Article at a glance:
US auto parts suppliers have tried to match the leverage of their big automaker customers by getting larger through mergers and acquisitions. But these efforts have largely failed, in part because the companies that undertook them sought scope in consolidation but didn't reduce competition significantly and therefore failed to lessen the influence of powerful buyers. Before acquiring any more companies, parts suppliers should carefully consider the goals of the next round of consolidation.
The take-away
Suppliers shouldn't seek to grow bigger for the sake of bigness itself but should instead seek to dominate a given product area while improving their processes in order to become more focused and efficient.
This article includes the following exhibits:
- Exhibit 1: Auto suppliers' return on capital, 1970–2002
- Exhibit 2: 1992–2002—the consolidation that wasn't
- Exhibit 3: 'Niche' auto suppliers are more profitable
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