North American Auto Suppliers Rank High Among Global Companies

Autoparts Report, Oct 19, 2001

In a recent study of global automotive companies, a number of North American automobile suppliers have distinguished themselves by delivering leading financial performance in one of the world's most competitive industries. The study was conducted by A. T. Kearney, a global management consulting firm and a division of EDS, an information services company. The global study focused on the financial and industry performance of 54 vehicle suppliers and additional analysis of 17 automakers, 22 dealer groups and 17 aftermarket retailers.

Eight North American auto suppliers were ranked among the world's top 10, based on the companies' cash flow return on investment (CFROI), which averaged at least 12 percent, or double the average of all other vehicle suppliers analyzed in the report. CFROI is a comprehensive measure of overall economic performance. It is driven by cash margins and asset turnover and measures the amount of cash that a company can extract from the total cash invested in its assets.

"The leading players in the segment have managed to provide high value to customers while generating above average cash flows from their total investment in assets. What's really impressive is that this is in comparison to all industries, not just the automotive sector," said John Hoffecker, vice president and leader of A.T. Kearney's automotive consulting practice.

"The companies leading the pack in our study have shown that they are able to provide the world's automakers with extremely reliable products and services, take on more design and engineering responsibility, accept increased liability for warranty claims, absorb significant cost reductions across the board and still deliver strong financials," Hoffecker said.

The fifth annual study by A.T. Kearney also noted the following elements impacting auto suppliers and manufacturers worldwide:

-- Mergers and acquisitions in the sector have declined almost 70 percent since the high-water mark established in 1999. According to Hoffecker, most of the major deals involving Tier One suppliers have been consummated, but a new wave of activity involving Tier Two, Three and Four suppliers is becoming evident.

-- Suppliers will continue to face margin pressures as auto manufacturers require additional cost reductions and arrangements for more sharing of warranty claims.

-- Plagued by increasing debt-to-equity ratios and negative cash flows, Japanese suppliers are restructuring their tightly knit Keiretsu systems.

-- Intense competition has yielded unprecedented levels of quality and reliability in passenger cars and light trucks around the world. This will continue to drive innovation and collaboration on both sides, further redefining the industry's core strategic and operational fundamentals.

-- Interdependency between suppliers and manufacturers will increase, with additional reduction of the global supply base, more suppliers taking equity interests in production facilities and the creation of very closely integrated partnerships.

"Accelerating improvement programs to deliver faster and larger results is what sets the leaders apart. One thing is certain, consumers around the world will be the main beneficiaries, as the auto industry continues to re-invent itself," said Hoffecker.

The Top 10

Here is a list of the top 10 auto suppliers worldwide based on cash flow return on investment, according to the A.T. Kearney study:

Rank      Company   2000      Change from
                    1999 study
1    Lear           22.13%      4.06
2    Dura           21.67%      -0.28
3    Navistar       21.31%    -14.47
4    Britax         20.64%      4.65
5    Borg Warner    17.92%      2.51
6    Hayes Lemmerz  14.76%      -3.83
7    Autoliv        13.00%      -4.61
8    Johnson Controls    12.98%      -1.37
9    American Axle  12.30%      -0.21
10   Superior       12.31%      -0.74
Average for North America       9.49%     -2.49
Average for Europe         6.79%     -1.82
Average for Japan         -0.89%          -0.17
Overall Average            6.02%     -1.73