Strategies for profitable growth in the global ... - Roland Berger

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