ACME — Amid a period of technological upheaval in the automotive industry, West Michigan-based supplier Mann + Hummel USA Inc. is reducing project costs and saving time by partnering, collaborating or aligning with larger OEMs.
Currently, the Portage-based manufacturer of liquid and air filtration systems has entered into partnerships with the Big Three Detroit automakers.
These partnerships are critical, “especially as we’re going into … more of these different tech areas that didn’t used to exist in the manufacturing world,” said Jack Endres, vice president of operations for Mann + Hummel.
The company’s collaborative approach helps the partners in “meeting cost targets and functionality,” Endres told MiBiz at the Center for Automotive Research Management Briefing Seminars, held earlier this month at the Grand Traverse Resort.
“Instead of all of us plowing our own path, we’re collaborating and really trying to build that vision together,” Endres said. “If we want to reduce cost and shorten the development cycle, it will require a high level of collaboration.”
As the Mann + Hummel examples demonstrate, the recent influx of technology and a focus on mobility are leading to some strange bedfellows in the automotive industry, all while blurring the tiers in the supply chain and upending how companies approach new investments.
According to Endres, the goal in these relationships “is to have the foot in the door for the next opportunity.” He added that companies involved with the partnerships often have early access to information and upfront development “that you may be able to influence toward your strengths in materials or processes.”
Neal Ganguli, U.S. automotive practice leader for global consulting firm Deloitte Consulting LLP, agreed that various types of collaboration have become more prevalent in the the automotive supply chain. The industry structure “we’ve known for the last 75 years” is changing, he said.
“Because of these partnerships and the collaboration required, a lot of these tiers are changing,” Ganguli told MiBiz. “There’s a lot of tier leapfrogging going on. It’s more becoming a web, an ecosystem if you will. … There’s a lot of movement going on in the value chain.”
The changing supplier landscape has led to less definition among the tiers of the supply chain, according to Detlef Juerss, vice president of engineering and chief technology officer for Plymouth-based seating supplier Adient plc (NYSE: ADNT), which has plants in Battle Creek and Holland.
“Not only do we see new customers on the OEM side, we also see totally different partnerships between suppliers, customers, and this whole supplier and (OEM relationship) is starting to blur,” Juerss told MiBiz. “The whole service model that you want to have internet services available in your car — that’s a totally new business environment and therefore totally new players are coming in.”
Uncertainties related to proposed tariffs and the renegotiation of the North American Free Trade Agreement also are driving auto suppliers to mitigate or diversify their risks.
Because of this, suppliers are now “looking at alliances as a way to reduce their risk in investment(s),” said Jeff Zaleski, automotive deals leader at PricewaterhouseCooper LLP.
In a June report for PwC, Zaleski wrote that continued international trade discussions could mean more “acquisitions or alliances to help realign supply chains to relieve the burden of tariffs in the major consumer markets.”
“When you get together as a group and invest in a technology, it provides more opportunity for the scale associated with technology,” he added in an interview with MiBiz. “So I do see that continuing, especially given the uncertainty around technology investments. I think people are using that as a way to de-risk themselves.”
That’s the case at Yanfeng Automotive Interiors, a China-based supplier that spun out of a joint venture with Johnson Controls Inc. that manufactures automotive interior components, such as floor consoles, instrumental panels and cockpits.
Yanfeng, which has a technical center and manufacturing plant in Holland, recently partnered with Germany-based Kostal Group, a supplier of mechatronic human machine interface (HMI) components, to create smart interior surfaces, including a 3-D glass module.
At the time of the announcement, Kostal Group CEO and Chairman Andreas Kostal said the two companies understood that the “car interior will undergo an … evolution within the next decade.”
Jeff Stout, executive director of research technology and new mobility at Yanfeng in Holland, told MiBiz collaborations such as the project with Kostal will continue to spread across the industry.
“There will be an increased … need for the ability to partner and partner well, and that’s different than an M&A conversation where you really don’t have the speed or bandwidth to be able to (acquire) your way into all the technologies you’re going to need,” Stout said.
For the most part, companies are “going to have to find people that are willing to work with you as a partner, that collectively you can deliver the solution that’s needed that each … company by themselves would not be able to provide,” he added.
ADJUSTING FOR TECH
West Michigan-based M&A advisers say automotive OEMs are directing some of their suppliers to look for acquisitions or partnerships as a result of the changing landscape.
According to Matt Miller, managing director for BlueWater Partners LLC, a Grand Rapids-based investment banking firm, the trend appears to have staying power for the next few years as the industry evolves in an era of frequent disruptions.
“Autonomous vehicles and electrification — that’s really going to change the powertrain and what vehicles look like,” Miller said. “Certain suppliers are going to be scrambling in order to be relevant, assuming the pace of development continues.”
Deloitte’s Ganguli said the new wave of partnerships and dealmaking will continue to reshape the traditional automotive supply chain.
“Because there’s so much net new content, net new business and service models that are emerging, we don’t believe that one player can control it all, not even an OEM,” he said.