Industry Analysis Case Study

US Automotive Supply Industry: The Chinese Threat

OR

Abstract:
The US automotive supply industry, more than a century-old, produced vital components for the auto industry and employed nearly three times as many people as the auto industry itself. It was the backbone of the US auto sector and possessed a much larger machine-tool capacity. Over the years, the US auto supply industry went through tough times. A number of reasons were attributed to this. The industry was forced to cut prices by the US auto makers who were their main clients and being bound by contracts, the auto suppliers were forced to comply. There was also a rise in raw materials, especially steel. The main players were also charged for accounting manipulations and they had to spend considerable resources to rectify the frauds. All this quickened the bankruptcy of a number of leading auto suppliers in the US.

In this background, there was a steady increase in the quantum of Chinese imports and they posed a threat to the US auto industry. The Chinese had a low wage advantage but did not possess the technological edge. Although industry experts said that the Chinese threat was exaggerated, if the US auto suppliers did not gear-up to meet competition, it was feared that they would face almost the same ills that the US auto sector was facing in the face of competition from Japanese and Korean auto makers.

The case allows for discussion on the future of the US auto supply industry in the face of competition from China. It also allows for discussion on the strategies that the Chinese should adopt to become a leading force in the global auto parts market.

Pedagogical Objectives:

• To discuss the future of the US auto supply industry in the face of competition from China
• To discuss strategies that the Chinese should adopt to become a leading force in the global auto parts market.

Keywords : Auto parts supply industry; Auto parts manufacturers; OEM suppliers; Big Three; Price cuts; Raw material costs; Accounting manipulations; Hedge fund operators; Chinese auto suppliers; Delphi; low cost of labor; replacement market; R&D; Transplant automakers; Industry Analysis Case Study; bankruptcy