America’s car-parts supply chain–long the auto industry’s backbone–has shaken off the bankruptcies of recent years and is solidly profitable, developing increasingly sophisticated components aimed at making cars tech savvy. But these companies compete with Chinese-owned firms that are buying and opening parts factories in the U.S., as The Wall Street Jounal reports, and with the rise of Silicon Valley firms seeking a share of the hundreds of billions auto makers spend annually on purchasing.
Here are five things to know about the U.S. parts industry:
1 The consolidation is on
Major U.S. auto-parts suppliers, flush with cash, are back in the acquisition game after years of selling divisions or waiting for autos to recover. Companies like auto-seat maker Lear Corp. have said they are hunting for acquisitions as they seek to grow and protect their technology and product portfolios. Lear recently closed a deal to buy leather maker Eagle Ottawa.
2 Parts stocks are roaring past auto-maker stocks
Shares of General Motors Co. and Ford Motor Co. are in the slow lane, but supplier stocks have zoomed. GM shares are trading at about $31.75 – $1.25 less than their November 2010 IPO price. Shares of Delphi Automotive PLC – which reorganized in bankruptcy – debuted in 2011 at $22 and now trade at $77.85. Many industry analysts aren’t excited about the auto makers’ profit picture, but suppliers are generating large profits as they develop more high-tech parts and have balanced regional exposure.
3 Enter the dragon
Chinese auto-parts companies, mostly unseen in the U.S. a decade ago, are gaining momentum as they open plants and win contracts in the U.S. Interior-components maker Yanfeng Automotive Trim Systems Inc. opened U.S. operations in 2010, has a Missouri plant to supply parts to GM and plans another to supply Volkswagen AG’s Tennessee factory.
4 Enter Silicon Valley, too
Parts makers face a new challenger: the West Coast. Tech companies like Apple Inc. and Google Inc. are looking for ways to get their technologies into cars. Traditional parts suppliers are trying to team with tech companies or open their own R&D operations in the Valley.
5 Things aren’t like they used to be
Parts makers are rolling, but the underlying workforce hasn’t truly recovered from bankruptcies that reshaped the industry and ushered in a reliance on foreign-built parts. The U.S. imported a record $138 billion in car parts last year, equivalent to $12,135 of content in every American light vehicle built. That’s up from $89 billion, or $10,536 a vehicle, in 2008. In 1990, only $31.7 billion in parts were imported.
Source: Tom Bennett, WSJ.com