In the Driver's Seat: Outsourcing of Vehicle Interior Modules and Systems Gains Ground in Europe

LONDON, February 15 -- Following its success in North America, the concept of outsourcing modules is rapidly gaining popularity in the European automotive industry. Vehicle manufacturers (VMs) in Europe are fast realising the many advantages of outsourcing interior modules to a new breed of suppliers termed Tier 1 suppliers.

With the development and manufacturing of interior modules contracted to these suppliers, VMs are free to install additional assembly lines for variants, and thereby, focus on their core competencies.

"Interior modules and systems are increasingly being outsourced in the European market, with cockpit modules and seating systems leading the way," comments Frost & Sullivan (http://transportation.frost.com) Programme Manager Mr. Anil Valsan. "VMs are going the modular outsourcing way due to the combined effect of highly complex modules involving multiple components and the greater flexibility of assembly operations, since suppliers deliver modules on a just-in-time basis."

New analysis from Frost & Sullivan estimates that the European market for interior modules and systems generated approximately 23.7 billion euros in 2003 and is expected to exceed 56.2 billion euros in 2012. The overall market is projected to grow at a compound annual growth rate (CAGR) of 10.1 per cent between 2003 and 2012.

Vehicle manufacturers' focus on offering a greater number of model variants has led to a better product mix, which in turn, has helped drive modularisation. VMs are now exploring the possibility of applying modularisation strategies in the previously untouched segments of engines and chassis. They are also evaluating the niche vehicle segment, which presents good opportunities due to the strong value additions being offered by suppliers.

Indeed, these value additions - offered by suppliers because of pressure from VMs to innovate products - have been instrumental in retaining high quality standards in interior modules and systems. The introduction of features such as overhead information displays, music and entertainment modules, storage bin modules and sophisticated sunroof and panorama roof systems also contributes greatly to revenue growth.

Currently, seating systems generate over 67.6 per cent of total market revenue. However, by 2012, cockpit modules are expected to displace seating systems as the highest revenue generating products. Outsourcing of both seating systems and cockpit modules is expected to remain high, with almost all major European VMs taking advantage of the benefits of this strategy.

Revenues of overhead systems - which generated more than 3.1 billion euros in 2003 - are expected to more than double by 2012. Unit shipments of these systems are expected to increase considerably - by almost four times - over the same period.

Among carpet acoustics and cargo management systems, the focus is on customisation in keeping with customer demand for a certain noise vibration harshness (NVH) characteristic. Suppliers are now offering lightweight thermal structures coupled with NVH characteristics applicable to specific areas within the vehicle.

"As synergies develop between carpet acoustic systems and other interior modules such as seating and overhead systems, suppliers are likely to show greater interest in putting together complete interior solutions with integrated acoustic offerings in the form of seat fabrics, headliners and inner dashboard insulation," remarks Mr. Kaushik Madhavan, a Research Analyst with Frost & Sullivan. "This is set to become a significant trend in the European automotive industry, as an increasing number of Tier 1 suppliers undertake the co-ordination of sourcing of all the individual components, modules and their subsequent integration."

Given the growing number of individual components involved in interior modules, suppliers that are able to integrate more related components within a module or system are expected to win increased contracts from vehicle manufacturers on account of offering greater value for money. Integration of electronics into vehicle interiors is also emerging as a promising area for suppliers, although currently it is the domain of VMs.

"With end customers demanding increased levels of motorisation and electronics integration, suppliers have the opportunity to impress VMs with electronics that are compatible with the specific electronic system architecture adopted by the respective manufacturers," concludes Mr. Madhavan.

If you are interested in a summary of this research service providing an introduction to the Strategic Analysis of the Market for Interior Modules and Systems in Europe, please send an email to Magdalena Oberland, Corporate Communications at magdalena.oberland@frost.com with the following information: full name, company name, title, country, contact telephone number, email. Upon receipt of the above information, the summary will be emailed to you.

Title: Strategic Analysis of the Market for Interior Modules and Systems in Europe

Code: B397

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