Increasing Challenges for Automotive Suppliers as Global Vehicle Production Declines and Margin Pressure Grows
Sales decline in
- 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 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
Overcapacities due to slowing growth in
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 Söndermann, Managing Director at
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 Söndermann at
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"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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