The causes of the worst crisis for the auto industry in a decade last year – lockdown, temporary unemployment, supply problems – continue to be felt and bring further challenges for the years ahead. Probably the hardest hit in the entire auto industry ecosystem are the parts suppliers who have already entered 2020 with declining revenues. Although they lost some sales to the coronavirus, the decline was less severe than feared.
The lifeline has been government measures which, together with the experience gained in the financial crisis of 2007-2009, have helped the industry avoid collapse and even remain profitable in the short term.
Top suppliers lost 12% of their sales in 2020, and regional comparisons show major differences, with European and US suppliers losing the most and Asian suppliers at the other end of the spectrum, according to the recent study “For a successful automotive supplier industry of tomorrow” by strategy&, the global strategy practice of the PwC network.
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Thus, automotive component suppliers in Europe, excluding Germany, were hard hit by the pandemic in 2020, with their sales falling by 16.4% to €134 billion compared to the previous year. At the same time, companies in the Americas saw a 16.8% drop to €113 billion.
Asian suppliers fared better through the crisis, with sales down just 8%, and not only regained but even expanded the global market shares they lost after 2010. Their sales reached €338 billion in 2020 and a market share of 43%. The decline has been cushioned by consistent cost discipline in recent years.
Benefiting from a separate analysis in the report, due to their high overall market share of 26%, German automotive component suppliers saw sales shrink by 10.8%, below that of Europe, to a total of €199 billion.
So, on closer inspection, Asian as well as German companies adapted more quickly to the new market conditions during the pandemic.
In Romania, the production of automotive components is an important sector for the Romanian industry and economy, with a cumulative business of more than €13.5 billion in 2018 (according to ACAROM). Companies present in Romania in this sector have been equally affected by the crisis similar to what is happening globally, recording reductions in business, profits, but also in the number of employees.
The industry built up significant equity capital after the 2007-2009 financial crisis in all regions, but since 2017 only Asian companies have managed to maintain their equity ratios. So a critical situation emerges for the supplier industry in other regions: in the midst of the transformation process, the coronavirus-induced decline in sales has reduced the equity reserves they needed for transformation.
Cost discipline is therefore more relevant than ever, because it boosts competitiveness and global market share. For example, from 2015 to 2020, Asian suppliers gained four percentage points in global market share to 43%, while German companies gained two percentage points to 26%.
Despite the exceptional economic situation, suppliers in all regions have tried not to cut spending on research and development (R&D) to secure their position and success in the future of mobility, marked by technology, carbon reduction and regulation.
The largest amount for R&D among the regions analyzed was allocated by German suppliers, the only ones to have kept this spending constant in 2020, at around €14.4 billion compared to €14.3 billion in 2019.
By contrast, in Europe this spending fell from €5.9 billion in 2019 to €5 billion last year, in Asia from €13.9 billion to €13 billion, and in the Americas from €1.8 billion to €1.6 billion.
According to Eurostat data, Romania ranks last in the European Union in terms of spending on research and development, at just 0.48% of GDP in 2019. Romania has the potential to attract new investment in research and development, including in the automotive sector. Although the tax code includes incentives that could boost these activities, the lack of secondary legislation and methodological rules makes them unenforceable. Given that investment in R&D and innovation is vital in the context of the transformations brought about by new technologies, the development of appropriate legislation to stimulate it is a necessity.
For this study, 100 leading international suppliers to the automotive industry, accounting for more than 50% of sales in the sector, were analyzed.
Edited for English