BRUSSELS - To be a Tier 1 supplier, a company needs sales of more than $1 billion and 20 to 40 percent of its chosen global market, said Steve Young, vice president of global automotive practice at A.T. Kearney.
'It will be impossible for a nationally focused supplier to continue as a direct supplier to carmakers,' said Young.
'The trends to modular and system sourcing ... are well established and will become the standard practice,' he said.
Between 1990 and 1996, European carmakers reduced the average number of suppliers to each model from 1,500 to 300.
Young also reported on the results of a survey of delegates at the Automotive News Europe Congress last month.
He said 61 percent of the delegates polled said profit levels are 'unacceptably low.'
Young said 'by the standards of other industries, the returns are not good enough to support globalization and other investment needs over the longer term. Profits are also quite fragile.'
The executives polled strongly agreed that the integration of Central and Eastern European countries into the European Union will 'bring major changes to the shape of the western European auto industry.' They said they felt less threatened by Asian carmakers.
Young disagrees. 'The Koreans have not missed a single target that they have set themselves. Europeans' lack of exposure to Korean companies is the main reason they don't take them more seriously. The other is the short track record on which we can judge their chance of success.
'Distribution will be the major battleground for the next decade,' said Young. 'It is the most neglected area, and the biggest cost to automakers after the purchase of raw materials. You need to be even more nimble in this area, but it is far from clear which strategies will be the most successful.'