Global M&A Experts Predict More U.S. Auto Suppliers Will Merge, Based on IMAP Research

Tough Times to Continue; Selling More Vehicles Not a Solution

DETROIT, Nov. 22 -- U.S. auto suppliers must compete on price and quality with the best suppliers from around the world -- including such low-wage nations as China and Mexico -- if they hope to survive. According to the International Network of M&A Partners, too many suppliers, rising interest rates, soaring raw material prices and U.S. automaker overcapacity coupled with a 20-year history of downward price pressure have created a fiercely tough operating environment in which many firms will be merged, acquired or forced to seek bankruptcy protection.

"If 20% of your cost is in labor and you're providing a commodity-oriented product, you've probably been in trouble for some time," noted Chas Chandler, a Detroit-based IMAP member who specializes in the global auto industry. "This wave of mergers and acquisitions we're seeing with auto suppliers will continue and may accelerate over the next year."

Mr. Chandler and his IMAP colleagues noted at the recent IMAP meeting in Vienna that China's low wage levels, coupled with tight government control over workers and organized labor place North American and European suppliers at a competitive disadvantage. Soaring health care costs and cost-cutting pressure from the Big Three U.S. manufacturers point to evaporating profits and additional workforce reductions.

"During the next decade we expect up to one quarter of U.S. and European automotive supplier jobs will disappear," predicted Kerry Dustin, IMAP past president. "Some of the downsizing will occur because of productivity improvements, but jobs will be outsourced as well. Right now there simply are too many suppliers."

The IMAP group notes that as the Big Three continue to lose market share against imports, vehicle sales are at historic highs and the U.S. market is approaching its limit. "In the early 1980s, selling 13 million units pulled the industry and its suppliers out of trouble," said Mr. Chandler. "Now, they're selling more than 16 million units and still having problems. For suppliers, if you want to be a winner, you must be efficient, manage costs effectively and have good technologies. Manufacturing unique products also helps immensely."

According to IMAP, suppliers who grow larger, offer more comprehensive services, invest in transplants and tap into Japanese automaker supply chains also can survive.

About IMAP

The International Network of Merger and Acquisition Partners is an exclusive global partnership of 60 leading merger and acquisition advisory firms. Each member firm shares a mutual commitment to delivering the highest caliber professional advisory services for middle-market transactions across the globe. IMAP firms provide strategic merger, acquisition, divestiture and related corporate finance services. Sellers of mid-size companies and corporate acquirers alike rely upon IMAP's global partnership for essential local market knowledge and industry expertise delivered with unparalleled global reach. In 2003, IMAP members closed 210 transactions worth $3.47 billion.