv, which will concentrate on mobility solutions, smart vehicle architectures and connectivity.
Autoliv, No. 23 on the list, is in the process of separating its passive safety and less-profitable electronics divisions into two companies, with the electronics division to be called Veoneer.
Even Continental, No. 5, is conducting a review of its operations with the goal of becoming more flexible. Among the options reportedly being considered are separate companies for rubber, powertrain, and chassis, safety and interior -- including autonomous drive.
The new business models are emerging as the industry is coming off a period of strong growth. Suppliers have shared in the profits as auto sales rebounded from the 2008-09 global economic slowdown, with worldwide light vehicle production rising to more than 90 million in 2017 from about 60 million in 2009.
Now, with sales increases forecast to slow, suppliers can take a pause and consider how they will approach the next phase of the automotive market. "It's a good time to stand back and say: 'What do I want to be as I continue to grow? How do I best add value to the industry'?" Robinet said. "It's a good reflection time."
Douglas A. Bolduc contributed to this report
