The world's biggest auto parts suppliers have their hands full this year. But for many of them, the challenges were already piling up in 2019.
Well before the coronavirus pandemic brought down global vehicle production in March and turned suppliers' operations upside-down, the parts industry was taking it in the gut over a steep business decline in China, a protracted labor strike at General Motors and a fraught reordering of product plans in Europe where regulators are clamping down on the production of traditional CO2-emitting vehicles.
But even as parts makers navigated those market potholes last year, they managed to remain in much the same competitive ranking as they have for the past two years, according to this year's Automotive News' top supplier ranking of the industry's largest parts companies.
Bosch, Denso, Magna, Continental and ZF Friedrichshafen remain the world's five biggest suppliers, as they have for the last two years. Of the top 10, only two—Lear Corp. and Faurecia—changed rankings last year. They swapped positions on the list, with Faurecia now No. 8 and Lear No. 9.
"Last year we really were at the back end of a long, strong growth cycle for the automotive industry," said Dietmar Ostermann, U.S. automotive advisory leader at PwC, which tracks global automotive activity globally.
And all of last year's challenges compound the struggles suppliers now face as they tread water from pandemic-induced liquidity issues and parts shortages, he said.
"It blows enormous holes into those auto suppliers, and some of them will not make it," Ostermann said.
The results
The industry's suppliers examined their roles in electrification and autonomy last year as they looked toward the future.
"Clearly the transition of the industry and refocus of the industry started to really gain momentum and speed outside of the industry," said Jeff Schuster, LMC Automotive president of the Americas and global vehicle forecasting. "That left a lot of suppliers questioning the longevity of their business. If they were focused in the space of ICE, they're scrambling to try to transition or expand or refocus while not knowing when the market will actually flip."
Several suppliers considered significant investments in electrification, vehicle light-weighting, connected-car activity and anything related to autonomous driving last year, Ostermann said.
They seemed to place their biggest bets in electrification and self-driving commercial vehicles.
Dana Inc., the Toledo, Ohio-based producer of transmissions and axles, completed its acquisition of Nordresa Motors Inc. in 2019 to gain additional capabilities in electrified powertrain systems. Last year, German parts giant ZF Friedrichshafen disclosed plans to acquire trucking brakes supplier Wabco Holdings Inc. ZF expects the acquisition, completed in May, will lead to a better position in self-driving commercial- vehicle development.
"People were aggressively making acquisitions; some of those probably were riskier than others," Ostermann said. "The riskier acquisitions that were big to swallow hurt those suppliers now."
In Japan, Honda agreed to merge three affiliated suppliers—Keihin, Showa and Nissin Kogyo—with Hitachi Automotive Systems to create a global megasupplier of electrified vehicle drivetrains, electronic control units and other components.
"All of this at the same time created microcosms of challenges in various parts of the world," Schuster said, "and I think that's really difficult sitting on top of this need to invest in the future."
Perfect storm
Last year presented the perfect storm of megachallenges that put pressure on the supply base in an unprecedented way, Randy Miller, global advanced manufacturing and mobility leader at EY, told Automotive News.
As a result of troubles in China and Detroit, many suppliers reported sizable declines in revenue.
Panasonic Automotive Systems Co. sustained a nearly 22 percent decline in total global sales to auto makers in 2019.
Mexican supplier Nemak, which reported major losses from the UAW strike, took a 15 percent hit to sales, falling six places in the industry ranking to No. 58.
And Thyssenkrupp fell five places to No. 21 this year after an 18 percent drop in sales.
On the flip side, some suppliers did relatively well despite the choppy circumstances.
Delphi Technologies reported a nearly 14 percent boost in sales last year. The South Korean lighting supplier SL Corp. reported a 33 percent increase in sales from the year before.
Making its debut on the list of top suppliers is Marelli—formed after Fiat Chrysler Automobiles sold its parts unit Magneti Marelli to Japan's Calsonic Kansei in a $6.5 billion deal last year. The combination of the two companies yielded the industry's 14th largest supplier, with total global sales to automakers of $14.94 billion in 2019.
The gains were all the more remarkable in a year when issues clobbered companies ahead of the even more disruptive pandemic to come.
The decline in vehicle demand in China knocked sales at Lake Forest, Ill.-based supplier Tenneco, slashed full-year production forecasts for Garrett Motion and largely was responsible for slowed sales growth in the first half of the year for ZF.
The lengthy GM UAW strike hurt several suppliers. The interruption took $57 million out of third-quarter sales at Detroit-based driveline and drivetrain supplier American Axle & Manufacturing Holdings Inc.; dropped Nemak's third-quarter earnings and total revenue by 13 percent and 16 percent, respectively; and cost Faurecia $25.5 million in the third quarter last year.
The enormity of stricter emission regulations in China and Europe also hit parts makers. Continental said last fall it was going to start restructuring and cutting as many as 20,000 jobs worldwide, because of European market challenges in particular.
"The continued emergence and maturity of new business models and alignment around new mobility frameworks—that evolution and the decline in investment in some of those business models—was a big contributor to the challenges," Miller said.
"When you take the strike into context of the market slowdown that we were seeing at the end of last year, then you also factor in the volatility of the trade agreements in some of the biggest markets, that's when you start to get almost a perfect storm to come together. It puts everybody in an even tougher position with COVID hitting," he said.
Ostermann observed that last year's challenges will make 2020's all the more troubling for many larger suppliers.
"They typically would have been in the financial position to survive COVID-19," he said. "If those companies right now are struggling, it is because of fundamental problems they had before."