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An industry in cruise control – What's next for US suppliers?

2014

Automotive suppliers in the US have successfully recovered from the crisis. The industry is once again operating with profitable margins, generating cash and disclosing healthy balance sheets. Financial markets are impressed with the performance of US suppliers and market capitalization is significantly exceeding pre-crisis levels. But can this trend be sustained in the future? What decisions need to be made now in order to maintain this positive stock market development?

"What we are seeing is that companies are engaged in short-term window dressing, rather than sustainable strategic investments," says Thomas F. Wendt, Partner in the North American Automotive Practice at Roland Berger Strategy Consultants. "US stock performance has been aided by financial engineering such as repurchases and dividends. This situation is putting suppliers in a tough situation, especially since markets are not allowing for the kind of continuous profitable growth that was seen in recent years."

In our study "An industry in cruise control – What's next for US suppliers?", Roland Berger experts show that the road ahead is getting bumpier. North American light vehicle production is expected to level off, meaning slower growth than post-recession. In major global and BRIC markets, production will slow significantly and no real growth driver is in sight. With steep recovery slowing down, the market itself does not support continuous top-quartile growth anymore.

"At the same time, the environment is becoming increasingly complex and uncertainty is growing," says Wendt. "We will see a record number of new vehicle launches in the US in 2014 and 2015, creating higher complexity also on the supplier side." With limited financial resources, suppliers have to plan ahead and prepare for a highly uncertain future. The study uses the electric vehicle market and the widely differing volume forecasts as an example for the uncertainty that suppliers are facing.

In addition, the macroeconomic outlook remains very volatile and external shocks are more frequent. The Crimea crisis is just one example of how such shocks can suddenly happen. In Brazil, which has experienced growing vehicle demand even during the global recession, negative growth is expected for 2014. "Tapering in the US puts the spotlight back on Brazil's currency volatility," says Wendt.

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