Deloitte Study: Leading Products on the Right Platforms No. 1 Contributor to Automotive Supplier Performance

DETROIT, Sept. 23, 2014 /PRNewswire/ -- In its latest study into what drives exceptional performance for automotive suppliers, Deloitte reveals that active product portfolio management and a strong presence on leading-edge platforms generates greater shareholder returns. Moreover, the 2014 edition of Deloitte's annual Global Automotive Supplier Study reveals a significant increase in the number of top-performing suppliers worldwide that are turning to Product portfolio leadership – one of six winning themes in the study – to drive performance.

The study, first conducted in 2012, examines the financial performance for more than 210 global Tier 1 suppliers over a 10-year period to identify which companies achieved the highest shareholder returns and explore the levers that contributed to the generation of those superior results.  The study identifies six winning themes that consistently correlate to superior shareholder value creation among automotive suppliers: Product portfolio leadership; Market-focused innovation; Diversification; Capacity demand alignment; Cost and asset efficiency; and Capital structure.  The study also explores which suppliers best executed against the themes to identify the top quartile (56 "Top Performers") among the suppliers in the analysis.

What's new in 2014?

The findings of the 2014 analysis reveal insights into what suppliers are doing to drive performance. Specifically, among the 56 Top Performers:

• The number of suppliers executing strategies defined as Product portfolio leadership more than doubled from 2012 to 2014, indicating more suppliers are focused on having the right products on the right platforms to drive performance and sustainable growth;
  
  
• Related to product leadership, supplier attention to Market-focused innovation, the second leading theme contributing to supplier performance, also increased nearly 70 percent;
  
  
• Cost and asset efficiency once again was identified as a "table stake" since more than 50 percent of the top-ranked suppliers displayed presence against the theme;
  
  
• Diversification also remains a strong focus area for the Top Performers as more than 50 percent of the suppliers continue to display a presence against this theme;

• While presence against Capacity demand alignment increased 89 percent in the 2014 study, this theme is also a "table stake" as correlation to value creation was not as strong as those suppliers displaying excellence in Product portfolio leadership and Market-focused innovation;

• The number of Top Performers executing against three winning themes fell nearly 40 percent between 2012 and 2014, while execution against one theme increased 46 percent and execution against two winning themes increased 25 percent between 2012 and 2014 – suggesting suppliers are focused on only a small set of winning themes; and 

• The proportion of top-performing automotive suppliers from emerging markets, particularly India and China, increased 33 percent in the 2014 study, yet the mix of segment winners did not change between 2012 and 2014.  Chassis and powertrain suppliers still account for more than 50 percent of the Top Performers, suggesting that leading suppliers in these fast-evolving content areas will continue to do well.

"There's no question automakers are increasingly focused on superior product offerings and innovation as a driver of growth, so it makes sense that Product portfolio leadership and Market-focused innovation would rise to the top of the winning themes in the study," said Neal Ganguli, director, Deloitte Consulting LLP and leader of the Global Automotive Supplier Study initiative. 

However, the fact that more than 50 percent of suppliers displayed activity against Diversification or Cost and asset efficiency-related strategies (both considered "table stakes" in 2012) remained a concern.  

Ganguli noted, "It is concerning that most suppliers are only executing against one or two themes of the six in the study. Because one of those themes is consistently Diversification or Cost and asset efficiency, there is a strong indication that many of the top-performing suppliers are not executing against both Product portfolio leadership and Market-focused innovation – thereby potentially missing opportunities and benefits resulting from closely linking innovation and product leadership activities."

According to Ganguli, "The majority of the suppliers executing across three or more themes show presence in leading edge and premium platforms, and they display the ability to price better and ultimately achieve higher gross profit margins."

The gap between Top Performers and other suppliers

Combined, the more than 210 suppliers in the study generated approximately $495 billion in shareholder value between 2003 and 2013.   But the gap between the Top Performers and the remaining population in the study is significant.  The Top Performers cumulatively generated a 520 percent increase in shareholder value, while the bottom third of the 210+ suppliers reduced shareholder value by 19 percent over the same period. 

Findings in the 2012 study, which analyzed performance between 2002 and 2012, were similar.  The Top Performers generated a combined 438 percent in shareholder value while the bottom third remained the same at approximately an 18 percent loss in shareholder value.

Ganguli added, "Shareholder value creation among the Top Performers increased 40 percent in the 10-year analysis conducted in 2013 compared with 2012, illustrating the significant impact of shareholder value creation in 2013 alone.  Those suppliers that are better able to link strategies across multiple winning themes have a tremendous opportunity to drive exceptional performance for the next three to five years given forecasted industry growth rates worldwide."

About the Study
Deloitte utilized a systematic approach to analyze shareholder value performance to identify Top Performers, the winning themes, and the strategic and operational levers under each winning theme.  Deloitte analyzed total shareholder return performance between 2003 and 2013 for all suppliers in the study to identify the Top Performers. Analysis included automotive supplier financial performance across income statement, balance sheet and capital structure metrics. The Top Performers were assessed against the remaining suppliers in the study to correlate performance drivers to superior theme execution.

About Deloitte's Automotive group

Deloitte's Automotive group is at the forefront of top trends and issues facing the industry. Deloitte has more than 220 automotive clients in the United States, representing some of the world's largest manufacturers, suppliers, dealers, finance companies and aftermarket companies. With more than 400 American automotive practitioners, Deloitte services 86 percent of the automotive companies on the Fortune 500 and 86 percent of the automotive companies on the Fortune 1,000.  For additional information about Deloitte's Automotive sector, please visit: http://www.deloitte.com/us/automotive or follow us on Twitter @DeloitteMFG.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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SOURCE Deloitte