There was some rather significant news this week concerning the automobile parts and distribution industry which promises to be of continued interest within the U.S..
General Motors announced that it will sell its steering-parts operation to a Chinese based venture. The Wall Street Journal and other sources noted this development “as the largest move by a Chinese company into the U.S. auto parts industry.” Nexteer Automotive, which was once known as GM’s Saginaw Steering group, is to be sold to Pacific Century Motors, a joint-venture of Beijing-based Tempo International Group and a Chinese government-owned company known as Beijing E-Town International Investment & Development Co. Ltd. (E-Town). Financial terms were not disclosed. The transaction is expected to close sometime in the fourth quarter.
GM assumed ownership of this parts unit a year ago from major Tier One supplier Delphi as part of an arrangement to insure a reliable flow of parts supply and help Delphi exit out of a complex bankruptcy. The press release announcing the sale notes the following statement: “E-Town and Tempo have followed the developments of Nexteer closely during the last two years and worked diligently over the past six months with General Motors, the UAW, global customers, critical suppliers, and Nexteer management, to ensure a successful transaction and seamless transition of Nexteer to an independent automotive supplier with a market-leading position and unrivaled steering technologies.”
The obvious question for the automotive supply chain management community is what, if any, may be the longer-term implications of this sale?
Nexteer currently operates 22 global manufacturing plants, and according to the WSJ article, does business with more than 60 automotive manufacturers. This does not include relationships with parts distributors serving the global auto parts aftermarket. While there have been other deals involving Chinese owned companies, this is certainly the biggest to date, and Tempo International is also a part owner in the former Delphi brake and suspension parts business.
While the U.S. provides a huge market in autos, the largest and most promising worldwide growth segments reside in the markets of China and India. The major Chinese automotive companies are expanding operations to serve their high growth domestic market, and to some day export world-class autos to other markets, including the U.S. As we all know, any world class company supporting robust markets requires the support of innovative and cost competitive supply chains.
E-Town, which was inaugurated in March of 2009, is noted as providing financial development support for companies residing in the Beijing Economic Technological Development Area (BDA) to help promote industrial upgrades and clusterization. That implies that this announced investment has a lot to do with insuring Chinese competiveness or control in key automotive parts supply. My fellow bloggers in China may want to offer more commentary.
GM, which is 61% owned by the U.S. government, states that it is working to get its finances and operations in order ahead of a planned public offering of new stock to pay back the U.S. government. While it may not be in the strategic interest of GM to continue to be in lower-tier supply businesses, this development certainly raises questions as to the longer-term implications to U.S. based auto and aftermarket parts supply chains.
In March of 2009, I penned a commentary, Prescriptions for Detroit’s Supply Chain Crisis, which related to the raging U.S. debate concerning the bailout of GM and Chyrsler that essentially agreed with the conclusions of a Forbes published article, which stated: “The growing fear is that without help the auto industry may collapse from the bottom, rather than top down.” At the time, I and others argued that the real issue to a bailout was not just saving the OEM’s but rather saving the essence of the parts supply chain, which was in far more serious financial trouble. I called attention to a profound quote from Laura Macero of the Corporate Advisory and Restructuring Services team at Grant Thornton: “Without a structured approach of consolidation to the benefit of the entire supply chain, the industry may lose critical partners with the technology, scale and geographic footprint that are linchpins in the viability equation”
Now, fifteen months later, it appears that the U.S. government, as an owner in GM may be strategically conflicted. Is the milestone really the renewal of GM or Chrysler, or the renewal of the entire industry supply chain, or both?
While the interests and employees of Nexteer gain renewed financial banking, and perhaps new strategic perspectives, one has to wonder whether the U.S. government is giving-up on the broader and more important strategic objective.
What’s your view? Is this a watershed event or just a reality to the current state of automotive supply chains?