Automarket suppliers enjoy strong profitability, but uncertainties remain

15 August 2016 4 min. read
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The global automotive supplier market enjoyed EBIT margins of an average of 7.4% last year. The high margins were partly driven by a strong tire performance. While profitability is up, not all regions are performing equally, with particularly the NAFTA and Europe beating the average. The difference between high performers and low performers was found to be considerable, at average EBIT at 10% vs 6%.

The report by management consultancy Roland Berger and investment bank Lazard, titled ‘Global Automotive Supplier Study 2016: Being prepared for uncertainties’, explores the state of the global market for automotive suppliers.

Light vehicle production by volume

The growth in the production of new vehicles has shifted from South America, which has seen production fall by -8.3% annually since 2011 from 4.3 million units to 3 million, to China, where production was up 7.7% annually in the same period, increasing from 17.6 million units to 23.7 million. China is closely followed by the NAFTA region, which has seen production increase from 13.1 million units in 2011 to 17.5 million units last year. Globally, production was up 3.5%, with around 88.3 million units put together in 2015.

Key supplier performance indicators

The research finds that suppliers have, following the downturn in 2008 and 2009, managed to boost their growth figure significantly. In 2010 there was 21% year-on-year growth, which made up for the losses the previous year. Since then growth has been relatively steady, at around 7% CAGR between 2011 and 2014. Last year was a relatively slow year, with year-on-year growth of just 3%.The EBIT margin has been pushed up to almost 7.5% on the back of the aftermarket tire business, following robust upwards trend in the years since 2011. The market has also managed to improve slightly its return on capital employed, which stood at 13.5% in 2015.

"With profitability at record highs in 2015, international automotive suppliers are in good shape at first sight," says Felix Mogge, Partner at Roland Berger. "But besides shrinking revenue growth they will have to cope with growing market volatility across the globe and have to face revolutionary changes in technology as well as new mobility concepts in the near future,” he warns.

Key supplier performance by region 2007 vs 2015

The EBIT margin, in a more granular analysis, shows considerable bumps and troughs related to region. The NAFTA region, for instance, has managed to increase its EBIT significantly from 5.8% in 2007 to 8.2% in 2015 - the revenue increases for the region stood at 0.9% between 2007 and 2015. China has seen EBIT decrease slightly between 2007 and 2015, falling from 8% to 7.4% - revenues jumped 13.5% annually in the region in the same period. Europe, with revenue growth of 4.6% between 2007 and 2015, saw its EBIT margin increase from 6.5% to 8%. Only Korea and Japan are below the EBIT average, managing 6.7% and 6.3% respectively in 2015.

Key supplier performance indicators by product 2007 vs 2015

The supplier product with the most EBIT traction is tires, generating 11.2%, up from 6.3% in 2007 – mainly due to a strong aftermarket business and improvements to raw material costs. Chassis is the only segment to beat the average of 7.4%, up from 5.7% in 2007. Power-trains, on the other hand, are the only segment to lose EBIT ground since 2007, falling from 8.2% to 6.9%. Interior remains a low margin segment with slight improvement seeing it increase its EBIT from 4.6% to 5.8%.

Key performance indicators top vs bottom performers

According to the analysis, there is also considerable variation between low performing, and high performing, suppliers. Those in the top end have seen revenue more than double against the 2007 benchmark, while low performers were up a mere 5 points. For EBIT margins too, there is considerable disparity between top and bottom players. The top saw their EBIT margins fall to 4.1% in 2009, before hitting 10.7% in 2012 – last year it fell to around 10%. On the low end, an average of around 5.5% has held over the past number of years – with of 6% last year.