After years of dramatic decline and scores of bankruptcies, the American auto-supply industry may now be a good place for European companies and private-equity firms to invest, including investing in restructuring for the future. That’s according to Stefano Aversa, co-president of AlixPartners LLP, speaking here today to more than 50 French and other European auto suppliers at a seminar sponsored by the Embassy of France in the United States.
“There just may be a sort of ‘perfect storm trilogy in reverse’ brewing in the North American auto-supply sector right now,” said Aversa. “First, after enduring horrendous returns for most of this decade right along with their major ‘Detroit 3′ customers (General Motors, Ford and Chrysler), American suppliers are now positioned, following the historic advances made this fall not just in healthcare costs but also in work rules and productivity by the Detroit 3 in their recent labor settlements, to benefit from now having stronger customers as their core clients. Second, the weak U.S. dollar right now makes investing from abroad in the American auto industry more attractive. And third, American restructuring laws and customs are, of course, generally very supportive of companies’ efforts to save value and jobs, both in or out of a formal Chapter 11 bankruptcy. In fact, even with the movement throughout much of Europe in recent years toward more lenient insolvency laws, America remains perhaps the most hospitable market in the world to fast restructurings.
“Put these three factors together,” continued Aversa, “and it’s easy to say that now just might be the time for European companies and investors to ‘take a second look’ at the U.S. auto-supply industry.”
Aversa went on to note that many private-equity firms and hedge funds have already invested in the American auto and auto-supply industries, well beyond Cerberus Capital Management LP’s recent blockbuster purchase of Chrysler LLC.
“Not all of these investments are going to work out,” said Aversa.
“The winners will be those who focus not just on the financials, but very closely on operations. North America, even in bad times, is still a very, very lucrative market. In fact, according to our research, the average returns of top-quartile-performing American suppliers have remained about 12 percent for the past five years.
However, the average returns of suppliers in the bottom quartile of performance remain mired at under 4 percent, less than half of what they were a decade ago. The trick is to get into that top quartile, and it usually takes much more than just ‘financial engineering’ to do that.”
Much of the data in Aversa’s speech came from the 2007 AlixPartners Global Automotive Study, an annual analysis considered to be one of the most exhaustive of its kind. The 2007 study covered worldwide a record 51 automakers, 25 heavy-truck manufacturers and 297 suppliers, including scores in China and India.
AlixPartners is a global restructuring, consulting and financial advisory services firm, with offices in Chicago, Dallas, Detroit, Duesseldorf, London, Los Angeles, Milan, Munich, New York, Paris, San Francisco, Shanghai and Tokyo. It is on the Web at www.alixpartners.com.