Navigating Turbulent Waters: The Auto Supplier's Dilemma in the Face of Market Consolidation
Intense competition from Chinese automotive suppliers threatens the survival of established suppliers worldwide. - Threat to Domestic Car Suppliers: Anxiety over Survival due to Competition from China
The tempest in the automotive sector is leaving no stone unturned, and its suppliers are assuming the brunt. Per a survey, two-thirds of these companies anticipate a market consolidation within the next two years, leading to the disappearance of some suppliers from the scene. This chilling forecast unfolds in a survey conducted by Baker Tilly, a consultancy and auditing firm, among top echelon executives of German automotive suppliers.
Alarmingly, 67% of the surveyed predict fewer contenders in two years' time. However, only 20% expect new entrants, particularly from China, to enter the fray. The specter of Asian competition looms large today, with over half (51%) of respondents conceding that Asian companies possess an "insurmountable advantage" in critical technologies.
The industry's outlook is grim: 79% describe it as "pretty poor" or "very poor." In contrast, their sentiments about their own companies' health remain comparatively optimistic: 78% view their company's situation as "pretty good" or "very good." "The juxtaposition is striking," remarks Jannik Bayat, Baker Tilly expert. "The industry appears to acknowledge the risks, but seems to be addressing them decisively enough within their own businesses."
Shouldering the burdens of high investment and expenses, 56% cite them as significant challenges. Adding to their woes, 60% complain of increased unpredictability due to geopolitical shifts and potential trade wars. Simultaneously, 55% acknowledge that the window for industry transformation is slamming shut at an alarming speed.
Embracing a Future Absent of Internal Combustion Engines
Contrarily, a majority doesn't view this as a dire threat to their businesses. 75% believe that their business model continues to be largely insulated from the drivetrain revolution. The reason? The parts they produce are indispensable in both electric and conventional engine vehicles.
To a lesser extent, relocating overseas features in the suppliers' strategic considerations. Only 17% deem this step crucial for maintaining their competitiveness. For the study, the opinions of 100 executives of German automotive suppliers were solicited in March and April.
- Alarm
- China
- Germany
- Baker
- Asia
Insights from Enrichment
Market Maneuvers
- The consolidation trend in the automotive sector is propelled by increased operational costs, such as facility upgrades and EV infrastructure investments, which pose challenges for smaller players [1].
- In response to these challenges, larger OEMs and dealership groups are pursuing fewer, larger dealerships [1].
Competition from China and Asian Companies
- Chinese companies like BYD and Geely are making significant strides in the readiness for the future, with their focus on electric vehicles and software integration [4].
- The competitive landscape is evolving rapidly with the emergence of Chinese EV manufacturers, which are challenging traditional automotive giants [4].
- Asian companies, including those from China, have demonstrated agility in supply chain management, which is essential in mitigating risks associated with complex trade environments [4].
Impact on Auto Suppliers
- Suppliers are faced with tougher competition from more efficient and cost-effective Asian competitors, particularly in the EV space [5].
- Suppliers must prioritize investments in digitalization and electrification to remain competitive, as these areas are critical to success [5].
- The reliance on international supply chains amid geopolitical tensions and trade uncertainties increases complexity and cost for suppliers, necessitating strategic diversification of suppliers and hedging against volatility [5].
Strategies for Suppliers
- Adapting to trends in electric vehicles and digitalization is essential for suppliers to remain competitive.
- Building strategic partnerships with Asian companies can offer access to new markets and cost-effective supply chains.
- Enhancing supply chain agility and digital capabilities will prove valuable in navigating the complex trade landscape.
- In light of the above-discussed market consolidation, it is crucial for automotive suppliers in Germany to explore community policies that may provide financial support for vocational training programs focused on digitalization and electrification. This would enable them to stay competitive amidst tougher competition from Asian competitors, particularly in the EV space.
- To secure their financial stability and maintain their competitiveness in the global market, a strategic initiative for German automotive suppliers could be collaborating with Asian companies, such as those from China, which are increasingly becoming key players in the auto industry, particularly in the area of electric vehicles and software integration.
