Increasing Challenges for Automotive Suppliers as Global Vehicle Production Declines and Margin Pressure Grows
August 29 2019 - 3:00AM
Business Wire
- Sales decline in China hits suppliers
- Cost reductions at OEMs add to financial pressure for
suppliers
- High investments required for trends like autonomous driving
and electric mobility
- Financial flexibility, cost management and active portfolio
management will be key to success in the new environment
The global automotive supplier industry is facing difficult
times: In the first six months of 2019, vehicle production declined
by 5% compared to the first half of 2018. For the full year 2019,
an average EBIT margin of around 6% is expected, the lowest figure
since 2012. These are the key findings of the new "Global
Automotive Supplier Study 2019" from Roland Berger and Lazard. The
study analyzed performance indicators of approximately 600
suppliers around the globe to assess the current state of the
industry, as well as trends and challenges.
"The main drivers of the production decline are weak Chinese
sales figures for passenger cars as well as a global economic
slowdown. In addition, the market faces structural changes around
the growing trend of electrified mobility,” explains Felix Mogge,
Partner at Roland Berger. “International trade tensions and ongoing
cost cutting programs at the OEMs add to these pressures.”
Overcapacities due to slowing growth in China
China has served as a growth engine for the global automotive
industry in recent years. However, the trade conflict with the US
has significantly changed market conditions. For example,
automobile sales in China in the first half of 2019 decreased by
double-digit percentage points compared to the same period a year
earlier. "The growth forecasts had been positive and many suppliers
built up additional capacities," says Felix Mogge. "At some
suppliers, 60 to 70 percent of new capacities remain unused.”
Access to capital more difficult
In this new environment, suppliers should ensure that they have
sufficient long-term financial leeway. Access to capital could
become more difficult given weak markets. "Many equity investors
prefer sectors other than the cyclical automotive industry. At the
same time, banks are becoming more restrictive with credit
financing – which particularly affects smaller suppliers in product
areas that will come under structural pressure in the future," says
Christof S�ndermann, Managing Director at Lazard. In addition, the
number of M&A transactions in the supplier sector is declining
in 2019. Chinese companies in particular, which have been
significant buyers of supplier companies in recent years, are much
less active now.
New trends increase pressure to invest
Suppliers also need financial flexibility to benefit from major
trends in the automotive industry: digitization, new mobility
business models, autonomous driving and e-mobility. These trends
are putting the entire industry, from OEMs to suppliers, under
pressure to invest. For many projects, it is difficult to predict
when, or if, these investments will turn profitable. At the same
time, OEMs are trying to reduce their costs, including through
purchasing saving programs, which in turn affects suppliers.
Established suppliers face a difficult balancing act. They have
to manage their traditional business profitably while at the same
time they cannot afford to ignore the industry’s transformative
changes. In this context, large and financially solid companies
tend to be in a better position than smaller companies in commodity
segments.
Suppliers need individual strategies
The study shows there is no universal remedy to master these
challenges. Every supplier must find the right strategic approach
based on its own situation and market position. In general, many
suppliers need to become more flexible in order to keep pace with
rapid technological developments. "Above all, they need agile
structures and procedures in their organization - and many should
consider cooperative arrangements," advises Roland Berger partner
Mogge.
Active portfolio management is just as important. "Suppliers
must decide whether they can achieve or defend market leadership in
areas that are stagnating or shrinking in the long term. If so,
they should foster this business and focus on efficiency
improvements and cash flow generation. Otherwise, they should
consider an exit," says Christof S�ndermann at Lazard. "Cash
generated from these activities should be invested in areas in
which the company has a realistic chance for profitable
growth.”
You can download the study here:
www.rolandberger.de/pressemitteilungen
www.lazard.com/perspective/
Roland Berger, founded in 1967, is the only leading
global consultancy of German heritage and European origin. With
2,400 employees working from 35 countries, we have successful
operations in all major international markets. Our 52 offices are
located in the key global business hubs. The consultancy is an
independent partnership owned exclusively by 230 Partners.
Lazard, one of the world's preeminent financial advisory
and asset management firms, operates from 43 cities across 27
countries in North America, Europe, Asia, Australia, Central and
South America. With origins dating to 1848, the firm provides
advice on mergers and acquisitions, strategic matters,
restructuring and capital structure, capital raising and corporate
finance, as well as asset management services to corporations,
partnerships, institutions, governments and individuals. For more
information on Lazard, please visit www.lazard.com.
Follow Lazard at @Lazard.
"This press release contains certain forward-looking statements
regarding, among other things, the future financial performance of
automotive suppliers which may include projections based on growth
strategies, business plans and trends in the automotive sector and
global markets. These forward-looking statements are only
predictions based on current expectations; the actual future
results, levels of activity and/or financial performance of
automotive suppliers may differ materially from the predictions
contained in this press release."
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Roland Berger: Claudia Russo Head of Marketing &
Communications Germany, Austria and Switzerland Tel.: +49 89
9230-8190 E-Mail: Claudia.Russo@rolandberger.com
www.rolandberger.com
Lazard: Katharina Gebsattel Kommunikationsberatung Tel.: +49 172
718 68 57 E-mail: katharina.gebsattel@vub.de
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