Every day, the future of Europe's component industry arrives in trucks at the gates of Peugeot SA's assembly plant in western France at Rennes in Brittany. The trucks carry integrated plastic air filter boxes and valve covers for the midsize Citroen Xantia from supplier Mecaplast SA's nearby plant.
Across the English Channel, in Brentwood just outside London, the future takes shape as suppliers join global platform teams at Ford Motor Co.'s small front-drive-car vehicle program center (VPC), organized under its massive Ford 2000 reorganization that began taking hold early this year.
About 975 miles (1,560 Km) southeast of Rennes, Fiat Auto SpA's vision of the future rises in Italy's rugged Appenine mountains, where a brace of suppliers share factory grounds with Fiat's Punto assembly plant in Melfi.
The shape of things to come grows even clearer in the plans of Micro Compact Car, the joint venture of Mercedes-Benz AG and SMH/Swiss Watch Corp. It plans to get 80% of the value of its Swatchmobile in the form of completed subassemblies from suppliers. The car enters production two years from now in France, and may see U.S. assembly shortly thereafter.
The good news for European suppliers is that these divergent visions of automaking in the next century allow a variety of approaches to winning contracts. The bad news is that they all require heavy investment and extensive engineering expertise. A supplier may not have to be global to play the game, but it must match the international giants' capabilities.
"I wouldn't generalize that you need an engineering center here, or that European suppliers need one in North America," says Chris Hole, former purchasing chief for Ford's Brentwood VPC. "You probably do need sales offices in both places, but to build an engineering center would defeat the goal of economies of scale."
There also remains room for smaller companies with good quality and high technology, says Mr. Hole, who now works out of Ford's Dearborn purchasing office.
"There are not that many global suppliers. We helped some suppliers set up cross-Atlantic alliances to supply the CDW27 (Contour/Mystique/Mondeo) program. We're not just working with global players," he says.
Ford hasn't quantified the savings it expects from global platform teams, he says, "but we know we can offer suppliers huge economies of scale."
European suppliers enter the fray with a couple of advantages, says William Wheeler, a partner at Coopers & Lybrand, the big accounting and consulting firm.
"The Tier 1 supplier will end up as an integrator, a coordinator for unit design and engineering," he says. "Their principal clout will be how well they source Tier 2 suppliers and pull the technology from them. I think that is the way things are going."
European Tier 1 suppliers traditionally have brought more engineering and addedvalue to their products, going beyond simply building to automaker specs. In some cases, the suppliers have developed brand recognition for a key component, like high-profile ABS and vehicle-control systems, that an automaker can use as a selling point.
"The profit margins for suppliers in Europe are much better than in the U.S. because of this value selling," Mr. Wheeler says.
European suppliers also learned to cooperate more quickly than their U.S. counterparts. "European suppliers are beginning to form much better partnerships or networks. They are much further ahead, sort of 'virtual companies,'" says Mr. Wheeler. "In the U.S., suppliers still are trying to sell systems without any partners. So in some cases their core processes are not state of the art. In Europe they are saying 'We can't afford the capital,' so they are making good partnerships to get the job done."
The plastic modules that Mecaplast ships through Brittany's rolling meadows illustrate the advantages of wisely formed partnerships.
Mecaplast, based in Monaco, worked with DuPont Automotive in Europe and the U.S. to develop the integrated air filter/valve cover.
"The Tier 1 supplier gets more business volume, more leverage and control when they supply a modular unit like this," says Ken Nelson, DuPont Automotive senior program design manager. And, of course, they get to bill the automakers for their additional engineering costs.
"As the material supplier, we shift more work to the Tier 1 supplier in a program like this," he says. "But we still have to have engineers at the OEMs. So it's more work for us, but we get more influence on design. As OEM engineers get more used to plastic components, we should see more creative uses of plastic in the basic engine structure."
That will open up new uses for plastics, which makes the extra time and expense worthwhile for DuPont.
Meanwhile, Fiat raised quality and cut costs in its acclaimed Punto at Melfi by pulling suppliers into the design process, giving them long-term contracts and convincing them to build their components beside the assembly plant.
Nearly two dozen suppliers produce within the Melfi complex, producing 50% of the total components used there. The suppliers' plants employ 2,500. Fiat says 70% of the Punto's content comes from components already assembled by suppliers.
