3 Apr 2006
Tony Lewin | Automotive News Europe
Supplier trends
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Brussels -- Despite the buzz about tough conditions and the high-profile crises of some North American competitors, many European-based suppliers are thriving.
Europeans are doing better because they are less affected than North American partsmakers by the downward price pressures and falling volumes of the US operations of Ford and General Motors.
But they also are succeeding because they are choosing high-margin specialties, developing proprietary technology and refusing to bid on new business that will not profitable.
"A lot of the problems stem from suppliers simply chasing production and chasing contracts," Antonio Ferreira, component analyst at London consultants CSM Worldwide, told Automotive News Europe. "Sometimes it doesn't make sense at all."
Increasingly in Europe, many suppliers seek high-profit contracts rather than high-volume ones.
"The market is definitely changing," Ferreira said. "Companies that were fourth or fifth in the [sales] rankings are now rising toward the top, that's purely on volume. But when you look at profitability, the top three are slowing down and choosing the contracts they want. Top suppliers are realizing they have been doing something wrong and are stepping back a bit."
Electronic content key
Analysis of the latest available company performance figures shows a contrast between suppliers of simpler commodity products and those making sophisticated, higher technology parts.
"The traditional way to pursue margin is to go for growth areas -- and electronics is the growth area," said Paul McCarthy, the European head of the PricewaterhouseCoopers Automotive Institute.
In both growth and operating margin, companies focusing on electrical and electronic systems are edging ahead of competitors who place less emphasis on advanced technologies. Bosch, Siemens VDO Automotive and Swedish safety systems provider Autoliv all have margins of six percent or more. But Faurecia, which produces mainly seats, interiors and exhaust systems, struggles to achieve 2.5 percent.
Two tyre makers provide another telling contrast. Continental, which diversified into electronics and chassis systems through acquisitions, is growing at almost 10 percent and earns 4.1 percent on sales. French rival Michelin is the world leader in tyres but produces little else and its 2005 margin was below 1 percent.
The Autoliv approach
Autoliv was the first European company that Ford named as a key supplier. It earns a hefty 8.3 percent on sales. It led in moving production to low-cost countries.
"We're not so exposed to the problems in the US," said Autoliv spokesman Mats Oed-man. "In this industry we will always have to accept lower prices, but the price declines are not as steep as before."
Autoliv expects 2006 sales to be flat but margins to improve.
Analyst McCarthy said the suppliers getting the best margins "solve a problem for the manufacturer."
He said: "Suppliers can gain pricing power in two ways: offering features that consumers desire and will pay more for -- these increasingly tend to be electronic -- or by solving a regulatory problem such as impact safety or emissions."
From Automotive News (A Crain publication)
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