Gains come with familiar challenges

The global supplier market is booming, with the average EBIT margin in the industry set to reach an all-time high of about 7.5 percent 2014. The business of powertrain and tire suppliers is more profitable than most, with margins of 8% and more. But in the wake of very good developments, the pace of market growth in the supplier industry is expected to slacken in the coming two years, and the level of uncertainty in international markets is expected to rise even further. These are just some of the results of our study into the 2014 state of the global automotive supplier industry, conducted in collaboration with Lazard.

The factors behind these changes are not fundamentally new for the industry, however the magnitude of their impact is increasing significantly. We are seeing a continued shift of end cus-tomer demand to Asia, an ongoing relocation of engineering and production, market access and technology-driven M&A, downstream expansion of raw materials providers, and volatility in the currency and capital markets. In this period of volatility, long-trusted OEM relationships may end up being sacrificed in the battle for new global programs. Still, the global market for vehicle components is anticipated to grow to around EUR 800 billion in the period through 2020—which equates to a EUR 125 billion increase in market volume.

• Keeping the flexibility to adjust to an increasingly uncertain and volatile market will be the key to riding this next wave of efficiency gains. Suppliers need to monitor market developments and signals for a possible downturn as well as closely managing investment decisions and one-time costs. They will also need review their strategies, making sure to maintain and refine their unique selling propositions with clear technological or process differentiations, focus on product segments with above-average margin potential, balance regional structures, and actively lever-age M&A opportunities. With the right combination of short and long-term strategies in place, suppliers can prepare for the industry shift—and benefit.