Suppliers narrow focus: Go big or go home
Of all the lessons of the Great Recession, few are more important to automotive suppliers than sustainable profits.
That's why many suppliers are now focusing on a few core fields and selling off other operations instead of trying to maintain multiple lines of products for their automotive customers. For example, Visteon Corp. is focusing on two core units. For Visteon and others, it is a business decision prompted by a changing environment.
The logic is straightforward with three requirements.
1. Compete only in segments where you can be No. 1 or No. 2 globally.
2. Each product must be profitable; no loss-leader contracts.
3. Take and maintain leadership in r&d.
If you can't do all three, sell the unit to someone who can.
Not all suppliers are adopting a "go big or go home" strategy. Giants such as Magna International, Denso Corp. and Continental AG have the deep resources to maintain a broad range of global products. Others already enjoy positions as specialists. And some compete on price in low-margin commodity products. All those well-defined strategies have traditions of stability.
But with the entry of such advanced consumer companies as Google and Apple into autos and the proliferation of computer-aided design, the pace of the product cycle is another challenge for traditional suppliers with multiple products.
As Visteon CEO Tim Leuliette put it, automakers want suppliers with "a global presence and the technology to bring value." Staying on top in this environment may require suppliers to focus less on top-line growth and more on bottom-line health.