The auto parts industry has experienced steady growth for 10 years, but analysts and forecasters believe that pressure from the decline in car sales, rising raw material costs, and rising research and development spending may put an end to this feast.
The fact is indeed verifying this.
On August 5, Stefan Asenkerschbaumer, chief supplier of automotive supplier Bosch, said that 2019 will not be able to reproduce last year's high profit margins. In 2018, the company's EBIT margin reached 7%.
Continental's second-quarter earnings report showed its net profit plummeted 41% to 485 million euros.
ZF sales in the first half of 2019 fell by 1.5% year-on-year to approximately 18.4 billion euros.
French auto parts supplier Valeo's operating profit fell 32% to 514 million euros, and operating profit margin fell to 5.3% from 7.7% in the same period last year.
American automotive electronics supplier Visteon's second-quarter net income fell 80% to $ 7 million; revenue fell 3% to $ 733 million; total profit fell 33% to $ 70 million.
The financial results of the global top 100 auto parts supplier companies are not so optimistic.
Many people now worry that the uncertainty of future technology, the arguing tariff battle and the unresolved trade issues with major trading partners such as China, Mexico, Canada, and Europe will erode the value of suppliers and their stock prices. Factors will make it more difficult for them to meet current spending needs.
Obviously, the auto parts industry is already in the transformation stage, and some companies are already starting to cut jobs before the real lasting impact occurs.
On August 5, Bosch revealed that it is about to launch a layoff program. The company expects auto production to decline by 5% this year, and the continuous decline in demand for diesel production by major automakers around the world. Therefore, the company has to lay off staff to cope with the market's downward trend. On August 7, Continental announced its layoff plan at the same time as it released its financial report, and stated that it may sell part of the fuel engine parts business.
According to data from Challenger, Gray and Christmas Inc., as of May, the component industry had laid off nearly 22,000 jobs in the United States, an increase of 211% over the same period in 2018.
However, Neal Ganguli, managing director and head of the automotive supply foundation team at Deloitte Consulting, believes that corporate strategy will determine the magnitude of the losses.
"Success in the past is no longer a guarantee of future income," Ganguri said. "The auto parts industry itself will grow, but the supply base will change because the cost of parts per car will rise, but this does not mean The rising wave will hold up all companies. "
In his view, the appearance of industry returns is somewhat misleading.
Since the Great Recession, global automotive suppliers have created $ 510 billion in value for shareholders, more than double the market value before the recession.
But Deloitte ’s “2019 Global Automotive Supplier Study” released in August shows that not all companies in the industry have achieved average growth.
The top one-third of automotive suppliers contributed more than 99% of growth. Gunguli added that disturbing market forces will drive industry consolidation, and suppliers will either look for stronger market segments to include in their portfolios, or they will become affiliates of other companies.
"If you are in a commoditized field, you have to ask how to strengthen your business development, how to become the last, two or three standing companies? For example, someone must make a shaft, then this will be your company "The solution is to scale, integrate, optimize costs, or prepare for integration."
This consolidation is driven by long-term expectations of market growth prospects. According to this study, sales of market segments such as gearboxes and axles are expected to decline by 6% to 10% by 2025, respectively. At the same time, the electric vehicle and autonomous vehicle industries will rise. Deloitte estimates that electric drivetrains will grow by 306%, battery and fuel cell industries will grow by 266%, and advanced driver assistance systems (ADAS) and sensors will grow by 190%.
ZF's performance in the first half of this year is a testament to this differentiation. Although the company's sales revenue declined in the first six months of the year, revenues increased in five of its nine business units, with electronics and ADAS revenues growing fastest, up from 781 million euros in the first half of last year. By the first half of 2019, 912 million euros, an increase of 17% year-on-year.
However, in the general trend of declining car sales, suppliers still need to prepare for sustainable development in the sluggish market, so the industry's investment may increase.
The economic downturn "will force companies to accelerate integration," Ganguri said, "suppliers will be more focused on their business, which means divestitures or acquisitions will happen from time to time."