PARIS – India has surpassed China as the No.1 target for supplier investment, and driving performance and dynamics are losing significance in the auto industry, according to a survey of more than 130 senior supplier executives.

The international survey, by consultants from Roland Berger and SupplierBusiness.com, turns up several unsurprising opinions:

  • 2007 will be a more difficult year than 2006.
  • Relationships between suppliers and auto makers continue to deteriorate.
  • Price is by far the biggest OEM-supplier sticking point.

However, the survey also suggests suppliers have been adapting to survive today’s bleak market conditions. The switch on emphasis to India, for example, means suppliers are getting ahead of the curve on that country’s growth.

“India has dramatically gained ground and is considered to be the No.1 investment priority for the next 12 months,” says Edmund Chew, managing director of SupplierBusiness.com, “probably in part because many suppliers have built up a Chinese presence over the past few years, while they are still not present in India.”

Meanwhile, suppliers say they are less worried about stagnant production volumes in North America and Europe.

In a similar survey a year ago, 64% of suppliers said weak production in North America was a “very important” or “extremely important” problem, and this year only 49% feel that way.

Likewise, 37% of suppliers express concern about declining volumes in the European market this year, compared with 54% last year.

The implication is suppliers have accepted their traditional markets won’t be growing, and they have moved on.

Questions on key management issues also reveal a level of maturity in outlook.

No.1 on the list of supplier executive priorities is reducing overhead costs (78%), followed by sourcing in low-wage countries (70%), which reduces variable costs.

Further down the list (58%) is moving production to low-wage countries, which would cut overhead as well as variable costs, while causing considerable labor and political disruption at home.

Other low-cost country investment targets are Russia, with about half as much interest as India and China, followed by Ukraine and Vietnam.

Of the 127 supplier companies participating in the study, 57% are based in Europe, 32% in North America and 11% in Asia.

Those surveyed represent a broad cross-section of component sectors, including powertrain (20 suppliers), exteriors (17), interiors (16), electrical/electronics (16), chassis (13), multiple areas (30) and other (15).

Some 54% of participating suppliers report annual revenues above €386 million ($500 million).

The biggest battleground between OEMs and suppliers remains price, as 77% of executives surveyed say it is a main area of disagreement, and 91% say pressure to cut prices is a very or extremely important issue.

However, concerns other than piece price are gaining importance with suppliers. Compared with last year, there is a significant increase in disagreement over tooling costs and intellectual property protection, which suggests suppliers are fighting back in new areas.

Three-quarters of executives surveyed say market conditions will be tougher this year, although European suppliers are less pessimistic than those based in North America or Asia.

Smaller suppliers with revenues less than €1 billion ($1.3 billion) are less pessimistic than larger ones.

In the area of technology, suppliers rate the importance of fuel efficiency and emissions far ahead of driving dynamics and performance, which are rated as very or extremely important by fewer than half the executives.

Active safety is rated higher than passive safety, driver assistance and comfort.

Suppliers are far more enthusiastic about the spread of diesels than hybrids. Some 85% of executives say diesels will be more important outside Europe in the next five years.

Meanwhile, fewer executives this year than last year (55% vs 63%) say hybrids will take as much as 3% of the global market in 2010.