What's next for the automobile industry?

In the almost decade since the worst economic recession of the 21st century, several industries have shown resilience. Foremost of these industries is the automotive market. Not only have global sales reached a record high in 2016, but the operating margins are growing quickly as well. According to research presented by Capital IQ, average operating margins for the top 100 automotive market suppliers were able to jump above pre-recession levels by 2010, just a year from their record low.

The problem with this success is that the view from behind the curtain is very different. A report published by PricewaterhouseCoopers on the trends within the automotive industry for 2017 mentions some careful considerations for both investors and manufacturers. Many Tier 1 and Tier 2 suppliers are fighting to earn back the cost of capital. Returns to investors have been noticeably below index standards. The companies that have survived were able to grow by the distribution of market share owned by those companies who were forced to tap out. The PwC report acknowledges these hardships while presenting encouraging solutions for OEMs and suppliers.

Innovation to the Rescue
Suppliers for leading automotive brands come in all shapes and sizes, from large mechanical component manufacturing to electronic control systems and digital display production. No matter the specific components, companies must acknowledge the trends and look to new solutions. Innovation has been a saving grace for companies throughout history, applying their core competencies and production capabilities to serve a changing market demand. For example, vehicle electronics are expected to account for nearly 20% of the value of the car, a 7% increase from as recent at 2015. Whether the innovation occurs on the product line side or on the manufacturing process side, an increase in thoughtful R&D spending will help facilitate a competitive edge. A 4% compound annual growth rate (CAGR) in R&D spending over the last decade shows that companies are looking to new solutions for new revenue.

Value Proposition
Innovation is not the only solution. Differentiations and value proposition targeting are effective techniques to assert dominance over a particular market. According to a McKinsey trends analysis, value proposition evolution can mean increased product differentiation and should be customer focused. An example for the automotive industry is could be “hardware provider” transitioned to “mobility service provider”.

Finally, those manufacturers who will fare the best throughout this transition period of automotive supplies are those who plan ahead now. MAGNET can be a support system and resource for Tier 1 and Tier 2 manufacturers. The Commercialization Center at MAGNET has all the capabilities to guide you through the journey of expanding markets and industry data analysis.

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Posted by Michael O'Donnell in News

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