The 2006 profit-per-vehicle gap between the US domestic three automakers and the top three Japanese automakers was $US3,814 (including special writeoffs), a 32% increase over 2005, according to financial advisory firm Stout Risius Ross (SRR).
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Laurie Harbour-Felax, managing director, operational strategy & performance improvement group, SRR, said the key factor contributing to this growing gap is lack of ‘commonisation’.
Although the domestic OEMs are making strides in global parts and platform/architecture consolidation, additional efforts in product development and engineering can achieve significant cost reductions while improving quality and efficiency. Additional benefits from commonisation are improved supplier relationships and purchasing, manufacturing and engineering efficiencies.
SRR said market share loss trends indicate domestic OEM vehicle designs are not meeting today’s consumer expectations while quality perception of domestic brands continues to be poor. July vehicle sales demonstrate this critical factor, as it was the first time in history that the foreign automakers’ market share in the US was above 50%.
Other barriers facing automakers include the fluctuating US economy, increased raw material costs and the impact of foreign currency.
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By GlobalDataAmong the Domestic Three, General Motors has made the most significant strides in terms of improving profit per vehicle, SSR said. Several factors are contributing to this, but the two primary reasons are the introduction of new vehicle designs that consumers enjoy and significant cost reductions in the areas of purchasing, product engineering and process engineering through their transformation plan.
Additionally GM is diversifying outside North America and focusing on global profit per vehicle.
“GM continues to improve in the key areas that will allow them to be successful,” said Harbour-Felax. “However, in addition to the impact these factors have on the OEMs, they also play a role in supplier community transformation. Suppliers must act now before they become victims of unavoidable industry change.”
In recent years, bankruptcy has become common throughout the supplier industry with more than 30 bankruptcies of major automotive suppliers since 1999 and many other smaller companies facing some form of liquidity crisis. Merger and acquisition activity within the automotive community has increased approximately 250% among announced transactions between 2001 and 2006. There are a number of outside pressures that influence this consolidation, including domestic overcapacity, low-cost country opportunities, OEM purchasing shifts, interest of foreign buyers, commonising components and the OEM’s shift towards preferred suppliers.
“These pressures will continue to impact consolidation and challenge suppliers as they evaluate their businesses and make critical decisions that impact their companies,” said Harbour-Felax. “Ultimately, however, supplier success will be dictated by collaboration and speed of execution.”
