Automobile Parts Manufacturing
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Industry Overview
The US auto parts manufacturing industry consists of about 4,000 companies with combined annual revenue of more than $150 billion. Large companies include ArvinMeritor, Dana, Delphi, Lear, Visteon, and the automotive division of Johnson Controls.
Worldwide, the auto parts manufacturing industry generates about $1 trillion in annual revenue. Leading auto parts manufacturers based outside the US include Robert Bosch and Continental (Germany), DENSO and Aisin Seiki (Japan), Faurecia (France), and Magna International (Canada).
Competitive Landscape
Demand for auto parts is driven by new car sales, which are strongly affected by interest rates, and by the replacement market. Company profitability depends partly on the difficulty of manufacturing products and partly on demand volume, since many costs are fixed. Small companies can compete successfully by focusing on a small number of products or some highly technical ones. The industry in the US is capital-intensive: average annual revenue per employee is more than $350,000.
The structure of the industry is complex, with most smaller companies (referred to as "tier 2" and "tier 3" suppliers) selling parts to larger suppliers (referred to as "tier 1" suppliers), which in turn sell component assemblies or modules to car and truck assemblers such as GM and Ford - collectively called OEMs.
Products, Operations & Technology
Major product categories are transmission and power train components (20 percent of industry revenue); engines and engine parts (15 percent); and metal stamping of body parts and trim (15 percent). Other products include electrical and electronic equipment (10 percent); seating and interior trim (10 percent); brake systems (5 percent); and steering and suspension components (5 percent), as well as air conditioning systems and carburetors, pistons, and valves. Parts manufacturing plants are often located close to the assembly plants of the car companies, usually within 100 miles.
Because car and truck companies (or VMs - vehicle manufacturers) focus increasingly on design, assembly, and marketing operations (and less on actual manufacturing), the parts industry produces virtually everything that goes into a car or truck.
Tier 1 suppliers usually concentrate in one or two distinct industry segments such as axles, power trains, brakes, exhaust systems, suspensions, electrical components, seating, engine parts, or accessories. OEMs still build most of their own engines.
The production process depends on the types of parts a manufacturer produces. Companies may buy components from suppliers or make products from scratch by working raw materials like metals and plastics. Companies may own one or several production plants and may have large inventories of raw and finished materials.
Companies often own the tooling needed to manufacture parts, but tooling may also be owned by the customer the product is being made for. Tooling used for simple production processes may be bought from other manufacturers; companies may also develop their own special tooling for making proprietary products or components.
International trade is greatest with Canada and Mexico, where both part manufacturing plants and vehicle assembly plants are located to take advantage of NAFTA. Many foreign car makers have built US assembly plants and use a large number of US-made parts.
Engineering and quality assurance are important in the manufacturing process, both for producing parts to the specifications required by the customer, and for achieving cost efficiencies. Industrial engineering technology is a rapidly evolving field. Computer systems are extensively used for designing parts and for process control and inventory management. Many suppliers are integrating supply chain systems with customers to support "just-in-time" (JIT) delivery of parts to assembly operations. Big car companies are requiring suppliers to upgrade their electronic data interchange (EDI) capabilities to increase supply chain efficiency.
