One divides into two has become the trend of auto parts industry but why do you want to split?

At present, global auto parts suppliers are reluctant to spin off the business, and this is no accident. Because they believe that after the spin-off, they will be more favored by investors and industry customers. These companies are “splitting” like amoeba protozoa. They separate the driverless drive from the power system business unit, separate the old technology from the new technology, or sell the future that does not help promote networking, driverlessness, etc. Department of scientific and technological progress.

In the past two years or so, Delphi, Johnson Controls, Autolif, and Foglia have all witnessed such "splitting." Honeywell has sold its turbocharger unit for sale, and GKN tried to avoid Melrose’s hostile takeover by splitting its automotive business and aerospace business. Even Continental, the German technology giant, is considering structural reforms.

Some analysts have said that investment institutions on Wall Street and other parts of the world believe that the potential for investing in the high-tech automotive industry (such as driverless, car networking, etc.) is superior to traditional businesses, even if these traditional businesses are still profitable.

Parts suppliers also believe that by building independent departments focused on specific businesses, they do not have to compete for resources within a complex large group. Smaller companies with simple goals can also adapt to the complex and ever-changing market environment more quickly.

Automakers need component suppliers to provide the necessary technological innovations, such as implementing drones, connecting cars, reducing fuel consumption, and communicating with each other on the road. In order to deliver products to automakers in the next decade in order to obtain the necessary funds and profits, the strategies adopted by various auto parts suppliers can be described as being overwhelming. Analysts believe that in the increasingly complex business environment, the most important component suppliers are still focusing on their core competencies.

“The traditional model of parts suppliers is 'to provide comprehensive services to every customer'. Today, this kind of business model becomes more and more difficult to continue.” said Michael Robinet, Director and General Manager of IHS, an automotive analysis and consulting company. . "Now, even large parts suppliers are thinking, where can we get higher added value and where can we get more profits?"

Separating wave suppliers of parts

Perhaps the most noteworthy of the recent auto parts industry dismantling incident is that Delphi, the world’s top 100 parts supplier, announced its formal split in December last year. Companies - Delphi Technology and Aptiv. Among them, Delphi Technology will focus on the power system and the post-market, while Ambow will specialize in active safety technology, networking and driverless driving. “The split is a good thing for both parts of the business,” said Delm Butt CEO Liam Butterworth in an interview. “It will be more advantageous for Delphi Technology to become an independent company.”

Although half of Delphi's current products are "traditional technologies," Liam Butterworth believes that spin-off and independent operations will allow Delphi Technology to adapt more flexibly to changes in the powertrain market. He pointed out that its product portfolio includes not only gasoline and diesel engines but also electric motors and software products. “Now we can focus 100% on the power system. All our investments will also be centered on the power system, so that our R&D, applications, etc. will be faster.” He said, “If we are still part of Delphi, the investment will be more Dispersal, work will be more time-consuming, which is unfavorable for the study of the power system."

Like Delphi, Sweden's Autoliv also sees high-tech as its future growth engine. Last September, the company announced the split into two separate companies, one of which focused on the company’s traditionally advantageous business—a passive safety system based on airbags and seat belts, and the other on a vision system such as radar and Advanced driver assistance system.

Otoliv's CEO Jan Carlson will lead the new company called Veoneer because there are some important tasks that he needs to complete.

Last year, Autolif’s orders for electronic components were only about $900 million, while the company’s passive safety products were $2.5 billion. Autolif said in February of this year that Veoneer “not only did not make any money, but it could also suffer a loss of several percentage points” in the first few years. It is expected that the company will launch a new product in 2019 to rectify the situation and make a profit. Despite this, the split still won praise from the financial market. The fund investment agency Cevian Capital revealed in March this year that they had acquired 7% of the equity interest in Autolif, worth about $850 million. Christer Gardell, co-founder of Cevian Capital, said: "We believe that both Otoliv and Veoneer have great potential for further value creation."

What is clear is that although the purchase and sale of business by large global companies has always been a regular practice within the industry, the current split is to adapt to rapid changes in the industry, so this strategy is unprecedented. In fact, over the past 30 years, auto parts suppliers have been expanding through acquisitions to make themselves larger and diversified to meet customer needs.

It can be seen that the business thinking of auto parts suppliers is changing. Another example is Johnson Controls.

Johnson Controls spent decades pursuing its auto seat business as an industry benchmark through acquisitions and investments. However, in 2016, Johnson Controls split its seat business division into a new company called Adient and stated that the seat business has low profits and requires a lot of capital investment to maintain operations. This company is not willing to bear of. For split and independent operations, Byron Foster, Adien’s executive vice president for Americas, Europe, and Asia Pacific, said: “Through our first year of performance, Adien is operating well and we continue to invest in the seat business. Previously, when we were under Johnson Controls, especially in the last 3-5 years, we were more often regarded as a cash cow." He also said that Adient has made a profit of $3 billion through new business and will continue to improve its seat business in the future. . "Our strategy is very clear, that is to maintain an international leading position in the car seat." He said.

The performance of the stock market confirms this view. Since its operation in October 2016, Adient's share price has risen by approximately 50% and was once double the opening price.

