Global automotive supplier study by Roland Berger and Lazard: Profitability of global automotive supplier industry exceeds pre-crisis levels

• EBIT margin of automotive suppliers grew globally to over 6% in 2010
• Chinese, Korean and European suppliers show the greatest profitability
• Firms enjoy the biggest profit margins in the areas of chassis, exterior and powertrain
• Market cooldown in China, stagnating sales in mature markets and higher raw materials prices will put the brakes on future returns
• Suppliers need a stronger focus on innovative solutions

The worldwide automotive supplier industry is currently booming with average profit margins of 6.2% – higher even than their pre-crisis levels. In 2010, European firms enjoyed much bigger average EBIT margins (6.9%) than their North American and Japanese competitors. The most profitable sectors for suppliers are chassis, exterior and powertrain. Industry prospects remain positive for the coming years, although slightly more subdued than at present. The cooldown in the Chinese market, stagnating vehicle sales in mature markets and higher raw materials prices will push global profitability in the industry down below 6% again. These are the findings of "Global Automotive Supplier Study 2011", a joint study by Roland Berger and Lazard.

"Profitability of the worldwide automotive supply industry reached a record high in 2010 – just one year after the record low in 2009," says Felix Mogge of Roland Berger Strategy Consultants. The global average EBIT margin shot up from just 1.6% in 2009 to 6.2% in 2010. "Key driver of this positive development was the very quick recovery of worldwide car production, especially in China and in other emerging markets," says Dr. Eric Fellhauer, Managing Director at Lazard. The comprehensive cost reduction programs carried out by suppliers in the wake of the crisis in 2009 also played an important role in the quick rebound of the industry.

Chinese, Korean and European suppliers are leading the race

Profitability varies widely by region. With an average EBIT margin of almost 7%, European suppliers clearly outperformed their competitors in Japan (5.6%) and North America (4.3%). However, the benchmarks are set by Chinese and Korean suppliers, which partly achieved double-digit EBIT margins.

Significant differences exist between sectors. Chassis-focused suppliers are the most profitable with an average EBIT margin of almost 8%, followed by exterior, powertrain, and tire suppliers. By contrast, suppliers focused on interior and electric/infotainment trail behind with EBIT margins of around just 5%. "The crisis has also further widened the gap between profitable and less profitable automotive suppliers," says Dr. Eric Fellhauer of Lazard. "In 2010, the top quarter of the market achieved profitability that was more than five times higher than that of the bottom quarter."

Outlook: Stable business, but slightly reduced profitability

The revenue outlook for 2011 is relatively stable for automotive suppliers worldwide. However, profitability will be down slightly due to the slight cooling the Chinese car market since early 2011, stagnating sales in mature markets given the current uncertainties on the financial markets, and higher raw materials prices. Also, car manufacturers' price pressure is playing a larger role again. "In 2008 and 2009, OEMs put less price pressure on their suppliers because supply volumes were much lower – and because they wanted to protect their supply base," says Felix Mogge of Roland Berger. "But since mid-2010 we are seeing extremely high price pressure on suppliers again."

Suppliers need a stronger focus on innovation

Besides maintaining current profitability and expanding global delivery capability, suppliers must focus even more on product innovation in the future. "Only suppliers that can differentiate themselves from the competition via superior products will be able to sustainably achieve EBIT margins of at least 6%. Others will increasingly be pushed into the commodity area, where they can achieve maximum profits of 3%," says Mogge.