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Embracing the Silicon Valley challenge

The annual North American automotive supplier study by Roland Berger examines disruption within the automotive industry and supplier business models in particular brought by the advent of Silicon Valley players.

While all indicators point to the automotive industry having recovered from the crisis of 2007/2008, it is also clear that growth has leveled out. EBIT margins had hovered around 7-8% in the US since 2011, however supplier revenues and margins are stagnating in all major automotive regions. In the meantime, US suppliers have begun once again leveraging up their balance sheets reaching 2007 levels fueled by cheap and abundant cash. While globally this cash is being spent on an unprecedented wave of global M&A activities with the average size of deals in the last 12 months exceeding that of the previous 8 years North American suppliers continue to use this cash on "stock cosmetics" to increase immediate shareholder returns.

Looking back to 2007, it is hard to avoid a sense of déjà vu – the industry is clearly not "playing safe" any longer and though it may not recognize the fact, it is (yet again) on the verge of a life-threatening challenge. As Roland Berger Senior Partner and study author Thomas Wendt confirms, “The challenge this time is no longer financial or operational in nature. New entrants and disruptive technologies are posing an existential question regarding the business models of incumbent suppliers.”

On the one hand, disruptive trends such as automated driving, connectivity and new mobility are converging, thereby significantly reshaping the automotive landscape and traditional value chain dynamics. On the other, technology players have disrupted multiple industries over the last ten years and now these same players are knocking at the doors of the automotives. These are companies able to launch a product and, move a million units within half a day in the case of e.g. the iPhone 6 compared to a typical automotive manufacturer which can take over three years to sell a similar number of units of a mid-size passenger sedan. According to study author Thomas Wendt, “New players are bringing business concepts and a mindset, which is fundamentally different from the traditional automotive approach. This disruption is for real and is already impacting players in the entire ecosystem. Just to name an example, Amazon’s Alexa could turn into a serious competitor to all incumbent automotive infotainment and HMI suppliers in the near future.”

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