21 Oct 2005
By Luca Ciferri, Automotive News Europe
TURIN -- In Europe, carmakers have traditionally preferred formal joint ventures to jointly develop and build vehicles.
Will the growing number of automaker supply contracts progressively replace the old style of joint ventures? Probably not.
"Normally, a joint venture is created when you also add capacity in creating a new plant, such as PSA/Peugeot-Citroen and Toyota did with TPCA in Kolin, Czech Republic," said Roman Mathyssek, automotive analyst at Global Insight in London.
Mathyssek noted that it is much more difficult to share an existing plant with a partner. That's because with widespread overcapacity in the industry, many carmakers want any additional manufacturing work to be done in their own existing plants.
"We will see more OEM supply contracts in Europe, but this is not a replacement of good old joint ventures," said Sabine Blumel, senior analyst of European automakers at BancaIMI in London.
Not for mainstream cars Blumel said an OEM supply contract is a solution for low-volume, additional models, but not for mainstream products.
"In volume products, I see no carmaker not wishing to have any control on the manufacturing process and on production capacity allocation [between different products built in the same plant,"] Blumel said.
For Philippe Houchois, head of European auto research at JP Morgan in London, automaker supply contracts could be the perfect solution for annual production of about 100,000 units a year.
"This volume sometimes is not enough for a carmaker to build a vehicle alone but, at the same time, it is already too big to pass it over to a contract manufacturer," Houchois said.
He also noted that the growth of OEM supply contracts even in smaller volume production will be "bad news for niche assemblers like Karmann and Pininfarina."
Could hurt independents
More than a shift from carmaker joint venture, automaker supply contracts could become a progressive substitution of work previously awarded to independent contract manufacturers, said Jens Schattner, automotive analyst at Dresdner Kleinwort Wasserstein in Frankfurt.
"Increased flexibility at carmaker plants permits them to build more vehicle variants in-house, but also [to build] for third parties. This is good for many automakers, which suffer insufficient capacity utilization," Schattner said.
Said Adam Jonas, European auto analyst at Morgan Stanley in London: "Supply arrangements are easier to establish and exit than joint ventures. They also have clearer lines of who owns the technology compared to joint ventures."
What independent contract manufactures build -- and will build -- for automakers (start date)
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