Automotive giant Magna takes interest in Lithuanian suppliers

Jun 6, 2018
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Magna, one of the largest automotive parts manufacturers and suppliers in the US and Europe has recently begun their selection process of potential partners in Lithuania. There are dozens of companies on their prospective list.

Magna’s customers in the US include manufacturers such as Chrysler, Tesla Motors, and General Motors. The European customer list for Magna includes Ford, BMW, Volkswagen and other major car makers. The annual turnover of the company is roughly $38.9 billion.

“In Europe, sales of passenger vehicles and trucks are growing. In Western Europe, the momentum is dwindling, and thus the attention is shifting in favor of Poland, the Czech Republic, Slovakia, and Hungary. However, even in these markets industry representatives already express concern over the unmet demand for workforce, increasing labor costs and high attrition rates. Orders are being delayed and the manufacturers are worried. This is why the Baltics find themselves in the spotlight of suppliers, which has led to multiple meetings taking place in the last couple of years” says Darius Lasionis, director of the Lithuanian Engineering Industry Association Linpra and head of the Baltic Automotive Components Cluster.

An estimated 50 companies manufacture parts and components for light or heavy vehicles and agricultural machinery in Lithuania. Approximately half of them have the potential to become Magna’s partners. According to the representatives of Magna, this is a good ratio, because usually after purchasing visits only 25% of companies are deemed viable for partnership.

Last week, Magna International Europe’s team met with 32 Baltic manufacturers, of which, 22 were from Lithuania. After the meetings, they estimated that 50% of the manufacturers appeared to be potential suppliers.

After the meeting, certain selected companies will receive information on the production demand, terms, and later, the price.

“After the first selection stage is over and the company proves its competitiveness, Magna will carry out an audit allowing the company to become an official supplier, receive an order and sequentially large long-term contracts,” Lasionis explained.

Ongoing negotiations

Success stories already exist. Last autumn, representatives of the Volkswagen procurement division visited the AQ Wiring Systems factory in Panevėžys and stated that they were ready to submit orders after having carried out formal procedures. For a company to work with Volkswagen, additional IT solutions are required. AQ Wiring Systems plans to complete these requirements next year and become an official supplier.

Kaunas-based plastics manufacturer KB Components is the second company currently preparing to co-operate with Volkswagen. They currently manufacture parts for Volvo truck engines. Elvis Pruckus, Director of KB Components, did not comment on the ongoing negotiations nor the effect it could have on the company’s revenue or profit. According to the annual report, in 2017, the sales income of the Swedish company increased by 14% – from €13.9 to €15.9 million. The decision to close down one of the group’s factories in Sweden and move production to Kaunas was one of the reasons for growing income.

According to the planned orders, the company expects €16 million sales revenue in 2018.

Volkswagen requires that all processes be digitized allowing to monitor production, the delivery of raw materials, defects, scheduling and logistics operations. This makes it imperative that manufacturers invest in IT solutions.

Growing interest

In May, another major manufacturer was looking for suppliers in Lithuania – Dana Incorporated, a US leader in engineering solutions for the transport industry. Their annual turnover in 2017 amounted to $7.2 billion. Fortaco Group OY, a manufacturer of parts and components for the automotive industry also visited Lithuania.

According to Arndt Ellinghorst, an analyst at Evercore ISI, investors became more optimistic about component suppliers two or three years ago when their income began to increase. At the same time, fears are growing that car makers will no longer be able to sell cars to individual buyers, due to consumers soon being able to bid farewell to car ownership with the advent of self-driving cars that can be hailed via an app. Service companies that purchase large batches of cars at low prices and thus deprive the manufacturers of their brand value will be the new buyers.

However, the parts manufacturers are safe. They do not have a brand image to maintain with the general public, so their position will not change significantly. Car makers, on the other hand, have to spend substantially more on advertising than any other industry.

Today, car parts make up more than 70% of the car, compared with 40-50% in the last decade of the last century. This increase came as a result of vehicles becoming more technologically complex and some parts needing to be produced with specific expertise and knowledge.

Shifting model

“Three major trends – the proliferation of electric cars, car sharing services and autonomous vehicles – will replace car makers’ business models far more than suppliers,” says Wolfgang Schaefer, Chief Financial Officer at Continental.

Although cars will be shared or autonomous, they will still need brakes, windows, doors and tires. And that’s not even mentioning multiple types of semiconductors, electronic devices, security systems and other 30,000 parts that make up the modern car.

The Financial Times points out that car dealers experience strong competition. The unprecedented wave of mergers and acquisitions serves testimony to this. This trend, however, has yet to reach Lithuania.

“In Europe, large companies are growing through acquisitions or organically. Small businesses have a harder time competing since they cannot offer solutions to complex problems and they lack capabilities, knowledge, competencies and resources. This is why they have to look for ways to co-operate with similar companies,” said Lasionis.

Source: Verslo žinios

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