Are auto suppliers embracing a less-is-more strategy?

Auto strategyBIZMOLOGY — After weathering the Great Recession and its immediate aftermath, many automotive suppliers are shifting gears and adopting a less-is-more strategy. Even before the recession of the late-2000s, large auto supplier bankruptcies were depressingly common. A quick search on Hoover’s reveals that over the course of about five years, some of the biggest names in the industry — including Delphi, Visteon, Dana, Federal Mogul, and Lear — made the walk of shame through Chapter 11 bankruptcy proceedings.

The thing most of these companies have in common — besides the obvious — is that most were virtual one-stop-shops for automotive OEMs. Circa 2005, the product lists on many auto supplier websites were dizzying arrays of just about everything one might need to assemble a car or truck — all in the pursuit of capturing market share. From grill to tailpipe, it seemed the competitive landscape was defined by a race to be all things to all OEMs.

Then came 2008. The recession exposed the inherent risk in attempting to do too many things at once. Today, suppliers are embracing a more focused strategy. Recently, companies including Delphi, Visteon, and Johnson Controls have announced plans to shed noncore operations and instead focus on the few key product groups where they can maintain a competitive edge. The strategy hinges on three key ideas: 1) Be #1 or #2 in every product category in which you participate, 2) Each segment must be profitable, and 3) If you can’t afford the R&D to keep it relevant, dump it.

In short, it’s better to be smaller and have large profits than to be large and have smaller profits (or no profits at all — hence all those pesky bankruptcies). Instead of focusing on being a one-stop-shop for automakers, more suppliers are shifting to doing a handful of things really well while establishing a geographic footprint that can serve an increasingly global market, and maintaining a technological edge over competitors.

So what are the competitive issues that keep your customers up at night? Are they guilty of the Jack-of-All-Trades/Master-of-None syndrome that helped send so many auto suppliers to the brink of financial collapse? Check out Hoover’s and First Research to stay on top of all the key company and industry challenges, trends, and opportunities that can keep you a step ahead.

James Bryant

James Bryant is a writer and editor for the First Research team at Hoover's.

Read more articles by James Bryant.

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