Pandemic Intensifies Margin Pressure on Automotive Suppliers; Sales Expected to Decline Globally by 15 to 20 Percent In 2020
November 27 2020 - 9:00AM
Business Wire
- EBIT margins fell to a historic low of 1.7 percent in the
first half of 2020
- Car sales in North America and Europe expected to reach
pre-crisis levels only after 2026
- Suppliers must balance restructuring and strategic
realignment
Electromobility, autonomous driving and digital transformation
of cars: Technological change continues to put pressure on margins
at automotive suppliers. The Covid-19 pandemic has further
intensified this trend. As a result, this year's global sales are
expected to slump by an average of 15 to 20 percent compared to
2019. Suppliers’ average EBIT margin fell to 1.7 percent in the
first half of 2020. The pandemic’s effect on automotive suppliers
is revealed in the "Global Automotive Supplier Study 2020", 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.
"Despite difficult underlying data, a brighter year-end is
emerging. Automotive suppliers are able to stabilize financially,
mainly thanks to the rapid recovery process in China," says Felix
Mogge, Partner at Roland Berger. "However, many suppliers lack the
capital for the necessary technological transformation following
the slump.”
Poor key figures affect creditworthiness
Overall, the coronavirus shock will affect the automotive
industry for a long time to come. The peak volume of global vehicle
sales that was reached in 2017 (94.3 million), is not expected to
be met again until 2026. In Europe and North America, it will take
even longer, while China and South America will recover more
quickly, according to the report.
Together with poor key financial indicators, these forecasts may
have a negative impact on the creditworthiness of automotive
suppliers. "In 2019 we already observed banks becoming more
restrictive in their credit financing," says Christof S�ndermann,
Managing Director at Lazard. "In recent months, many suppliers were
confronted with rating downgrades. This increased financial
pressure further."
Lessons from the post financial crisis era 2008/09
The current situation can be compared to the global financial
crisis in 2008 and 2009. In the period that followed, some
automotive suppliers benefited more than the average. "We
identified four general characteristics that were crucial to
success after the financial crisis," says Felix Mogge. "Suppliers
can use these to orient themselves and gain a better position in
the market based on clear strategic guidelines."
One characteristic that will distinguish the winners from the
losers of the coronavirus crisis in coming years is consistent
market and technology leadership in every business area. Another is
strategic coherence, which includes having a coherent product
portfolio that allows for the realization of synergies. The third
characteristic is the achievement of a critical company size to
ensure sufficient access to the capital markets. Finally, winners
will demonstrate consistent implementation of their strategic
decisions and a performance-driven corporate culture.
Balancing act between restructuring and strategic
realignment
Technological change and the effects of the Covid-19 pandemic
will continue to impact the margin performance of automotive
suppliers for the foreseeable future. "The challenges of the coming
years will structurally overwhelm many suppliers," predicts Felix
Mogge. "As a consequence, we will see greater consolidation in the
industry." In order to be among the winners in this environment,
automotive suppliers must strategically develop their business and
at the same time significantly reduce costs.
"An automotive supplier’s CEO and management team have to walk a
fine line: On the one hand, they have to consistently restructure
or exit their commodity activities, while on the other hand, they
must take risks with intelligent capital spending to develop new
areas for future profitable growth”, says Christof S�ndermann. "We
therefore expect to increasingly see strategic cooperations in
order to achieve relevant scale or to get access to new technology
more quickly."
You can download the study here:
https://www.lazard.com/perspective/global-automotive-supplier-study-2020/
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 250 Partners.
Lazard, one of the world's preeminent financial advisory and
asset management firms, operates from more than 40 cities across 25
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.
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Roland Berger: Tobias Esslinger Global Marketing &
Communications Tel.: +49 89 9230-8483 E-Mail:
Tobias.Esslinger@rolandberger.com www.rolandberger.com
Lazard: Katharina Gebsattel Kommunikationsberatung T +49 172 718
68 57 E Katharina.gebsattel@vub.de
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