Key automotive supplier survival strategies for the next decade include diversifying the customer base for revenue growth, increasing revenues through higher value-added products, implementing a low-cost manufacturing footprint and developing effective material cost management, according to Roland Berger Strategy Consultants.
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“Suppliers must adapt to a rapidly changing environment and need to look beyond the North American market,” said Erkut Uludag, partner at the US-based global strategy consulting firm.
“It’s no secret that the North American market is stagnant, whereas the global automotive market is growing. Suppliers will need to rethink their business strategies to be successful.”
Passenger car and truck production in North America is expected to grow by only 0.8% per year, rising from about 15.8m units per year in 2004 to 16.9m units by 2012, he said.
In the same time, the estimated growth rate will be 1.6% in Japan and Korea, rising from 13m to 14.8m units; 1.9% in Europe, increasing from 20m to 23.3m units; 4.7% in South America, from 2.5m to 3.6m units; and 8.6% in China, from 4.7m to 9.1m units.
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By GlobalDataAs traditional North American original equipment manufacturers (OEMs) lose market share, supplier bankruptcies and crippling legacy labour costs will have an important impact on the future performance of the supplier industry. In the midst of these shifts, OEMs also are requiring their suppliers to assume more engineering and design responsibilities.
“To cope, smart suppliers are implementing survival strategies,” Uludag said. “Some have done well in penetrating transplant OEMs through acquisitions, joint ventures, low-cost manufacturing locations, growth through commonality and organic self-development.”
Key supplier success factors include a global presence – especially in Japan – and leading-edge technology. Trust and communication between suppliers and OEMs also are critical along with continuous improvement in costs and quality, flexible and lean manufacturing capabilities, early involvement in product development and a strong reputation.
“Overall, value-added content for suppliers will increase globally, presenting growth opportunities,” Uludag noted. “Key success factors for suppliers to increase their value-added potential include innovation, supply of systems instead of components and early involvement in product development.”
In 2002, auto suppliers provided 65% (about $500bn) of value-added content for more than 57m new vehicles produced globally. OEMs, by contrast, provided only 35%, or $US274bn, of the value-added content.
By 2015, Roland Berger estimates that the supplier share of value-added content will increase to 77% ($840bn) for the 76m new vehicles that will be produced. The OEM share is expected to dip to 23% or $244 bn.
A solid manufacturing footprint strategy also is critical to maintaining a competitive cost structure, especially in the face of rising wages in the United States – 2.3% last year.
At one end of the global wage scale is Germany, with a total effective labour cost of $43.90 per hour, which includes $33 for hourly wages, $8 for benefits and $2.90 for liability costs. The US is second with a total labour cost of $33.60 per hour, including $22.50 for wages, $4.60 for benefits and $6.50 for liabilities. France follows closely with $31.70 in total labour costs.
The countries in the next tier of total labour costs per hour are Japan at $23.90, Canada at $23.80 and the United Kingdom at $23.50.
Lower cost countries with negligible benefits and labour charges include South Korea at $11.20 of total labour costs per hour, followed by Taiwan at $5.90, Mexico at $3.20 and China at $1.30.
“Auto suppliers should focus on managing their material costs by identifying volatile and critical raw materials – such as steel, aluminium, plastics, resins and magnesium,” Uludag said. “Suppliers need to provide cost transparency to customers and provide raw material costs to them. This might include indexing raw material costs to prices for periodic price/cost adjustments.”
