Automotive Suppliers Must Accelerate Toward "Oligopoly" Not Broad M&A Strategy, Suggests New Accenture Supplier Index
DETROIT--Sept. 11, 2001--The rash of automotive supplier mega-mergers and acquisitions during the last three years has failed to help these companies achieve their goals for increased margins, according to the Accenture Global Supplier Index (GSI).Now, as the frenzy of larger M&A deals has subsided - from a global peak of US $94 billion in 1998 to $55 billion in 2000 - suppliers must make smarter deals faster and consolidate around their leading segments, such as interiors or powertrain.
The Accenture GSI, which measures the health and performance of 20 large, publicly traded companies, provides insights into the current challenges of the auto supplier industry. To reflect the continuing globalization of the industry, Accenture has expanded the 2001 Supplier Index - the third since its inception - to include global companies, rather than focusing solely on North American companies.
The GSI, which is calculated by totaling three, equally weighted operating metrics for the 20 suppliers, includes a rolling four-quarter average growth rate, return on assets (ROA) and return on sales (ROS) indexed to 1994. The most recent findings include the following:
| -- | Average revenue growth declined sharply - from 22.1 percent to five percent - largely due to low production volumes. |
| -- | Operating return on sales slipped over the past four years - from 6.7 percent to 5.9 percent. |
| -- | Operating return on assets declined 18 percent since 1994. |
"The trend of the Global Supplier Index indicates the industry is caught in an unstable environment - or value squeeze - created by the lowest car prices in two decades, increasing demands from OEMs to lower prices and pressure on suppliers to assume more capital risk. In the future, we expect to see only two or three suppliers survive within each industry segment," said Randy Barba, partner in the Accenture Automotive industry group.
TOP PERFORMERS
GKN and Faurecia in Europe and Tower in North America top the 2001 Global Supplier Index.
-- GKN's strong revenue growth was supported by its acquisitions
and alliances that offered the company broader customer and
geographic reach. The company also grew by investing in
research and development. In addition, better than average
cost efficiencies helped them leverage higher volumes from
OEMs.
-- Faurecia's revenue growth in 1999 and 2000 was due primarily
to its acquisition of AP Auto and Sommer Allibert - two deals
that should provide the company with a springboard for growth
in the North American seating, exhaust system and cockpit
segments. The company will, however, need to improve its ROA
and ROS, which are below average as a result of this growth.
-- Tower's revenue growth, derived primarily through M&A, jumped
from $83 million in annual revenue in 1992 to $2.53 billion in
2000. While this growth has slowed steadily since its high
point in 1997, the company has efficiently integrated acquired
companies into its operations and quickly realized synergies.
"Our Global Supplier Index suggests that suppliers have an opportunity to accelerate their M&A synergies and reverse the decline in ROA, but a turnaround won't be easy," said Barba. "Companies must take three key steps. First, they must focus on achieving operating excellence around core capabilities. Second, they must outsource non-core capabilities. Finally, they must concentrate on acquisitions and divestitures to achieve market dominance. The companies that implement these changes will emerge as the industry leaders."
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