The global automotive supplier industry is facing difficult times: In the first six months of 2019, vehicle production declined by 5% compared to the first half of 2018. For the full year 2019, an average EBIT margin of around 6% is expected, the lowest figure since 2012. These are the key findings of the new “Global Automotive Supplier Study 2019” (Download study here) from Roland Berger and Lazard. The study analyzed performance indicators of approximately 600 suppliers around the globe to assess the current state of the industry, as well as trends and challenges.
“The main drivers of the production decline are weak Chinese sales figures for passenger cars as well as a global economic slowdown. In addition, the market faces structural changes around the growing trend of electrified mobility”, explains Felix Mogge, Partner at Roland Berger. “International trade tensions and ongoing cost cutting programs at the OEMs add to these pressures.”
Overcapacities due to slowing growth in China
China has served as a growth engine for the global automotive industry in recent years. However, the trade conflict with the US has significantly changed market conditions. For example, automobile sales in China in the first half of 2019 decreased by double-digit percentage points compared to the same period a year earlier. “The growth forecasts had been positive and many suppliers built up additional capacities,” says Felix Mogge. “At some suppliers, 60 to 70 percent of new capacities remain unused.”
Access to capital more difficult
In this new environment, suppliers should ensure that they have sufficient long-term financial leeway. Access to capital could become more difficult given weak markets. “Many equity investors prefer sectors other than the cyclical automotive industry. At the same time, banks are becoming more restrictive with credit financing – which particularly affects smaller suppliers in product areas that will come under structural pressure in the future,” says Christof Söndermann, Managing Director at Lazard. In addition, the number of M&A transactions in the supplier sector is declining in 2019. Chinese companies in particular, which have been significant buyers of supplier companies in recent years, are much less active now.
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SOURCE: Roland Berger
