Study Finds OEMs Jeopardizing Their Own Future, Industry Purchasing Practices Harming Competitiveness - aftermarketNews
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Study Finds OEMs Jeopardizing Their Own Future, Industry Purchasing Practices Harming Competitiveness

Consolidation in the automotive industry -- driven by intensive cost pressure from OEMs -- is threatening those same OEMs' competitiveness, according to one recent study. A new study by The Boston Consulting Group (BCG) "Beyond Cost Reduction: Reinventing the Automotive OEM-Supplier Interface," shows that over the past decade, automotive OEMs have outsourced central functions, which has left them dependent on ever fewer suppliers and their innovations.

BOSTON — Consolidation in the automotive industry — driven by intensive cost pressure from OEMs — is threatening those same OEMs’ competitiveness, according to one recent study.

A new study by The Boston Consulting Group (BCG) “Beyond Cost Reduction: Reinventing the Automotive OEM-Supplier Interface,” shows that over the past decade, automotive OEMs have outsourced central functions, which has left them dependent on ever fewer suppliers and their innovations.

For the study, BCG authors surveyed 80 members of top management from all major suppliers and OEMs in Europe, North America and Japan. BCG’s analysis shows that more than 60 percent of the automotive industry’s value is created by suppliers. Patent registrations convey a clear message, too: in seminal areas, suppliers now register more than three times as many patents as OEMs.

“If automakers want to stay competitive, they will have to stop focusing their purchasing strategies primarily on cost and put more emphasis on differentiation with new technologies,” said BCG vice president Andreas Maurer, one of the study’s authors.

At the same time, conditions for innovation in the industry have worsened for suppliers, BCG said. Exposure to OEM cost pressure has forced their prices down by 3 percent annually for the past ten years. The average supplier has seen its profitability slashed almost in half.

BCG predicts that of today’s 1,500-plus suppliers, less than half will survive to 2010.

“It doesn’t take long for supplier problems resulting from cost pressure to hurt the OEM’s brand; conversely, cooperative dealings with suppliers pay off,” said Maurer. The BCG study team’s research showed that there is a connection between suppliers’ satisfaction with their OEM customers on the one hand and car buyers’ satisfaction on the other. Thus automakers with good supplier relations enjoy higher customer satisfaction with vehicle quality and innovation than do those with poor supplier relations.

For more information about the study, visit: www.bcg.com .

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