Is there anything US auto suppliers haven't tried to counteract the enormous purchasing power of the handful of automakers that make up their customer base? As the suppliers' profit margins have been squeezed again and again, they have responded with an array of strategic initiatives, including diversifying their customer base, going global, positioning themselves further upstream in the value chain, and actively helping to design components in hopes of capturing more value than they could by simply bending metal. In the 1990s, the industry also went through an M&A wave that many hoped would deliver the heft needed to push back against the automakers.

Each of these steps helped some suppliers in some ways, but for all their efforts the suppliers have, on average, barely kept up. The industry as a whole has been destroying shareholder value for years; margins have sagged even as revenues have grown. Some suppliers have offset this erosion in part by making their capital work harder, boosting returns on invested capital (ROIC) even as returns on sales have fallen. Yet even this slight improvement evaporates once the goodwill premiums for past acquisitions have been accounted for (Exhibit 1).