Read the following article: http://www.wsj.com/articles/trw-agrees-to-11-7-billi
ID: 469276 • Letter: R
Question
Read the following article:
http://www.wsj.com/articles/trw-agrees-to-11-7-billion-sale-1410790179
Answer the two questions below:
1. Normally companies worry about losing bargaining power when their suppliers merge. What do auto makers like VW have to say in this case? Do they really mean it?
2. In fact, what kind of scale is involved here? Is the merger objective of these auto suppliers to increase their bargaining power? What is the objective? What kind of scale is involved here, if not oligopolistic economies of scale?
Explanation / Answer
Summary of the case :
ZF Friedrichshafen AG of Germany agreed to acquire U.S. rival TRW Automotive Holdings Corp. for about $11.7 billion to create the world's second-largest automotive supplier by sales as car parts makers look to build scale amid technological shifts in the global auto industry. The combined group will be a new industry powerhouse, with about 138,000 employees, aimed at feeding a technology starved car industry with systems to power and control electric vehicles, cars connected to the Internet, and systems to empower driverless cars . The major motivation for this transaction is technology-driven and to serve markets in the field of electro-mobility and autonomous driving. ZF is a closely held German engineering company whose main shareholder is Zeppelin Foundation. the company became a major supplier of transmissions for European auto makers such as Mercedes-Benz, Porsche, BMW, Peugeot and Alfa Romeo. Ulrich Hackenberg, a Volkswagen board member says its very positive to have a strong partner that has the resources to meet these challenges that we face such as controlling the automobile, autonomous driving, driving safety that requires an ever larger amount of development ZF is determined to be one of the top suppliers in the world by acquiring and developing the right technology to serve the needs of customers like VW. TRW is a major acquisition for the former Zeppelin maker . ZF seeks to adapt its business to changes shaking the car industry.
A 1 ) It’s an open secret, the world is craving for a advancing technology and applying the high end tech where ever its possible. The main motto is to reduce the operational costs and fixed costs using the advanced technology. Tech also meets and satisfies the needs and requirements of the target market. Applications increase the efficiency without creating significant charges to the branded companies. Technology has its part of success cake in almost all the leading tech driven application. From our mobile phones, watches and any electronic application gadgets, technology is the key critical component. Automobile industry is no exception to technology, advance tech has brought many impressive changes in cars. Effective changes such as driverless cars and autonomous driving systems to connect the car tech to the internet. This calls for a merging with a supplier of the car parts that are used to apply the technology into car driving system. According to the given case study article , grand automakers VW welcomed the merger of its 2 main suppliers ZF and RW. The reason is that we need advanced tech support to satisfy the generation needs and demands.
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A 2 ) Automobile manufacturers are not confined to just one part of the region, there is a global need and demand for them. This calls a need to enhance their production facilities to match the global platform demands technology has made its mark in automobile industry by streamlining the functions and increasing their efficiency & productivity. This can be emerging as a dangerous threat to the small scale manufacturing industries for their survival. Horizontal merging of suppliers in the automobile industry is pushed by the advantage of low interst rates and paves way for a broader market and increase in economies .
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