A continuing recovery in global auto sales, as shown by April’s 19.8% rise in sales in U.S. vehicles, coupled with Europe’s 6.9% rise in sales, has been a boon to automotive suppliers. Once again they have available cash to make acquisitions and establish long-term strategies, not merely hang on and survive. That’s the take from SupplierBusiness, and IHS Global Insight Company. Of course this report was released before the bad news regarding June’s auto sales, which might cause some auto suppliers to have second thoughts about spending their cash.
According to reports, it was the second worst June for light vehicle sales in 28 years, with a total of 983,000 vehicles sold. Ford’s light vehicles sales were down 15% compared to May, but up 15% compared to June 2009. GM’s light vehicle sales were up 36%, over June 2009.
Some analysts believe that private equity and hedge fund investors, rather than big suppliers, will move first and fastest, encouraged by the U.S. market’s eight straight months of improving unit sales and investors’ growing access to capital, said the SupplierBusiness report.
However, acquisitions are expected as buyers express pent-up demand. One example is Johnson Controls’ unsolicited bid for Visteon’s electronics and interior businesses, which “signals that a new era of supplier deals is about to begin. JCI offered US$1.25 billion for Visteon, although Visteon’s board voted unanimously to reject the bid and work to emerge from bankruptcy as an independent company.”
Other suppliers on the lookout for acquisitions include Magna International, Borg Warner, and Mogul, according to the report. “Magna, staked with more than US$3 billion in cash and unused credit lines, aims to expand development of parts for electric cars and hybrids,” said the report. “And Magna is seeking to grow in markets such as Brazil, China and Russia.”
SupplierBusiness said that many deals will be less than a half billion dollars in value, and suppliers that are acquired will need to show positive results quickly to justify the risk. Before JCI’s move on Visteon’s interior business, the company said that “smaller acquisitions” were in the pipeline that could be announced in the next few quarters.
According to Bloomberg estimates, deals involving parts makers peaked at 338 in 2007, but fell to 294 in 2008 and 161 in 2009. But analysts expect a rise of about 25% this year.