Navigant Research analyst Sam Abuelsamid said that although seats and other auto parts have become increasingly commercialized, with the popularity of car sharing, the growth of the entire automotive market will gradually stagnate in the coming decades, and this split Will make Adient a better chance of survival. "What Adient has done in the past year is to enrich its product line and make it more consistent with the future trends of shared cars and driverless cars," said Abuelsamid, "Adient thinks from the perspective of traditional seats, for example, Redesigning the interior of the car to better match the driverless car, how to provide a better experience for different types of passengers in the car"

Spin-off facilitates better opportunities

Honeywell has announced plans to sell its turbocharger division, which is a $1 billion-a-year corporate giant with a turnover of $3 billion, and is the group's only automotive-related unit. The sale was requested by Third Point, an aggressive investment company. Prior to this, Honeywell also stripped off its aviation business unit at the request of the agency.

Olivier Rabiller, CEO of Honeywell Transportation Systems, said in an interview with “European Auto News” in December last year: “This sale has nothing to do with the company’s other business. The division will benefit from independent operations. The split is Affirmation of the achievements made by the transportation sector, this part of the business will achieve greater success in the future and bring more benefits to the group."

French auto parts supplier Faurecia sold its exterior business to former competitor Plastic Omnium in 2016 for US$753 million. The sale not only allowed Faurecia to pay off its debts, but also provided Faurecia with sufficient funds to enable it to strategically acquire the relevant business segments of other companies, such as seats, interiors and clean energy businesses. A Faurecia spokesperson stated that the externalization business unit is not sufficiently internationalized and its technology content is relatively low. "This fund has ensured the Group's investment capability and enabled us to gradually improve the technology sector in the future." Faurecia invested in Parrot Automotive Co., Ltd. and Jiangxi Good Helper Electronics Technology Co., Ltd. in 2017 to enhance the networking and automotive entertainment. The technical strength of the system, in addition to the acquisition of Hug Engineering developing exhaust gas purification components.

Jean-Michel Szczerba, co-CEO of Plastic Omnium, said that Plastic Omnium’s acquisition of its exterior business also brought its own return. The company hopes to obtain bumper business in the lucrative German market, and now they have completed their goals. “We want to establish business contacts with Daimler, Audi and Ford on the bumper business,” he said. Last year, Plastic Omnium and Daimler have already started cooperation, and the company will provide bumpers for the Mercedes-Benz S-Class.

Plastic Omnium, on the other hand, is now seeking to sell its environmental department. The department is responsible for the production of waste bins and playground equipment. Although the division is one of the Group’s early operations, the company hopes to devote sufficient resources to composite materials and hydrogen fuel cells. Energy storage research and development work.

Split risky parts suppliers choose different

Some auto parts suppliers are still following the traditional big group model. Bosch, for example, had global auto sales of 46.5 billion U.S. dollars in 2016 and ranked first among the top 100 auto parts companies in the world. It also sells home appliances, security systems, commercial logistics software, and even gardening tools. Another example is that Japan’s largest suppliers, including Denso, ranked No. 4 and Aisin No. 6, have not announced plans to spin off or sell major business units.

It is speculated that the largest spin-off in recent years may occur this year. The Continental Group, with a market value of US$43 billion, stated that it is negotiating a possible reorganization to reach its growth target. It is understood that potential changes include the stripping of the tire sector. “The supplier who chooses to integrate and expand the scale will become the final winner of the segmentation business. This strategy is practical and feasible.” Neal Ganguli, general manager of Deloitte Consulting, said, “So we will see suppliers saying, 'Remove these businesses, It is beneficial to pursue more profits'."

However, not every business unit can be stripped or split. British supplier GKN is facing a hostile takeover of London investment group Melrose Industries, which has been trying to spin off its automotive division and focus on aerospace and defense businesses. GKN believes that this "strategic choice" is "to allow this independent company to obtain an independent business strategy and the use of funds." The sale of GKN's auto business to Dana was already close to an agreement, but the company’s shareholders chose Melrose in the final vote in late March. In lobbying for GKN’s shareholders, Melrose stated that “any activity that splits the company and sells part of its business will hurt the company’s overall value”.

Neal Ganguli said that the current wave of mergers, acquisitions, and splits in the automotive industry is caused by fundamental changes in the industry and the unconventional business cycle. "The power to transform is different from before," he said. People are currently thinking about moving in a completely different way. The value of cars will increasingly be reflected in the program code, rather than the traditional hardware. He believes that "this will have a long-term impact on Tier 1 suppliers. They need to look to the future and think about what kind of strategy they can adopt to win in this new market environment."

The economic cycle may also play a role in the wave of splitting. With the global automotive industry surging after the economic downturn, global light vehicle production in 2017 will increase from about 60 million in 2009 to more than 90 million, and auto parts suppliers will continue to grow stronger during this period.

IHS Markit's Robinet said: "When the market grows rapidly, most suppliers just need to stick to the traditional strategy to be profitable." Now that the sales growth is expected to slow down, suppliers need to stop. Come down and consider how to enter the next stage of the automotive market. Now auto parts suppliers should go back and ask themselves: "In the era after rapid growth, what exactly do I want to become? How can I create value for the industry?"