Extract from Automotive News
The auto parts industry has chalked up a decade of steady growth, but analysts and forecasters believe the strains of falling vehicle sales, rising material costs, and huge demands for R&D spending could bring the party to an end.
| Neal Ganguli, Deloitte |
Who suffers most will be determined by business strategy, says Neal Ganguli, the managing director and leader of the automotive supply base group for Deloitte. “Past success is no longer a guarantee of future earnings. The industry itself is going to grow, but the supply base is going to change and just because the cost of parts per vehicle is going to go up, it does not mean a rising tide is going to lift all boats.” Ganguli believes that the appearance of industry gains has been somewhat misleading. The growth was not equally shared, according to Deloitte’s 2019 Global Automotive Supplier Study, released this month.The top third of auto suppliers accounted for more than 99% of the growth.
The troubling market forces will drive consolidation in the industry, Ganguli says, and suppliers will either be on the hunt for stronger segments to add to their portfolio, or they will become part of someone else’s plans. The consolidation is driven by long-term outlooks on where market growth will be taking place. According to the study, segments such as transmissions and axles are expected to decline 10% by 2025. Meanwhile, the electric and autonomous vehicle sectors will rise. Electric drivetrain is expected to grow 300%, battery and fuel cell sectors by 260% and ADAS and sensors by 190%, according to Deloitte.
Investments in these sectors are likely to ramp up in the wake of declining car sales, as suppliers position themselves for sustainability in a down market, says Ganguli, arguing that an economic downturn “is going to force consolidation to happen faster…suppliers will focus their business even more and that means divesting or acquiring”.
