North American Firms Set Pace for World's Vehicle Supplier Industry, Says New A.T. Kearney Study
PLANO, Texas, Aug. 6, 2003 -- Despite the prevalence of turbulent conditions in the marketplace and minimal respect from Wall Street, the top North American automotive supplier companies improved financial performance and strengthened their position in 2002. Fiscal stability, high content product strategies and solid relationships with the automakers are among the factors characterizing this elite group of performers in the vehicle supplier industry.
This is according to A.T. Kearney's seventh annual study of the vehicle supply industry released today. The study, which was conducted by the international consulting firm's automotive industry practice, examined and analyzed the financial performance of 103 companies worldwide, including 65 suppliers, 18 automakers, 11 aftermarket retailers and nine retail auto dealer groups.
The A.T. Kearney study showed that the cash flow return on invested capital (CFRIC) for North American suppliers averaged 9.7 percent in 2002, up from 8.6 percent the previous year for a one-year improvement of almost 13 percent.
This outpaced the European suppliers, who posted a 2002 CFRIC of 9.3 percent and the Japanese supplier segment which registered a 6.3 percent CFRIC for the same period.
CFRIC is a comprehensive indicator of overall financial performance. It is based on the amount of cash generated relative to the capital invested to generate that cash flow.
"The top-ranked firms in our study focus on high content products, innovation backed by substantial R & D expenditures, and seek growth segments while managing costs and balance sheet items," said Bill Windle, vice president and global leader of A.T. Kearney's automotive consulting group.
According to the study, the top ten global automotive suppliers in 2002, based on CFRIC are:
Company CFRIC
1. American Axle 16.9 percent
2. Lear 15.3 percent
3. Johnson Controls 14.7 percent
4. Superior Industries 14.5 percent
5. Stoneridge 13.8 percent
6. Linamar 13.1 percent
7. Tomkins 12.8 percent
8. Magna 12.6 percent
9. Wagon 12.4 percent
10. Brembo 12.0 percent
"Despite the intense competition for business, the high costs of developing new technologies and endless downward pressure on prices so characteristic of the North American market, the top performers in this segment are doing well -- in the world's toughest, most competitive environment," said Windle.
Additional findings from A.T. Kearney's seventh annual vehicle supplier study include:
-- China will become a key locale for low cost manufacturing operations
over the next decade. Many suppliers have or are planning
installations in China to leverage the labor cost differential
and gain proximity to the growing Chinese market. (By 2015, it is
estimated that half of the world's middle income consumers -- and
potential new car and truck buyers -- will live in China.)
-- India is playing an increasingly integral role in the rapid
globalization of the business with its excellent capability to provide
a full range of business processes (engineering, accounting, R&D,
customer service, data processing, etc.) for vehicle suppliers. Its
highly qualified, college-educated workforce can perform these jobs at
lower wages, resulting in billions of dollars of savings.
-- Asian auto suppliers continue to outspend North American and European
companies in both R & D and capital improvements. Windle notes that
different shareholder expectations in this region and deep
relationships with growing OEMs (Toyota, Honda, Hyundai) are key
factors enabling these companies to spend more than their Western
counterparts.
-- The CFRIC performance of suppliers in the interior and driveline
segments of the industry lead all other lines of business.
-- Onboard electronics components and systems, including powertrain,
safety-related technology and telematic systems, will show the highest
growth rate among all vehicle subsystems.
Windle added that the predominance of cash incentives in the North American new vehicle market, while stimulating vehicle production, often results in extremely slim profit margins for the automakers. Accordingly, increased pressure on the suppliers of parts and systems resulted. In addition, the domestic automakers, have additional challenges, driven largely by significant pension responsibilities, spiraling healthcare coverage expenses and excess production capacity.
"Everybody understands that the vehicle supply industry isn't for the weak hearted. It will continue to face tough challenges in the coming years," Windle said. "But, it's not all gloom and doom. New product investments, a fine tuned product portfolio and embracing growing OEMs and geographical segments will allow suppliers to grow and prosper."
About A.T. KEARNEY
A.T. Kearney (www.atkearney.com) is one of the world's largest management consulting firms. With a global presence that includes more than 60 offices in 37 countries, spanning major and emerging markets, A.T. Kearney provides strategic, operational, organizational and technology consulting and executive search services to the world's leading companies. A.T. Kearney is the high-value management consulting subsidiary of global services leader EDS.
About EDS
EDS, the world's largest independent information technology services company, provides strategy, implementation, business transformation and operational solutions for clients managing the business and technology complexities of the digital economy. EDS brings together the world's best technologies to address critical client business imperatives. It helps clients eliminate boundaries, collaborate in new ways, establish their customers' trust and continuously seek improvement. EDS, with its management-consulting subsidiary, A.T. Kearney, serves the world's leading companies and governments in 60 countries. EDS reported revenues of $21.5 billion in 2002. The company's stock is traded on the New York Stock Exchange and the London Stock Exchange. Learn more at www.eds.com.