© blotty-dreamstime.com Electronics Production | September 10, 2013
Profitability has stabilised at a high level, but risks are increasing
The average profitability of the global automotive supplier industry remains stable at an astonishingly high level: 6.5% EBIT margin for 2012 and for 2013.
The most profitable sectors for suppliers are chassis, powertrain and tires, whereas the interior business in particular saw a further decline in margins. Industry prospects remain reasonably positive for the coming years, with stable EBIT margins of approximately 6% possible. However, business complexities and risks continue to increase, keeping up the pressure on the individual suppliers over the next few years. These are the key findings of the "Global Automotive Supplier Study 2013", a joint study by Roland Berger and Lazard. Stable profitability at high level "The global supplier industry managed to stabilize average profitability in 2012 at a high level of 6.5% EBIT margins – this is only slightly below the record set in 2010," says Felix Mogge from Roland Berger Strategy Consultants. And assuming that the last quarter of this year does not see any major crises, the same level of profitability will be seen throughout 2013. "This performance is remarkable given the current market challenges, especially the ongoing weak volumes in many European sales markets," adds Dr. Eric Fellhauer from Lazard. There are several key drivers of this stable situation: car production, which is still strong when viewed from a global perspective; a favorable segment mix; an even higher vehicle technology level; better capacity utilization worldwide and moderate development in raw material prices. Strong differences in performance across the supplier landscape While powertrain and chassis suppliers are maintaining their above-average profitability with EBIT margins of around 7%, suppliers of interior components faced a further margin decline in 2012 (down to 4.4%). "And there is another clear message," says Marcus Berret from Roland Berger Strategy Consultants. Suppliers that focus on innovative product functionality rather than on process know-how continue to generate higher profits than their more process-focused peers. Looking at regional differences, suppliers headquartered in Europe and NAFTA maintained the high profitability levels they had achieved in the previous two years. The Asian picture is more diverse: "While Japan stayed below the global average with an average EBIT margin of 5.3%, Chinese and Korean suppliers are still leading the field – but the significant drop of about 3 percentage points compared to 2010 shows that competition is getting tougher for them." Profitability levels also vary significantly by company size. Small suppliers with less than EUR 1 billion in annual revenues have seen a substantial margin decline of about 1.5 percentage points compared to 2010's record margins, while very large multinational suppliers managed to maintain that level. This is a clear indication that small suppliers are facing more difficulties in meeting the challenging requirements from their customers, e.g. regarding global engineering and delivery capability. Growing business, but risks and complexities on the rise Looking ahead, automotive suppliers will generally benefit from further increasing vehicle demand, the resulting growth of the global automotive component market as well as from technology upgrades, especially in powertrain and chassis. At the individual company level, however, the business environment of automotive suppliers is characterized by an increasing number of risks. "We expect continued weakness in European component demand, and as a result, both OEMs and especially suppliers will need to adjust capacity. This trend will be further accelerated by OEMs shifting their production to the markets where the vehicles are sold. This will continue to create significant problems for Eurocentric suppliers," says Berret. Further risk factors include the heavily increased dependency on the Chinese car market (which is showing clear signs of maturity), even more pressure on suppliers to engineer and produce parts globally resulting in increased management complexity especially for small and mid-sized players. Added to this are the growing dependency of suppliers on fewer larger-scale component projects as well as continued pressure from OEMs to reduce prices and to push through less favorable economic schemes. This means that individual suppliers have to monitor all possible risks extremely carefully and quickly reach the right strategic conclusions. Given a business environment with significantly more risk factors and uncertainties than in earlier years, suppliers that make strategic errors will lose their competitiveness within just 2 or 3 years.
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