Some Suppliers Succeed

It's hard to shake the impression automotive suppliers are struggling. Their traditional customers — Detroit's Big Three — are making little or no money selling cars and trucks in North America, stock prices are tumbling and reports of companies going belly up regularly punctuate the news.

Nevertheless, analysts from Accenture's Detroit-based automotive consulting practice deliver a largely upbeat message at an Automotive Press Assn. event about the future of the auto supply industry.

After studying the performance of 31 of the largest publicly traded global suppliers during the last seven years, researchers found auto suppliers as a group are posting better operating margins than their OEM customers and have managed to outperform the Standard & Poor's 500 index much of the time.

And, surprisingly, several auto suppliers are absolute stellar performers, besting the S&P 500 by a wide margin and looking like Wall Street winners, not Rust Belt refugees.

“The situation is not all doom and gloom. There are some companies that have cracked the code on how to do well,” says Umar Riaz, North American managing partner-Accenture Automotive Practice, although Accenture officials acknowledge today's difficult environment of pricing pressures and eroding profitability.

Accenture would not reveal the names of the companies identified as “High Performing Suppliers” in its study, although an official let slip that one is interiors supplier Johnson Controls Inc.

The somewhat startling results also debunked one of the myths of the 1990s: that suppliers had to become huge and achieve a certain “critical mass” in order to be successful. In fact, the study identified as many high performers with annual revenues below $5 billion as there were with revenues more than $10 billion.

“It's not important to be big. It's important to be big in the segments you compete in,” says Riaz.

What characteristics do these top performers share? Riaz says they all achieve leading positions in their core product segments and invest in new production capabilities and innovation at a faster rate than their peers.