These are perilous times for North America’s auto suppliers. Many are struggling for survival, squeezed by rising materials costs, blistering competition from low-cost countries, declining production volumes across many vehicle platforms, and relentless downward pricing pressures from automotive OEMs, which themselves face very difficult business conditions. Since 2001, about one-third of the region’s 25 largest auto suppliers (by revenues) have filed for bankruptcy protection, and many others are struggling to create shareholder value. Moreover, although suppliers have scope for further operational improvements—indeed, many are attempting to raise their efficiency—the majority find it difficult to capture the full value of such efforts. At the root of the suppliers’ woes is their weakness in pricing and their inability to maintain an equal balance of power with OEMs.
To see how suppliers might create sustainable value1 in such difficult circumstances, we studied the product characteristics and market economics of a typical passenger car at the level of individual product segments. We found that over the next five years, North American suppliers could potentially create value across 60 percent of a vehicle’s content and perhaps an additional 10 percent, though that will probably be hard to sustain. These opportunities lie in three kinds...