Automotive component firms face further rationalisation

Car assembly may have ceased in Ireland in the early 1980s, but the State still continues to have a link with the international motor industry through automotive components. The sector comprises approximately 45 companies employing in the region of 10,000 people and it has a value (in sales) of approximately £750 million (€952 million).

A significant proportion of Irish component companies have an overseas parent with US and German ownership predominating. The companies are well spread geographically and many have been operating here for more than 20 years. The sector produces a range of products from mirrors to wiring harnesses and electrical components and supplies companies such as BMW, Toyota, Volvo, Nissan and Ford.

The advent of globalisation within the motor industry, both in terms of manufacturing and sourcing, is having a major impact on the world's $932 billion automotive components market.

So far Ireland has remained relatively untouched by the shakeout which has characterised the industry over the past five years. Ireland did lose two big employers in the sector (Packard Electric and Semperit) in 1996. But in terms of the overall rationalisation of the sector Irish casualties were small.

In 1995 alone there were 15 mergers and acquisitions within the sector internationally. By last year this figure had risen to 39. The European Association of Automotive Suppliers, CLEPA, estimates that there were 30,000 supply companies in the combined components and downstream market sectors in 1990. By 1998 this had fallen to around 8,000. If one takes companies supplying components directly to the car manufacturers the pace of change is equally dramatic with roughly 3,000 companies in the picture a decade ago compared with about 300 today. This figure is expected to halve again by 2008 leaving around 150 major (or Tier One companies) which in turn will be supported by around 2,000 smaller (Tier Two and Tier Three) suppliers.

One of the main factors contributing to this new tiered structure is the growing expectation by the motor manufacturers that their suppliers should become far more pro-active in product innovation. This means the suppliers must carry the huge R&D costs involved. A second factor is the universal move by car manufacturers towards more and more outsourcing.

A typical front end car assembly would include bumpers, lighting, grille, wiring, door panels and heating and ventilation systems. This would be presented as a single unit to the manufacturer by a main supplier which in turn would have a number of smaller companies supplying it. This move towards systems integration and the supply of finished modules has led to the establishment of supplier parks where car component companies (and their subsuppliers) base their operations right beside the car manufacturer to facilitate shorter lead times and just-in-time delivery.

Tier One is dominated by huge companies such as Delphi, Visteon, Bosch, Denso and Lear which supply everything from engine management and safety systems to lighting and electronics. Ireland does not have an indigenous Tier One manufacturer, but it has Irish-based operations of some of the major international players. For example, the US-owned Donnelly Mirrors has three Irish plants while the US company, Allied Signal, makes compressor and turbine wheels for turbochargers in Waterford. The German-owned, Lapple, has an Irish operation in Carlow while Bruss has been making gaskets, lip seals and rubber formed parts in Sligo since 1981. Kostal (also German) has a large operation in Limerick producing sensors and electronic components.

The German manufacturer, Beru, set up a plant in Tralee in 1985 where it makes products such as heater plugs and temperature sensors. Beru would not figure at the top end of the Tier One companies list, but it is nevertheless a significant if smaller Tier One player which was quoted on the Frankfurt Stock Exchange in 1997.

Ireland used to have a connection with Delphi, the world's largest parts supplier which had sales last year of more than $27 billion. Delphi was the parent company of Packard Electric which employed in excess of 800 people making wiring harnesses in Tallaght. This plant closed in 1996 after 20 years when the parent company cited competitive pressures at a global level as its reason for relocating to a lower cost manufacturing environment.

While few Irish companies are ever likely to make Tier One supply status, this is seen as a plus given the high level of costs Tier One companies are now expected to absorb. The tiered structure also works to Ireland's benefit by leaving the door open for specialist Irish manufacturing units to have profitable relationships further down the supply chain. As the motor manufacturers push more of the added cost onto its Tier One suppliers and the level of outsourcing continues to increase so too will the opportunities for creative and focused Irish companies within the sector.