The automotive industry recovered quickly after the historical crisis. Global sales are almost back to pre-crisis levels. Profitability reached new heights in 2010, with a return on sales of more than six percent. The situation has improved enormously for European and North American components suppliers. This rapid recovery is mainly driven by the booming automotive markets in China, Brazil and India. Nonetheless, suppliers still face considerable challenges.
After the automakers gave massive financial support to their suppliers during the crisis, pricing pressure increased considerably again once the market began to recover. Alongside rising factor costs, most significantly for raw materials, this will burden the profit margins of suppliers heavily in the years to come. At the same time, the collective pressure on the supplier base has made investments into innovation more and more difficult, resulting in a growing group of structurally weak suppliers. Profitability and financial stability are below average at around one-fifth of all suppliers worldwide. The next crisis will be particularly tough for these tail-enders.
Although about 350 component suppliers around the world filed for bankruptcy during the crisis, the wave of subsequent consolidation has turned out to be much smaller than expected. In particular, process-oriented and traditionally low-profit segments such as light metal casting and metal processing still have considerable room for consolidation. Industry consolidation is currently spurred by the increased interest of Chinese investors, who are taking over weak but technologically leading suppliers in Europe.
The crisis dramatically accelerated the structural shift toward growth markets in Asia that had already started in the automotive industry. Nearly 20 percent of the sales of a typical European supplier now depend on developments in the Chinese market. This means that doing business in China is becoming more challenging as well: the future volume growth of the market is subject to increasingly high levels of insecurity, manufacturers are putting the pressure on to localize and local Chinese competitors are successively expanding their expertise in fields with strong R&D intensity and vertical integration.
Changes in the product segments are a further challenge for suppliers. The global market for original equipment will grow by more than EUR 200 billion within the next decade – although this growth along with the accompanying innovation and investment will be distributed very unevenly across the individual segments. This development is mainly driven by stricter consumption, emission and safety regulations, as well as rising customer demands on comfort and the cost of individual mobility.
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