Automotive Supplier Profitability Plummets - 'High Performers' Widen The Performance Gap, Reports The Automotive Consulting Group, Inc.

DETROIT, June 27 -- Median automotive supplier profitability, in decline since 1995, plummeted 54.4%, from 6.4% in 2000 to 2.9% in 2001 according to a study conducted by The Automotive Consulting Group, Inc. (ACG), Ann Arbor, Mich.

"The last decade has not been a good period for the vast majority of automotive suppliers," said Dennis Virag, president for the Ann Arbor-based research and consulting firm. "Revenue on average has more than doubled but margins have been cut in half. To demonstrate how drastically profitability has declined, we only need to look at the 5.8% level of profitability achieved in the last recession and the 2.9% level we are at today."

The study, a benchmark of the health of the automotive supplier industry, is based on 43 publicly traded automotive suppliers headquartered in North America in all vehicle areas and at all levels -- component, subsystem and system suppliers. What makes the study truly unique is the fact that it is a time series analysis, rather than a one-year snapshot. "By analyzing performance over time, we can better understand where we were and where we are headed," stated Hiro Mori, manager and lead analyst on the study.

While most suppliers suffered with deteriorating business performance, a small group of companies, identified as "High Performers" by ACG, have actually increased their performance from 1992 to 2001. "The median supplier has seen their profitability fall by 50%, while 'High Performers' actually increased their margins by more than 75%," said Mori.

"'High Performing' suppliers recognized the need to manage costs, and to reduce Costs of Goods Sold (COGS) faster than their customers demand price reductions," said Virag. "By focusing on those key processes that drive COGS, they are able to achieve superior performance, measured in terms of profitability, COGS and Return on Total Assets."

This is reflected in the fact that "High Performers" have managed to reduce their COGS year-over-year from 74.0% in 1992 to 66.6% in 2001. Conversely, the industry median has increased from 77.6% to 79.2% while "Low Performers" saw COGS soar from 79.7% to 85.9%. "Despite the massive cost reduction efforts in the industry, most suppliers still have not mastered the ability to control costs," said Mori.

"The study is an indicator of things to come," stated Mori. "Each year that we do the study, we find that several low performers from the previous year are either bankrupt or no longer in business."

Virag said the difference between the groups is "High Performers" are process "Masters." They optimize and continuously improve those business processes that drive business performance. They set lofty goals and they achieve them, then they set the bar even higher. They leverage internal and external resources, and they establish a philosophy for change.

The Automotive Consulting Group is recognized as a leading management consulting firm serving the global automotive industry. Specializing in strategic market positioning, technology planning and business performance improvement, the company helps clients through a combination of industry analysis, project consulting and management support.