As a result, 340 suppliers worldwide filed for insolvency, including 75 companies in Germany. These are the findings of a new study by Roland Berger Strategy Consultants entitled "Handbrake on - Slow progress over consolidation in the automotive supplier industry."

Despite the greatest crisis in the history of the industry, consolidation remains slow. The number of mergers and acquisitions has been falling since 2007, and even fell in 2009. What are the reasons for this? For strategic investors, the market is not particularly attractive with its low margins and high levels of excess capacity. Suppliers themselves lack the necessary cash and management resources to carry out acquisitions. And in many segments, manufacturers do not wish to see any further consolidation in the global competitive structure.

"The automotive crisis in 2008 and 2009 has left behind deep scars on suppliers," says Marcus Berret, Partner at Roland Berger Strategy Consultants. "Worldwide, 340 suppliers filed for insolvency in the last two years, including 75 companies in Germany alone." The outlook for 2010 is mixed. Markets are recovering slightly, but there are also more and more bottlenecks with regard to financing. Given the large number of companies in the market, it is surprising that the number of mergers and acquisitions has been falling steadily since 2007.

Four reasons currently preventing M&As
"Vehicle manufacturers have to agree implicitly to mergers and acquisitions. But in the eyes of manufacturers, many segments are already consolidated enough," says Mr Berret. In addition, many investors are holding back because of uncertainty about developments on the global automotive markets. "Many suppliers are still struggling for survival and lack the money or management resources for takeovers or mergers."

Wide variation in need for consolidation
"Manufacturers in many areas, especially product-based segments such as brakes and pistons, often have little interest in further consolidation in the industry," says Mr Berret. "The same global competitive structure has established itself in almost all product segments: The market leader controls 30-35% of the market, the top two providers account for half of the market and the top five account for around 75% globally." With every supplier that leaves the market, competition decreases further and the market power of the remaining suppliers grows.

The situation is different in process-based segments such as aluminum alloy casting and metalworking. These areas traditionally offer lower returns, and they still show a significant need for consolidation. "In these areas the world market leader generally controls no more than 15% of the market and the top five suppliers taken together account for less than half of the total market," says Felix Mogge, Project Manager at Roland Berger.

"There is an urgent need for consolidation to increase the profitability of individual suppliers." However, due to the relatively low margins and high levels of excess capacity, very few investors are interested in investing in these sectors. "Consequently, if a supplier gets into trouble, the vehicle manufacturers generally follow a strategy of supporting the company by shifting orders away from more stable suppliers, say, or winding down their relationship with the company in a controlled fashion," says Mr Mogge.

Lack of consolidation driving down returns
Without the required consolidation, returns in many product segments are unlikely to recover over the long term. "The average returns (EBIT margins) of suppliers in NAFTA countries, Europe and Japan will barely go above 3-4% in the next three to four years because of the lack of consolidation and increasing price pressure," says Mr Berret.