The turmoil and uncertainty among auto manufacturers and their suppliers have left people wondering when a shakeout can be expected. Two experts who follow the auto sector say consolidation will take place among suppliers to a much greater extent than among carmakers, which may not experience mergers and acquisitions at all in the near term but will be engaged in ever-shifting strategic alliances and joint ventures.
In particular, some private-equity firms are hungrily eyeing auto supply companies for investment opportunities, according to Wharton management professor John Paul MacDuffie and Christopher Benko, director of the PricewaterhouseCoopers Automotive Institute in Detroit.
The comments by Benko and MacDuffie come as the industry is staging the 2006 North American International Auto Show in Detroit. The show has an odd feel to it this year. Manufacturers are using the glitzy venue to unveil sleek new products that they hope will get consumers excited, but the show is also focusing attention on the much-discussed difficulties facing companies like General Motors and Ford, as well as parts supplier Delphi, which filed for protection under Chapter 11 of the U.S. Bankruptcy Code last year.
"There are a number of issues weighing this industry down, but the fundamental point is that the drivers of change are less connected to cyclical factors, and are more a function of structurally embedded problems that this industry has been avoiding for some time," says Benko. The industry, he adds, is not going to grow its way out of its problems. North America and Europe are mature markets, and while there are opportunities for growth in emerging markets, those opportunities are still in their nascent stages.
"We have business models that no longer work," Benko adds. "This is putting the viability of many companies into question. Plus, you have a changing of the guard taking place, as new leaders are emerging.
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