A Research Report on the Change in Global Auto Industry (VII)

4.  Auto-parts suppliers will see another wave of mergers and acquisitions

The financial crisis has dealt the most severe blow to the auto-parts manufacturing industry. Whether in the United States, Europe or Japan, the mainstream regional suppliers of auto-parts and components have seen their sales fall sharply and faced serious cash flow problems. A number of auto-parts companies have applied for bankruptcy protection or have been acquired.

More than 86.7% of the experts in our survey believe that the plight of the auto-parts suppliers in North America will last for another 1 to 2 years, during which over 30% of the suppliers may go bankrupt for restructuring. Another wave of M&A is inevitable among the auto-parts suppliers.

North American auto-parts companies' survival is more difficult than automakers for three major reasons:

① The U.S. government makes greater efforts to support the car-making enterprises than its direct efforts to back the auto-parts companies.
② The auto-parts enterprises have to face the upstream and downstream businesses' dominance in the negotiations, leading to more tension in their own chain of funds - the downstream automaker would ask for payment in six months while the upstream raw material supplier demands payment before delivery.
③ The filing by GM and Chrysler for bankruptcy protection may lead to more bad debts or extend the cycle of payment, which also affects the cash flow.

For the above-mentioned reasons, North American auto-parts suppliers will have tougher times when the overall auto market has not changed for the better, and cases of reorganization is also likely to increase later. This situation will not improve fundamentally until after 2011.

(To be continued)