Strategies for profitable growth in the global ... - Roland Berger
Strategies for profitable growth in the global ... - Roland Berger
Strategies for profitable growth in the global ... - Roland Berger
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<strong>Strategies</strong> <strong>for</strong> <strong>profitable</strong> <strong>growth</strong> <strong>in</strong> <strong>the</strong> <strong>global</strong><br />
automotive supply <strong>in</strong>dustry<br />
A <strong>Roland</strong> <strong>Berger</strong> and Rothschild study (SHORT VERSION)<br />
July 2006<br />
MUC-81010-729-01-02-E 1
Key objectives of this study: Analyze trends <strong>in</strong> automotive supplier<br />
profitability and identify patterns of most successful companies<br />
Summary of study objectives and methodology<br />
STUDY OBJECTIVES<br />
• Analyze competitive environment<br />
of <strong>the</strong> <strong>global</strong> automotive<br />
supplier <strong>in</strong>dustry<br />
• Describe development of supplier<br />
profitability<br />
• Identify top and low per<strong>for</strong>mers<br />
• Understand drivers and patterns<br />
<strong>for</strong> susta<strong>in</strong>ed <strong>profitable</strong> <strong>growth</strong><br />
METHODOLOGY<br />
• Analysis of f<strong>in</strong>ancial and<br />
operational data of ca. 350 lead<strong>in</strong>g<br />
<strong>global</strong> automotive suppliers between<br />
2000 and 2005<br />
• Interviews with >100 supplier<br />
executives<br />
• Desk research<br />
• Interpretation of results based on<br />
<strong>Roland</strong> <strong>Berger</strong> and Rothschild<br />
experience<br />
MUC-81010-729-01-02-E<br />
2
Automotive suppliers are under pressure: price reductions and<br />
weak volumes are seen as <strong>the</strong> major challenges<br />
Supplier’s view on ma<strong>in</strong> challenges <strong>in</strong> 2006<br />
Pressure from OEMs to<br />
reduce price<br />
65%<br />
30%<br />
95%<br />
Change vs. 2005<br />
[% po<strong>in</strong>ts]<br />
+5<br />
Weak production volumes<br />
<strong>in</strong> North America<br />
27%<br />
38%<br />
65%<br />
+22<br />
Weak production volumes<br />
<strong>in</strong> Europe<br />
12%<br />
42%<br />
54%<br />
+24<br />
O<strong>the</strong>r material price<br />
<strong>in</strong>creases<br />
14%<br />
36%<br />
50%<br />
-3<br />
Res<strong>in</strong> price rises<br />
19%<br />
29%<br />
48%<br />
-8<br />
Chang<strong>in</strong>g market demands<br />
7%<br />
40%<br />
47%<br />
+14<br />
Steel price rises<br />
15%<br />
31%<br />
46%<br />
-9<br />
Pressure from OEMs to<br />
improve quality<br />
Pressure from OEM to<br />
<strong>in</strong>crease level of <strong>in</strong>novation<br />
Weak production volumes<br />
<strong>in</strong> Asia<br />
15%<br />
10%<br />
5% 17%<br />
24%<br />
29%<br />
22%<br />
34%<br />
44%<br />
Very important<br />
Important<br />
Source: <strong>Roland</strong> <strong>Berger</strong>/SupplierBus<strong>in</strong>ess.com survey December 2005 (Basis: 100 automotive Executives)<br />
+10<br />
+9<br />
+17<br />
MUC-81010-729-01-02-E<br />
3
However, <strong>the</strong> average supplier profitability significantly <strong>in</strong>creased<br />
over <strong>the</strong> past years. Suppliers even outper<strong>for</strong>med car manufacturers<br />
Profitability of automotive suppliers vs. OEMs 2000-2005<br />
ROCE [%] EBIT marg<strong>in</strong> [%]<br />
11.6<br />
11.3<br />
10.1<br />
9.3<br />
10.6 10.4<br />
Suppliers<br />
5.8<br />
6.2<br />
6.0<br />
6.1<br />
6.0<br />
Suppliers<br />
5.9<br />
8.4<br />
8.6<br />
8.9 9.1<br />
8.6<br />
OEMs<br />
7.9<br />
5.7<br />
5.2<br />
5.7 5.7<br />
5.2<br />
5.4<br />
OEMs<br />
2000 2001 2002 2003 2004 2005<br />
2000 2001 2002 2003 2004 2005<br />
Basis: Median of per<strong>for</strong>mance-rated suppliers; f<strong>in</strong>ancial per<strong>for</strong>mance of <strong>the</strong> 13 biggest OEMs (2005 FC <strong>for</strong> Nissan and Toyota)<br />
Source: <strong>Roland</strong> <strong>Berger</strong>/Rothschild Supplier Database 2006<br />
MUC-81010-729-01-02-E<br />
4
Profitability of suppliers headquartered <strong>in</strong> North America decl<strong>in</strong>ed.<br />
Western Europe stable at high level and Japan on <strong>the</strong> rise<br />
Profitability of automotive suppliers by region [ROCE %]<br />
0.0<br />
-3.6<br />
12.6 12.6<br />
