Auto suppliers should:
• Accelerate efforts to find greater leverage with high-quality product lines. This means a supplier must innovate wisely, focusing on features that consumers are willing to pay for, creating end-user pull, and establishing itself as the company best positioned to help solve manufacturers’ problems.
• Better manage portfolios, focusing on the markets where the suppliers have the greatest capabilities and opportunities to create a sustained competitive advantage, and to meet changing market needs. Although some companies are able to prosper making disparate components, most do not have the resources and skills to do it well.
• Continue to aggressively manage costs. Suppliers reduced operational and structural costs during the downturn. Now, they need to make sure that these expenses don’t creep back in as volumes ramp up. They must also discipline themselves to stop chasing automaker contracts that cost more than they return in the long run. Where possible, suppliers and auto manufacturers should promote collaborative cost-based agreements that give manufacturers full transparency into relevant supplier operations and, in exchange, allow suppliers to earn a fair return on investment.
• Recognize that industry consolidation is likely to intensify. For each core business, suppliers should decide: Am I a buyer or a seller?
The U.S. auto industry is in a period of extraordinary transition. Whether one considers alternative drive trains, or ways to fine-tune designs and manufacturing processes, or a raft of new global competitors, it’s fair to say that only the most flexible, lean, and well-managed companies will survive. With that in mind, perhaps the survey’s greatest value is its central finding: Despite the general optimism in the auto industry today as well as the real improvements in efficiency, quality, and lean practices that have been made, many executives are still bracing for further change. They will need all the courage, and skill, they can muster.
Reprint No. 11301
- Brian Collie is a principal with Booz & Company in Chicago. He specializes in working with automotive and industrial clients in the areas of business unit transformation, new market entry, and corporate strategy.
- Scott Corwin is a partner with Booz & Company based in New York. He has extensive experience in assisting clients in developing creative and pragmatic growth strategies for the automotive, media, and consumer industries.
- Patrick Mulcahy is a senior associate with Booz & Company based in Cleveland. He focuses on product strategy and M&A for automotive and industrial clients.
- For a detailed analysis of this survey, see “Facing New Realities: What Comes Next for the U.S. Auto Industry” (PDF).