The devil is in the details - Supplier Insight

Automotive Industries, June, 2002 by Greg Janicki

The auto industry loves trends. Much of that tendency comes from the financial community, which looks at the past and draws conclusions on future events -- if it happened that way before, it is likely to happen that way again. Of course for all us investors, we are also quite familiar with the phrase "past performance is no guarantee of future performance." One thing the industry uses to drive assumptions on trends is statistics. What's the basis of a trend without some numbers to go along with it? But sometimes those highly publicized numbers don't tell the complete story.

One figure that the industry loves to play with is "value of market place." You have seen it a hundred times about this or that system, module, technology, region, etc. But what does it really mean? The wild numbers get all the headlines and suppliers rush around trying to figure out how to cash in on the bonanza (telematics is one of recent memory). Beyond the headliners, however, are the questions. How is this pie going to be divided? How concentrated is the value? The single value of market place number does little to help a supplier understand what they are in for.

The North American interior market, for example, is worth about $30 billion, give or take a few billion (this includes acoustics, cockpit, door, overhead, restraints, and seating). This statistic can be misleading for a number of reasons: for one, there is no one company that can supply "interiors." But what isn't part of this typical value analysis are the details behind the number. Every interior component market is slightly unique, requiring a different approach that requires an understanding of the details.

Specifically, the door and seat component market are roughly the same size - about $6 billion a year. (Note: this is not the value of the complete seat or door market -- it is the value of all the components, based on average piece cost estimates). The value of both have been increasing steadily over time (here's the historical trend) because of higher contenting -- more power, electronics, etc. But the two markets are quite different. One market has more suppliers (seat has 72; door 56). Another difference is how the value is concentrated. The top five suppliers in the seat market hold 60 percent of the market; the top five door component suppliers hold 48 percent.

The average supplier "take" is also different -- seating component suppliers average about $76 million of the total market value, while door component suppliers take in about $100 million. What further differentiates the "average" door supplier from the "average" seat component supplier is the supplier in the middle (the median supplier) -- the one with half the suppliers above it and half below it. In the seat component market the median supplier take is only $23 million -- quite a bit different than the "average" for the same industry. The door component market median value? $90 million.

It may be an obvious assumption, but in an industry that loves statistics, it needs to be said -- look deeper than a single number There is always a bit more to learn when you take the time to investigate the truth behind the numbers

                          Door Component  Seat Component
                              Market          Market

Annual value:              $5.6 billion    $6.2 billion
Number of suppliers:            56              72
Top 5 suppliers control:    48 percent      60 percent
Average supplier take:     $100 million    $76 million
Median supplier take:     $90.3 million   $23.1 million

GREG JANICKI

CSM Worldwide Inc.

Vice President

GregJanicki@csmauto.com

www.CSMAuto.com