With the relentless pressure of globalization driving down prices and exposing over-capacity and cost problems in the automotive industry worldwide, experts see increasing consolidation in the sector through bankruptcies, and mergers and acquisitions.
In fact, a recent study by KPMG showed that over the next five years, automotive executives around the world anticipate increased restructuring in the industry. And the reasons for this consolidation are clearly structural and material-cost reduction, as well as desired revenue growth through new business opportunities.
When it comes to bankruptcy, the study found that 87 percent of executives surveyed expect bankruptcy rates to either increase or remain the same. Fifty-six percent see an increase, while only 10 percent expect a decrease.
For profitability, the study found that 42 percent of executives see industry profits being flat or rising slightly over the next five years. Forty-three percent of Asian executives and 45 percent of European executives see some increase, while 38 percent of North American executives see more volatility and unpredictability for the industry.
In the U.S., takeovers are a growing trend in American business. In just the first few months of 2007, more than 217 U.S. public companies either went private or were bought by another public company, according to Capital IQ, a division of Standard & Poor’s. The massive interest of Private Equity Fund companies in automotive supplier businesses has certainly been very visible.
Business Volatility Complicated by Legacy IT Systems
For automotive suppliers to the aftermarket – whether light vehicle or heavy-duty — this volatility can pose difficult and expensive problems when it comes to combining or separating companies and their IT systems, and this includes the separation and divestiture of divisions which have become ‘non-core’ under new operating strategies.
Many suppliers in this tough economic climate have cut their IT budgets and have not adopted new technology or even upgraded their legacy systems – while still feeling the pressure of reducing supply chain costs.
Further, since many suppliers have previously been through a number of mergers or acquisitions and have never fully integrated their systems, they have been left with costly ‘patches’ to business systems and the processes they support – especially managing product information that can overlap between brands without a harmonization of systems. In many cases, while the potential synergies of new product lines were recognized and actually drove the merger or acquisition itself, inadequate attention was paid subsequently to coordinating the disparate systems which would ultimately stand in the way of the efficient market integration that was envisioned in the relationship of the product lines and customers in the first instance. This is one reason why many M&A advisory firms have now added IT analysis to their pre-merger due diligence checklists.
PIM Systems – A Bridge Over Troubled Waters
In this environment, a complete end-to-end PIM (Product Information Management) system can be a life-saver for aftermarket companies – especially with the complexity of a multi-brand portfolio. There are typically hundreds of data attributes, thousands of variants to the data, and millions of records to be concerned about. And the nature of many of the attributes also often differs with the brand or product line. This underscores the critical importance of being able to separate systems quickly and smoothly because of the potential for massive disruptions in customer service, shipments and billing.
A complete, dynamic PIM solution stores all customer records and related product and pricing information. While integrating with existing corporate systems, it aggregates data into its own “single source of truth” and in a real sense, is totally self-contained. In addition, the Pricedex PIM solution, AutoPIM Pro, is “system-agnostic” – meaning it will easily interface product information with, and decouple it from, virtually any business and/or ERP system in a divestiture.
And the inverse is true, as well. Product and Customer information being merged as part of an acquisition can be easily loaded into the PIM system, normalized, mapped and migrated into existing corporate systems. In fact, in situations where the IT infrastructure is also acquired, the PIM system can, in addition, synchronize product information between those systems during what is typically known as the ‘co-existence’ phase.
Pricedex Experience with Merging and Divesting Companies
“We have first-hand experience with merging and divesting PIM systems for customers,” says Terry O’Reilly, president and CEO of Pricedex.
“Recently, one of our global Fortune 500 customers wanted to sell off the European piece of a major U.S. operation. They called us in to handle the IT separation because the U.S. subsidiary used our PIM solution to manage millions of parts flowing through thousands of distributor- and dealer-customers worldwide.
“Because our PIM solution is unique in that it manages all four critical pieces of parts management – part and product, pricing, publishing and data synchronization – you have everything you need to run your parts business in one application. So when it comes time to migrate that data – or create two systems from one – it can be a relatively quick and inexpensive process. They gave us 30 days to complete the separation, and we did it. We don’t think that would have been possible with any other system.”
How Pricedex Achieved Success in 30 Days
Pricedex devised an elegantly simple process to achieve this remarkable result. Because its PIM solution already had all the parts for both companies cataloged in its database, a unique attribute could be assigned to parts from the U.S. firm as well as for those of the European operation in order to identify them. Then they could be automatically segregated without having to manually go through each part or customer record.
Next, the Pricedex data synchronization feature allowed the newly segregated database to be checked for errors and gaps in order to validate the integrity of the separation.
Finally, a new stand-alone PIM system was set up and the key turned for the “new” European operation, and all of this was achieved “on time and with no customer disruption,” says O’Reilly.
“The first issue with any merger or acquisition is always with the business systems. Without properly planned, architected and implemented solutions, the costs of separating systems can be astronomical – and not just in terms of direct IT costs – but more importantly, in lost opportunity costs related to customer disruptions.
“For aftermarket companies who serve thousands of customers worldwide, this is a cost that no one can afford. Of course, it takes more than a PIM solution to run an enterprise, but this kind of solution will play a more and more critical role in a company’s success going forward. Our customer’s recent experience is certainly proof of that.”