The Automotive industry has experienced the most turbulent period in its history over the last several years, with 2008-2009 seeing extremely tight credit markets, declining consumer confidence and a precipitous decline in sales leading to significant financial turmoil and increased government involvement. (As an example, global light vehicle demand in 2009 is estimated to have declined by more than 15% over the prior year, and 2010 global vehicle sales are projected to show low single digit increases.)
Given the highly concentrated, capital-intensive nature of the industry (the top 10 global automakers account for more than 75% of worldwide production), the industry will still continue to be dominated by global automakers and suppliers. However, the turbulence in the major automakers’ performance in recent years has had a cascading impact on auto parts suppliers as well as the overall supply chain, leaving dependent suppliers with low pricing power, shrinking margins, increasingly high leverage levels and increased competition from low cost countries. Certainly, many small, tier II suppliers went bankrupt, closed plants or cut production globally. At the same time, excess production capacity remains, while continued development of new products in various segments will limit manufacturers’ ability to increase prices. In addition, higher fuel prices and policies surrounding environmental concerns are expected to continue to generate demand for fuel-efficient and ‘green’ vehicles over the coming years.
The implications are clear. While various governments have stepped in to bolster the industry and inject funds to support many organizations, fundamental changes will be required on the part of many of the key players in order to survive. These changes will have to come from a host of areas, ranging from a shift in strategic thinking (evaluating emerging strategic platforms and products to opening up to broader, newer markets including India and China), through to core operational changes (including supply chain reconfigurations, platform consolidation, low cost country sourcing, supplier consolidation, reducing the number of technological platforms and beyond). Undoubtedly, the successful organizations of the future will be those firms that emerge from the current crisis with leaner, meaner and more capable than ever before of competing, growing and winning in the global marketplace.
At The Smart Cube, we work with these clients on a daily basis to provide the right research and analytic support, including Strategy and M&A insights, Marketing strategies and development perspectives through to Procurement and Supply Chain support to identify supply chain shifts and optimize the operational and risk profile of the their value chains. To learn more about our offerings in automotive space, please contact us.