12.9<br />
9.3<br />
Western Europe<br />
North America<br />
-6.8<br />
16.5<br />
9.7<br />
Ch<strong>in</strong>a<br />
+3.2<br />
11.3<br />
8.1<br />
Japan<br />
+0.5<br />
0.0<br />
14.4 14.4<br />
10.0 10.5<br />
Asia o<strong>the</strong>r 1)<br />
2000 2005<br />
1) Ma<strong>in</strong>ly South Korea suppliers<br />
Basis: Median of per<strong>for</strong>mance-rated suppliers<br />
RoW<br />
Source: <strong>Roland</strong> <strong>Berger</strong>/Rothschild Supplier Database 2006<br />
MUC-81010-729-01-02-E<br />
5
Medium-sized and large suppliers achieved a higher profitability <strong>in</strong><br />
2005 than both <strong>the</strong>ir small and very large competitors<br />
Profitability of automotive suppliers by company size, 2005 [ROCE %]<br />
Revenue<br />
[EUR m]<br />
10,000<br />
Change<br />
'05 vs. '00<br />
-1.6<br />
0.0<br />
+1.4 +3.2<br />
+4.0<br />
+0.6 0.7<br />
16.7<br />
Average<br />
11.3<br />
8.4<br />
9.5<br />
12.4<br />
13.1<br />
12.6<br />
11.1<br />
Basis: Median of per<strong>for</strong>mance-rated suppliers<br />
Source: <strong>Roland</strong> <strong>Berger</strong>/Rothschild Supplier Database 2006<br />
MUC-81010-729-01-02-E<br />
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We have identified a group of ~50 suppliers significantly outper<strong>for</strong>m<strong>in</strong>g<br />
<strong>the</strong> market <strong>in</strong> terms of revenue <strong>growth</strong> and profitability<br />
F<strong>in</strong>ancial per<strong>for</strong>mance by supplier 2000-2005<br />
Revenue <strong>growth</strong> 1) [CAGR %]<br />
ROCE Avg. 2000-2005 1) [%]<br />
ROCE 2005 [%]<br />
16.3<br />
17.3<br />
10.3<br />
10.4<br />
2.9x<br />
11.3<br />
3.1x<br />
7.0<br />
3.4x<br />
5.7<br />
5.5<br />
3.0<br />
Top<br />
per<strong>for</strong>mer<br />
Industry<br />
Low<br />
per<strong>for</strong>mer<br />
Top<br />
per<strong>for</strong>mer<br />
Industry<br />
Low<br />
per<strong>for</strong>mer<br />
Top<br />
per<strong>for</strong>mer<br />
Industry<br />
Low<br />
per<strong>for</strong>mer<br />
1) If 2000 or 2005 figures are not available, 2001 and 2004 figures are used respectively<br />
Basis: Median of per<strong>for</strong>mance-rated suppliers<br />
Source: <strong>Roland</strong> <strong>Berger</strong>/Rothschild Supplier Database 2006<br />
MUC-81010-729-01-02-E<br />
7
These “top per<strong>for</strong>mers” applied – on average – different strategies<br />
than <strong>the</strong>ir low per<strong>for</strong>m<strong>in</strong>g peers<br />
<strong>Strategies</strong> of top per<strong>for</strong>mers<br />
Revenue structure<br />
Operat<strong>in</strong>g cost<br />
Balance sheet structure<br />
Qualitative aspects<br />
1<br />
Focused product<br />
portfolio<br />
5<br />
Consequent use<br />
of low cost<br />
locations<br />
9<br />
Excellence <strong>in</strong><br />
work<strong>in</strong>g capital<br />
management<br />
11<br />
Stable<br />
management<br />
structures<br />
2<br />
Broad customer<br />
base<br />
6<br />
Selective R&D<br />
spend<strong>in</strong>g<br />
10<br />
F<strong>in</strong>ancial flexibility<br />
through reduced<br />
gear<strong>in</strong>g<br />
12<br />
Lean and customer<br />
focused<br />
organization<br />
3 Relatively low<br />
share of “Big 3”<br />
revenues<br />
7<br />
High value added<br />
per employee<br />
4<br />
Globally diversified<br />
revenue split<br />
8<br />
Above-average<br />
<strong>in</strong>vestment<br />
activities<br />
MUC-81010-729-01-02-E<br />
8
Authors of this study<br />
<strong>Roland</strong> <strong>Berger</strong> Strategy Consultants<br />
Marcus Berret<br />
Partner<br />
+49 89 9230-8737<br />
marcus_berret@de.rolandberger.com<br />
Rothschild<br />
Thomas Kästele<br />
Director<br />
+49 69 2998-8435<br />
thomas.kaestele@rothschild.de<br />
Ralf Kalmbach<br />
Partner<br />
+49 89 9230-8669<br />
ralf_kalmbach@de.rolandberger.com<br />
Michael Bälz<br />
Director<br />
+49 69 2998-8446<br />
michael.baelz@rothschild.de<br />
Felix Mogge<br />
Senior Consultant<br />
+49 89 9230-8346<br />
felix_mogge@de.rolandberger.com<br />
Hannes Kaltenbrunner<br />
Analyst<br />
+49 69 2998-8493<br />
hannes.kaltenbrunner@rothschild.de<br />
Victor Silveira Camargos<br />
Consultant<br />
+49 89 9230-8469<br />
victor_camargos@de.rolandberger.com<br />
MUC-81010-729-01-02-E<br />
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