CUSTOMER R&D PROCUREMENT PRODUCTION SALES SERVICES CROSS-FUNCTION INTERVIEW

DOOMED
TO GROW?
Suppliers at a crossroads
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Automotive suppliers are experiencing strong growth and good
profitability throughout the world; however, small and medium‑sized
enterprises find themselves in a dilemma.

LUTZ JAEDE
LARS STOLZ
SIMON OERTEL

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The financial performance of the worldwide automotive supplier
industry is excellent. On average, the reviewed companies earn
an average EBIT margin of seven percent and have an average
equity ratio of 40 percent. (See Exhibit 1.) Companies from
the United States are especially profitable, while automotive
suppliers from Germany and China are experiencing the highest
rates of growth in the world. So it is not surprising that three
German companies can be found in the top ranks of the Top-10
list of the world’s biggest automotive suppliers. (See Exhibit 2.)
But if one takes a closer look at German suppliers, it can be
seen that the size of the company plays a significant role in
its financial performance. German suppliers with revenues
of more than €5 billion generate average growth of almost
16  percent per year and an EBIT margin of seven percent.
Suppliers with annual revenues of less than €1 billion exhibit
solid growth of almost 10 percent on average and an average
EBIT margin of slightly less than seven percent. On the other
hand, medium-sized enterprises with revenues of between
one and €5 billion generate average growth of only about
five percent per year and an average EBIT margin of about five
percent. (See Exhibit 3.) Therefore, medium‑sized enterprises
must answer a very fundamental question: Should I remain in my
segment or should I compete with the industry giants?
STRATEGIC CHALLENGES FOR
MEDIUM‑SIZED ENTERPRISES
German companies in particular have arrived at this crossroads
over and over again. Suppliers in Germany are often so successful
with their products that they are forced by their OEM customers
to build new factories worldwide and broaden their product
portfolios. However, if they surpass the “magic” revenue
figure of roughly €1 billion, they also need to implement new
organizational structures and processes to manage a global
supply chain and a portfolio consisting of different segments.
In such situations, loss-makers are often not identified in time,
investments are misallocated and the company’s liquidity is
not assured. And yet, companies that successfully manage the
transformation to a global player are often able to establish
themselves as preferred supplier to the major platforms of the
auto manufacturers and realize valuable synergies within their
factory networks. In this respect, the study clearly shows that
stronger growth is often accompanied by greater profitability
once annual revenues reach the level of approximately
€5 billion. Therefore, fast-growing companies in particular
must always ask themselves if they are ready for the next stage
of development. Otherwise, their success story could come to
an abrupt end.
This is even more important considering the fact that the
market environment for automotive suppliers offers numerous
opportunities, despite considerable global uncertainty. Thanks
to their financial strength, large suppliers in particular can seize
the opportunity of growing through acquisitions and investing
into new technology fields. The main drivers of this trend are
the continued positive development of the global automotive
market, a shifting of the value chain in the direction of suppliers,
the growing importance of software in cars, and stricter
regulation leading to new drive technologies and new materials.
Smartly positioned automotive suppliers – and most especially
German automotive suppliers – can only benefit from such a
stable and promising environment. 

EXHIBIT 1: THE GLOBAL SUPPLIER INDUSTRY SHOWS AN AVERAGE GOOD FINANCIAL PERFORMANCE – BUT THE VARIATION
RANGE IS VERY BIG
Financial ratios in comparison to 2015

SUPPLIERS GLOBALLY
GROWTH PROFITABILITY INDEBTEDNESS CASH FLOW
% % % % % x x x
60 50 50 50 100 40 70 1.2

40 40 40 60
80 30 0.8
40
30 50
30 30
0.4
20 60 20
20 20 20 40
10 0.0
10 10 30
0 0 40 10
-0.4
0 0 20
-10
-20 20 0
-10 -10 10 -0.8
-20
-40 -20 -20 -30 0 -10 0 -1.2
REVENUE EBITDA EBIT EQUITY NET DEBT/ INVENTORY CASH1
GROWTH MARGIN MARGIN ROCE RATIO EBITDA TURNOVER CREATION

Supplier Average (weighted with revenue)

1. Changing Net Cash (cash and equivalents minus financial debts) in relation to Capital Employed at the end of the period
Explanatory note: Suppliers with a difference in financial ratios of more than three standard deviations from the average are not shown
Source: Oliver Wyman Supplier Financial Benchmarking 2016

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EXHIBIT 2: GERMAN SUPPLIERS SHOW THE BIGGEST GROWTH DYNAMIC GLOBALLY – BUT ARE ONLY AVERAGE WITH REGARDS
TO PROFITABILITY
Revenue growth and EBIT-Margin1 for relevant countries

EBIT MARGIN (AVERAGE 2013–2015)

IN % OF REVENUE
8.5

7.5
USA China

Canada Germany
France
6.5 South Korea Japan

5.5

Size (revenue)
of the country/
4.5 region
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

REVENUE GROWTH (CAGR 2013–2015)

Explanatory note: Adjusted to currency effects
1. EBIT in % of revenue
Source: Oliver Wyman Supplier Financial Benchmarking 2016

EXHIBIT 3: MEDIUM-SIZED SUPPLIERS ON AVERAGE LOSE GROWTH DYNAMIC AND PROFITABILITY

Revenue growth and EBIT-Margin1 of German suppliers in comparison to the company size

EBIT MARGIN ( 2013–2015)

IN % OF REVENUE
8.5

7.5 Big suppliers

(>€5 BN revenue) 67

Small suppliers
(<€1 BN revenue) 15
6.5

5.5 Size = share of

revenue of
Medium-sized suppliers German
(€1–5 BN revenue) 18
suppliers in
% of the total
4.5
revenue
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

REVENUE GROWTH (CAGR 2013–2015)

1. EBIT in % of revenue
Source: Oliver Wyman Supplier Financial Benchmarking 2016

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