Auto Components: U.S. Suppliers Feel the Wrath of U.S. Automakers' Downfall
AUTOMOTIVE INDUSTRY ABSTRACT
2008 Edition
The automotive components industry, consisting of a highly fragmented auto parts segment and a highly concentrated tire-manufacturing segment, are heavily influenced by the intensely competitive global automotive industry. Two competing trends are dominating the auto parts segment, one being a dramatic increase in original equipment quality over the past decade, the other being the aging of vehicles on the road. Improved original equipment quality means that parts last longer, which in turn provides less demand for certain replacement parts. On the other hand, the increase in vehicle sales and age of the average vehicle is stimulating demand for most replacement parts. However, pricing will remain tight, particularly for commoditized products, mostly due to the proliferation of business-to-business Internet marketplaces.
OEMs are becoming a more integral part of the design and development process for automakers, requiring OEMs to develop long-term relationships with automakers and to customize their products to specific automaker models. High labor costs and unfocused corporate structures for the largest OEMs have brought about hard times, particularly for U.S. firms intimately tied to U.S. automakers. Acquisitions gone awry are major causes for the unfocused structures, but consolidation of this fragmented market remains desirable if done correctly. Consolidation allows OEMs to serve increasingly global automakers, and automotive aftermarket distributors can serve national retailers better. China is a dramatically growing automotive market, one that auto parts manufacturers cannot afford to ignore, as are other developing countries such as India. Expanding into these markets will not only place auto parts makers closer to growing customers, but also allow them to tap into less expensive labor and compete with emerging competition from these markets.
Responding to pricing pressures of automakers and discount-hungry retail customers, the tire manufacturing industry is driving forward with more efficient automated facilities, doubling productivity levels in new plants. The tire industry also has substantial environmental and safety regulations to observe. Long-term growth opportunities in emerging markets are also being considered by the industry.
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