Suppliers to Europe's OEMs enjoy growth

Bosch still No. 1, Canada's Magna Int. leaps to No. 3 spot

By Bradford Wernle, Automotive News Europe

The drive to add new technology to cars spurred growth at the partsmakers that supply European automakers, even though Europe's new-car market remains relatively flat.

Germany's Robert Bosch retained its spot as the largest supplier of parts to Europe's carmakers. Bosch's European OEM sales were $16 590 million in 2004, up 17.2 percent from 2003. French supplier Faurecia remained second largest with European sales of $11 300 million.

Magna International of Ontario, Canada jumped to No. 3 from No. 10 in Automotive News Europe's list of the Top 30 European OEM parts suppliers.

Magna International grew its business in Europe faster than any other supplier - up 90.9 percent to sales of $8790 million for 2004.

Magna has grown on the strength of the contract assembly work done by its subsidiary Magna Steyr of Graz, Austria. Magna Steyr builds vehicles such as the Mercedes G class, BMW X3 and Chrysler 300C.

All the suppliers listed in the Top 30 increased their business with European automakers, except the US supplier Delphi. Its sales declined to $5060 million last year from $5600 million in 2003, according to estimates by the Automotive News Data Center.

Electronics' growth

Companies supplying electronics content dominated the top group.

"Electronic content continues to rise," said John Lawson, analyst for Citigroup SmithBarney in London. "But manufacturers are taking longer to test and validate electronics."

Automakers are testing electronic components more closely because of several highly publicised recalls due to glitches.

Antonio Ferreira, manager of components forecasts for CSM Worldwide in London, said big suppliers are taking control of more systems, a trend that means extra growth.

"We're seeing a lot more R&D development within these super suppliers," he said.

"This is the kind of supplier that controls almost a complete supply chain. They're supplying a complete module to the OEMs. There is more content and more value. But in return, there is more responsibility and more R&D expenditure."

The growth in content does not necessarily mean comparable growth in profits because of greater R&D expenditures, coupled with soaring raw materials costs.

"Suppliers are complaining about less profit," says Ferreira. "Definitely margins are going down from one generation to another within the same contract."

Companies that provide commodities are less likely to grow, say analysts. "I don't think you're going to see a lot of growth in areas where people are providing fundamental hard parts for vehicles,'' said Dave Royce, manager of corporate strategy for Siemens VDO Automotive in North America.

"There are only so many axles being made. But a company involved in something like emerging restraint system technology will have more opportunities.''

Suppliers know they cannot afford to rest on their gains.

Innovation essential

"Consolidating our gains is not an alternative," said Martin Wennemer, chairman of Continental of Germany, the tenth largest supplier to European automakers with sales of $5580 million. "You have to grow. We have to continue to do the innovations we do. We have to spend the money to employ the people we need to show we are at the forefront of new products."

Revenue of the Top 30 suppliers grew 17.3 percent from $117 900 million in 2003 to $138 350 million in 2004, according to Automotive News Europe's rankings.

From Automotive News Europe