While it is too early in the process to be sure, it appears that ZF Friedrichshafen’s pending purchase of TRW will eschew the typical plant shutdowns and layoffs in favor of continued international expansion-minded innovations and increased job prospects – especially in Detroit and elsewhere throughout the U.S.
“The mood is pretty positive,” according to a longtime TRW executive, telling Aftermarket Business World that the attitude among the workforce “is good and relatively upbeat; we feel that that this will be a good combination once it happens. This is not really an acquisition,” he asserts. “It’s complementary. We are looking to be run as a separate business unit.”
“The combination makes sense for all of our constituencies,” concurs ZF CEO Stefan Sommer. “Customers of both companies will have access to a unique offering under one roof, and employees from ZF and TRW will enjoy enhancements that result from the combined organization,” he notes.
“This is an acquisition in the spirit of a partnership,” Sommer says. “We look forward to welcoming TRW’s employees to our company and are committed to working closely with them to realize the potential of this exciting combination. The Detroit metro area will remain a major business center for the company, and we expect employees from both companies to benefit from the enhanced career opportunities at a larger, more diversified company.”
“The current industry consolidation certainly comes as no surprise,” says Bill Long, president and COO of the Automotive Aftermarket Suppliers Association (AASA). The organization has been steadily predicting that this trend will remain ongoing throughout the industry.
“Mergers or acquisitions provide the greatest value when leveraging innovation, technologies and processes, rather than those based purely on scale or size,” Long observes, citing AASA’s research.
“Suppliers’ growth strategies also must include investment in building differentiating capabilities and evolving their business models,” Long explains. “Differentiation requires investments in information technology, analytical tools, processes, infrastructure and more. Suppliers must innovate and differentiate to succeed in today’s competitive marketplace.”
“The acquisition of TRW fits perfectly into our long-term strategy,” says Sommer. “The transaction combines two highly successful companies that have remarkable track records of innovation and growth and solid financial positions,” he adds. “We are strengthening our future prospects by enlarging our product portfolio with acknowledged technologies in the most attractive segments.”
Distinguished histories
ZF is paying about $13.5 billion for TRW, and the combined firm is slated to become the world’s second-largest auto parts supplier behind Bosch at No. 1.
TRW’s stockholders will be voting whether to accept the terms of the deal, and several law firms have already been soliciting clients to take legal action, contending that the agreed-upon price of $105.60 per share is too low.
American and German regulators are reviewing the pending purchase, with final decisions expected by June of 2015. “We still have to go through all the government approvals,” says TRW spokesman John Wilkerson, declining to comment on any investor litigation that may arise. He points out that the two venerable companies have distinguished histories dating back to the earliest days of horseless carriages and airplanes, and their ongoing technological advances present a pattern of complementary rather than competitive markets.
Beginning in 1900, the predecessor of what became known as Thompson Ramo Wooldridge was spearheaded in Cleveland by Charles E. Thompson, who gained significant industrial traction by supplying wooden wheels for Henry Ford’s Model T; the contract was secured shortly after Thompson engineered the introduction of the first two-piece engine valve for the Winton Motor Carriage Co.
As with Thompson and Ford, Alexander Winton was also a pioneering industry visionary. He promoted the reliability of his high-end vehicles by driving from Cleveland to New York City in just nine days. And it was Winton who came up with the idea of proving just how fast his cars could go by inviting his competitors to race their own inventions on sand along an isolated beach in Florida – a site located at a small town called Daytona. Winton sold his company to General Motors in 1930.
The origins of Germany’s ZF date back to 1915 when it was a “zahnradfabrik” – “gear factory,” abbreviated as ZF – personally established by Count Ferdinand Graf von Zeppelin to manufacture the special gears needed to keep his experimental airships aloft. A foundation established by Zeppelin retains an ownership stake in ZF, which went on to enter the auto supply sector as TRW was concurrently venturing into the aircraft industry from across the Atlantic Ocean.
Benefitting from megatrends
Fast-forward to the present, and the combined firm stands to be valued at $41 billion with 138,000 employees. “Due to the ‘complementarity’ of the two companies the main focus will be on growth while cost synergies are expected to be mainly derived from greater purchasing power and sharing best-practice standards,” according to Sommer. “Together, ZF and TRW will be uniquely positioned to benefit from the megatrends of the automotive industry on a global basis.”
With TRW on board, ZF is anticipating that it will more than double its U.S. and Chinese sales volumes.
ZF has done business in the U.S. since 1979, encompassing 12 locations including an automatic transmission factory in South Carolina that opened last year. ZF expects its annual American sales to rise from $3.9 billion to $9 billion.
Based in Michigan with facilities in 24 nations, in 2013 TRW notched $17.4 billion in sales.
ZF’s presence in China, accounting for two-thirds of the company’s $4.1 billion in sales throughout the Asia-Pacific region, is poised to be further strengthened with the addition of TRW. By aligning with TRW, which also has a strong presence in China, ZF expects to achieve $5.5 billion in annual Chinese sales and $7.5 billion in Asia-Pacific regional sales.
TRW and ZF each have major production facilities and research and development operations in China. ZF is in the process of expanding its R&D Center in Shanghai to 800 employees. The site is a half-hour drive from TRW’s new R&D facility, which will eventually house 1,200 employees, making it TRW’s largest worldwide site for exploring future engineering possibilities.
In the meantime, ZF and TRW went ahead with their respective September booth presences at Germany’s Internationale Automobil-Ausstellung (IAA) event in Hanover and the huge Automechanika Frankfurt exposition.
“We’ve done a good job on our booth concept,” says Wilkerson of TRW’s IAA focus on cutting-edge commercial vehicle technologies, adding that Automechanika Frankfurt was also a successful experience with its emphasis on innovative car components and systems. “For our aftermarket business, that’s an important show for us,” he reports.
Senior ZF director Alois Ludwig is equally impressed with the marketing impact derived from participating in this year’s Automechanika Frankfurt. “Our displays at this leading trade show underline that ZF Services is consistently boosting its strengths at a global level, with a comprehensive product portfolio from a single source and services that offer a clear value added to our customers and partners.”
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