Fiat says all of its future models will push this kind of supplier relationship further. The next example will be the Brava and Bravo, which replace Fiat's bread-and-butter Tipo and Tempra. Production begins this fall.
While suppliers gain early entry into high-volume programs, and long-term contracts, building new plants to supply Fiat requires heavy investment, as do Ford's global platforms and the modular components demanded by automakers across Europe.
"There are many cases where components manufacturers are being asked to invest more than their entire capital holding to stay with a manufacturer," says John Lawson, an automotive analyst for DRI's European office in London.
With so many capital-intensive programs looming, suppliers that can spread development costs over several regions have an advantage.
"In Europe, they needed a way to analyze core manifolds during the molding process," for Ford's global Zeta 4-cyl. engine, "so they developed the software in Geneva," says Michael J. Palmieri, CAE Systems Manager for DuPont Automotive. "We needed core-shift analysis done (in the U.S.) for customers. Instead of bringing the software here, training someone to use it, we just download the database to Geneva and just have them do it.
"We can complete the job from beginning to end in about two weeks. Before we began using this communication effectively, the job could have taken as long as eight weeks," he adds.
In addition, "You can compare data between North America and Europe," Mr. Palmieri says. "That happened on Ford's Zeta engine. Because of the specifications in the two regions, you got to compare two different manifold designs."
While European suppliers look abroad for new business, platform reductions in their home markets offer huge volumes for the winners.
Volkswagen AG will use just four platforms for 3-million-plus cars a year in 2000, says group research and development boss, Ulrich Seiffert. "The savings will be huge," he promises.
On a smaller scale, General Motors Corp.'s Opel, Saab and Cadillac units will share a platform for the Opel Omega, Cadillac Catera and next-generation Saab 9000, and GM is looking at common platforms for additional models to be built and marketed internationally.
"The European industry is latching onto this platform-reduction strategy as a key to reduce costs," says Mr. Lawson. "The rewards to supply these platforms are tremendous."
He says Europe's platform reduction will be even more dramatic than in the U.S., predicting there will be just 35 European platforms by 2000, compared with 59 in 1993.
"You need to recognize that most OEMs are moving to global strategies anyway, so working in Europe means working on global programs," says Mark Snowdon, vice president for GM's Delco Electronics commercial corporate strategy management. His group opened its Delco Electronics Europe GmbH operations in Wiesbaden, Germany, last October in anticipation of the growing opportunities in the region.
Mr. Lawson says the current climate in the European supplier industry offers numerous opportunities. "The timing is still quite good," he says. "There are still a lot of properties out there -- good companies with good market positions and with major OEMs as customers. These companies are quietly but effectively up for sale. To achieve that global presence, or expand a technological base for an existing one, I would say that this is a pretty good time to get in" through acquisition or joint venture.
U.S.-based Textron Inc. has a joint venture in Born with the U.K.'s Marley Automotive Components. The venture, called Davidson-Marley Automotive, supplies Ford with instrument panels for Mondeo production in Belgium and Chrysler Corp.'s minivan production in Graz, Austria. It soon will begin deliveries to NedCar BV, the Dutch joint venture of AB Volvo and Mitsubishi Motors Corp.
Europe's leading suppliers already have become key players in the U.S. Siemens AG boasts of its new integrated air/fuel module, which combines air intake systems, fuel injectors, EGR valves, and many sensors. Two U.S. manufacturers will join three European OEMs using the integrated units in cars bowing from model-year 1997 through 1999.
Siemens says the five customers will use the module for high-volume cars ranging from compact to midsize. One customer will even incorporate the engine control unit into the air/fuel module.
These European supplier transplants in the U.S. often hold greater autonomy than subsidiaries in other regions.
"North America is an independent business region, which can handle all of our product lines," says Klaus Bleyer, chief executive of German supplier ZF AG. "It has its own responsibility. There might be product applications specific to that particular market that are not found in Europe."
"It is easier for a European firm to come the U.S.," says Dave Eisenhart, a partner with Coopers & Lybrand. "The marketplace is more open here. In Europe, U.S. suppliers are being brought in by the OEMs. But there aren't many suppliers that have gone to Europe and been chosen by European manufacturers. Clearly there are some key players -- ITT, TRW and GM. They are great suppliers, but no one is beating their door down."