Automotive Supplier Viewpoint
Despite current challenges, the automotive supplier industry has remained an attractive, robust sector for the last two decades. During that timeframe, it has enjoyed three significant growth periods with average EBITDA margins of 10% to 11%. It has also been remarkably resilient, swiftly bouncing back from two global crises.
While performance varies by individual segment, the overall trend is sustained profitability. In the past 20 years, average EBITDA has risen by one percentage point. Meanwhile, operating cash flows have reached an all-time high. Operating cash flow has even exceeded profits in times of crisis, due to delayed investments, stringent cost management, and support from government subsidies and original equipment manufacturers (OEMs).
Examining the industry’s trajectory demonstrates its ability to adapt and thrive—but also exposes its vulnerabilities. There’s a strong correlation between production volumes and margin performance. The industry’s high fixed costs and late breakeven points make it particularly sensitive to volume fluctuations. For instance, during the 2007–2009 financial crisis, declining demand led to a 15% drop in car production, which erased over a third of supplier industry profitability—and even more in nominal profits. Similarly, the pandemic-induced supply crisis in 2018–2020 reduced industry profitability by more than three percentage points.
As long as OEMs continue to offload much of the asset-heavy, fixed-cost work on suppliers, volume sensitivity will remain high. As demand in mature markets plateaus, established suppliers will face increasing pressure. Those that continue to thrive will find new sources of growth while minimizing complexity and maintaining operational excellence.
The authors are grateful for the support Torben Frenk and Ingo Stein provided to this study.
Auto Supplier Viewpoints
First published in September 2024