On your Agenda Suppliers’ views on the automotive industry trends Highlights from the OESA KPMG 2016.5 AutoPulse Survey
Are suppliers ready for the emergence of new disruptive players in the automotive market? How is the supply base impacted by compressed margins, talent shortage, supply chain risk, and other threats? How are suppliers managing fuel economy mandates, industry consolidation, and other uncertainties? KPMG LLP, in collaboration with the Original Equipment Suppliers Association (OESA), surveyed almost 350 OESA members to highlight the evolution of automotive industry trends.1 Read this rundown for highlights of the key results, as well as insights from the KPMG Automotive practice about what the data means for automotive industry supplier businesses. Disruption is coming…but few suppliers are prepared. Technological innovation in the automotive industry abounds, with rapid advances in connected, electric, and autonomous cars. At the same time, new business models such as ridesharing and mobility on demand, are emerging to challenge incumbents. With disruption clearly on the horizon, 81 percent of respondents believe major technology companies will enter the automotive market as an Original Equipment Manufacturers (OEM) in the next 10 years. Sixty-nine percent say their companies supply or plan to supply new entrants in the next five years. However, according to our data, many suppliers may not respond to disruption fast or strategically enough. Only 37 percent of suppliers surveyed are working with start-ups to commercialize a future technology, and only 31 percent are looking to acquire a start-up for their technology capability.
Fuel economy solutions may not be enough. Significant—even revolutionary—changes are required for suppliers to meet the mandated Corporate Average Fuel Economy increase to 54.5 miles per gallon by 2025.
The race for a solution is on, but so far, most suppliers are taking a “slow-and-steady-wins-the-race” approach. The largest percentage of suppliers surveyed believe incremental powertrain and vehicle light weighting solutions will be the main drivers of fuel economy improvement in the next decade (85 percent and 82 percent, respectively), despite KPMG’s perspective that the biggest long-term improvement will come from electric technologies and crash avoidance features.
The talent shortage is a major challenge. Securing the right talent is going to be a key success factor for automotive businesses. Driven by peaking production levels and increasingly hightech vehicle requirements, a shortage of skilled human capital continues to be a critical issue in the industry. The vast majority (91 percent) of respondents believe the talent shortage will stay the same or get worse over the next 12 months. And they report numerous adverse effects on their businesses, led by lower employee morale, lagging or lacking innovation, a slowdown in new product development, and quality issues.
Data was collected from a survey of almost 350 OESA members conducted between July and September 2016 by OESA and KPMG. Respondents were executives, directors, managers, and associates from global OEM, tier 1, non automotive, and tier 2 or lower suppliers. Company revenue ranged from less than US $50 million to more than US $5 billion. 1
Supply chain risk is a major focus area. No supplier wants to cause an OEM plant shutdown. One slip in this area can severely hamper or even bury a supplier. As such, suppliers dedicate significant resources to managing supply chain risk, with 74 percent of survey respondents saying their companies have “enhanced” or “complete” visibility into the supply base. Despite their preparation, supply chain failure is still a major concern. Fifty-six percent of respondents consider it to be a significant risk to their companies’ growth agenda, and 35 percent think the chance for disruption within the supply chain is somewhat or extremely likely over the next 12 months.
Profits are under threat. The automotive industry is running hot. Light vehicle volumes have returned to historic highs, and suppliers are reaping the benefits of cost cutting and restructuring during the past eight years. But for suppliers to continue thriving in the highly competitive automotive sector, they develop market-leading products with relentless cost efficiency. As such, many are grappling with how best to control costs and preserve profit margins. The biggest threat to margins, according to 71 percent of respondents, is expected price-downs. That is followed by the level of investment needed to win and retain business (60 percent). Suppliers are also concerned with launch costs, as 77 percent of respondents say their companies’ launch costs are at or over budget.
Suppliers may be underestimating the importance of vehicle connectivity. Connected vehicles are on the road today, and many believe connectivity will be a consumer requirement in the future. However, it appears OEMs still hold the key when it comes to critical connected vehicle technologies. Only 43 percent of respondents’ companies are actively producing, developing, or investing in connectivity and digitalization technologies. Only 47 percent produce or install sensors into their components, and only 43 percent gather and analyze customer data.
The United States and China are regional winners. Over the next 10 years, suppliers’ global bets are most likely to target the United States. and China. These countries lead the pack in terms of revenue growth potential and return on invested capital, with South America coming in last in both categories. North American truck and SUV programs are the most coveted new vehicle programs. The lowest priority programs include global luxury car and autonomous vehicle platforms, with global small-car and global mid-size car programs falling in the middle. Access the full OESA KPMG 2016.5 AutoPulse Survey report here.
For additional information, please contact: William J. Wildern, IV Managing Director, Advisory E:
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