In the early twenty-first century this industry produced parts, components, and systems for the world's car and truck producers projected to reach, according to the U.S. Department of Commerce, $1.1 trillion in goods by 2010. Like vehicle manufacturing, the auto parts industry is truly global. Suppliers operate on every continent except Antarctica.
Globalization has radically reshaped the industry especially in nations where domestic manufacturers have been under intense competitive pressure from offshore producers. As the Original Equipment Suppliers Association has put it: “More than ever, automakers are drawing on suppliers around the globe, shuttling parts across borders in search of lower prices and higher quality.” In earlier times independent parts suppliers were physically closer to their customers, rarely more than a day's drive away. In the global economy of the twenty-first century distance is not a barrier if your product is low-cost, meets industry quality standards, and can be delivered at the agreed-upon time. In fact, more than 20 percent of the auto parts produced in the world are exported from their country of origin to customers in other markets around the globe, primarily the United States, Western Europe, and Japan.
During the period from 2001 to 2005, auto parts exports across the world grew at an average annual rate of 12.7 percent reaching $220 billion by 2005 and more than 20 percent of global auto parts production. Emerging economies-Mexico, Brazil, Romania, Slovakia, Morocco, Saudi Arabia, Tunisia, India, and Taiwan-accounted for 29 percent of 2005 exports, their sales growing at a much faster pace (20.1%) than exports from established industrial nations.
Based on figures assembled by the International Trade Centre (ITC), foreign competition has had particularly negative impacts on U.S. auto parts producers. Until 2003 the United States was the world's leading exporter of auto parts. By 2004 it was second to Germany with Japan close behind and France, Canada, Italy, and Spain coming on strong. ITC is a joint technical cooperation agency of the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organization (WTO).
At the same time, U.S. auto companies dramatically increased their parts imports. Japan is the leading vehicle and parts producer; but unlike Germany and the United States, which are leading parts exporters as well as importers, Japan is only fourteenth on the list of importers. Japan relies more heavily on its domestic parts industry largely a result of its keiretsu structure under which manufacturers maintain exclusive relationships with their independent suppliers. According to the more comprehensive import/ export figures of the U.S. Office of Aerospace and Automotive Industries (OAAI), U.S. imports of automotive parts were $95.2 billion in 2006. Exports totaled $58.9 billion-producing a trade deficit of $36.3 billion. The 2006 deficit was lower than the year before ($37.1 billion) but still triple the $11.7 billion deficit reported in 1999. This reflects the continuing difficulties of the domestic auto parts industry, as outlined in the March 2007 U.S. Automotive Parts Annual Assessment of the OAAI, as their major customers continue to lose market share; costs of raw materials keep rising; the domestic Big Three (Ford, Chrysler, and General Motors) demand price and cost cuts; and foreign competition grows. “However,” observed the report, “as transplant automakers (U.S. operations of foreign manufacturers) increase their presence in the United States, foreign-affiliated suppliers also increase their presence to supply the automakers, creating equipment and jobs in the U.S. economy.”
Shrinking Domestic Sector
Employment in the U.S. auto parts industry has been eroding. Parts producers employed 920,000 in 2000 and 721,900 in 2006 according to data provided by the Bureau of Labor Statistics (BLS), a part of the U.S. Department of Labor. The number of participating companies has also been declining. In fact, as OAAI reports, “industry analysts predict that, of nearly 800 major suppliers in 2000, fewer than 100 will be left by 2010 as a result of bankruptcies, mergers and acquisitions, and migration to other industries.” In 2005, for example, there were thirty-two mergers and acquisitions, up from twenty-six in 2004. In 2006 another eight major suppliers filed for bankruptcy. The employment figures are especially troubling in view of the fact that “Automotive suppliers are directly and indirectly reported to account for more jobs and provide more economic well-being to more Americans than any other manufacturing sector,” according to the OAAI.
In some respects, the auto parts supplier industry is repeating the history of the industry it serves, but in a different form. A report in the May 1996 issue of Ward's Auto World presaged this trend in recounting historical highlights of the auto parts industry: “In the beginning, suppliers such as Henry M. Timken, Arthur Oliver Smith, Albert C. Champion, and the Dodge and Fisher brothers sold parts to the early automakers that they designed and manufactured themselves. Later, the automakers bought out some of these suppliers so they could control the parts that went on their vehicles. Meanwhile, other suppliers joined forces to create larger and more capable companies.
In the 1990s, automakers are returning design and engineering responsibilities to suppliers for the components and systems they provide. Will automakers eventually return to vertical integration? That's not likely, say industry watchers, but the trend by larger suppliers to acquire smaller companies to give them systems capability and global presence closely resembles (automotive) industry history.
The report goes on to quote David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation, to predict that “there won't be a wholesale return to vertical integration,” although consolidation among Tier 1 suppliers takes the place of vertical integration from a historical perspective, which is essentially what has been transpiring. This has been a major factor in the decline of the number of major U.S. suppliers.
Major Product Categories
The auto parts industry produces a wide range of products, in effect all components of an automobile except its body and its tires. The sector is so diverse, in fact, that in reporting on it the U.S. Bureau of the Census breaks it apart into eleven separate industries which, in this presentation, we treat as nine major product groupings. The product array is presented in Figure 7, displaying category shares as percent of the sector's shipments in dollars.
Ignoring the All Other category, which includes a great multiplicity of parts, the largest category in 2005 was transmissions and power trains, the smallest automotive air-conditioning systems. In the combined carburetors, engines, and parts industry, carburetors represent 7 percent, engines and parts 93 percent of the total. Within the lighting, electrical, and electronics category, automotive lighting is 14 percent of the industry and all other electrical and electronic components 86 percent. Shares of the components have remained roughly the same over time with small changes between 1997 and 2005. In 1997, for example, transmissions and power trains were 17.2 percent, slightly smaller than in 2005. Similarly the carburetor/engine category was 15.9 percent in 1997 and 16.6 percent in 2005.
The All Other category includes filters, exhaust systems, wheels, bumper assemblies, automotive frames, fuel tanks, radiators, doors, sunroofs, air bag assemblies, and many other componentry that do not fit readily into other major categories.
