The COVID-19 pandemic has intensified margin pressure on global automotive suppliers, who were already dealing with sweeping technology-driven changes in their industry. This year's global sales are expected to slump by an average of 15% to 20%, compared to 2019. Suppliers’ average EBIT margin fell to 1.7% in the first half of 2020. This year’s Global Automotive Supplier Study, from Lazard and Roland Berger, analyzed performance indicators of approximately 600 suppliers around the globe to assess the current state of the industry, as well as trends and challenges.
Globally, suppliers are expected to face a sales slump between -15% to -20% in 2020. However, the impact of COVID-19 differs significantly among countries. Europe's and North America's higher dependency on exports and global supply chains made the regions more vulnerable to the pandemic. China, in contrast, benefitted from a stronger local market and a more limited lockdown period.
Net debt levels and leverage ratios have substantially increased across the automotive supplier industry. Increasing net debt ratios are driven by declining business volumes since 2018 and upfront investments needed to keep up with industry transformation, with collapsing EBITDA levels in 2020. Leverage in the industry has reached an unhealthy level, even if stronger markets and some normalization of working capital levels may partially resolve the problem in the future.
The pandemic’s impact comes on top of technology-driven trends that are reshaping the industry, centered around “MADE” factors: new mobility trends, autonomous driving, digitalization and electrification.
Automotive suppliers have to be prepared to consistently restructure or exit commodity activities on the one hand, while on the other hand, they must find intelligent ways of capital spending to develop new areas for future profitable growth.