The high raw material prices and the pricing pressure imposed by automakers will trigger more joint reorganizations among auto suppliers in 2005. According to the forecast of the Association of Original Equipment Suppliers (USA), by 2010, the number of North American suppliers will drop to 5,000, less than half of 2000; the current number of suppliers is around 8,000. The association stated that the basis for this forecast came from historical facts, strategic trends of some major system integration suppliers such as Delphi and Visteon. These system integration vendors have implemented or are implementing their supplier quantity reduction plans.
In the past three years, the joint reorganization among suppliers has continued, and this trend will further intensify in 2005. In the next 10 years, the number of global suppliers will drop by 1/3 to 1/2. In 2004, the total number of company mergers and acquisitions between global suppliers was 260 to 270, which is basically the same as 262 in 2003. The number of suppliers that filed for bankruptcy globally this year is estimated to increase by 10%.
In addition to raw material prices and the pricing pressure of automakers, there are many problems that are driving the suppliers to bankruptcy and mergers and acquisitions, such as automakers' overcapacity, globalization, and platform integration.
M&A in the past three years is different from the wave of mergers and acquisitions that occurred in the 1990s and early 2000s. At that time, mergers and acquisitions were mainly concentrated among Tier 1 suppliers. The purpose of the merger between them was to become a large-scale system integrator, and to form the global supply capability required by the vehicle manufacturer. The current mergers and acquisitions are mainly related to the sub-suppliers of Tier 1 supplier companies, that is, Tier 2 or Tier 3 suppliers.
In addition, another difference in this round of mergers and acquisitions is the increase in the number of transactions for “difficult purchasesâ€. Of the ongoing supplier acquisitions, 40% are operating in troubled companies. In the case of mergers and acquisitions in the late 1990s, the number of such distressed companies was less than 10%. This also determines the key to the success of this round of mergers and acquisitions is the flow of funds.