DETROIT – The global automotive supplier industry starts the New Year with difficult prospects. Although revenue and operating results in 2009 were not as bad as initially feared, a significant market recovery is not foreseen for 2010.

Most surveyed suppliers expect the global market in 2010 maintain the levels of 2009 with positive developments only in selected growth markets. Revenue and profit expectations are moderate for 2010. While Asia profits from the enormous growth in China, the majority of study participants expects a European rebound to pre-crisis levels in two to three years at the earliest; while the American market may take three to four years.

This market assessment is indicated by the latest ?Global Automotive Barometer? study from A.T. Kearney and SupplierBusiness in which more than 220 executives from global automotive suppliers participated in mid-December 2009. The supplier industry continues to prepare for the difficult times with comprehensive cost and liquidity management.

The majority of participants sums-up the previous year as slightly better than was expected at the beginning of 2009. While nearly 70 percent of surveyed suppliers forecasted revenue drops of more than 20 percent for 2009, only half of respondents actually recorded such steep decreases. However, more than three quarters of suppliers were hit by revenue drops in 2009.

?The fact that revenues did not decrease as steeply as initially expected is related to the global incentive programs that were launched by governments of many European countries, as well as the US and China. This stopped the downswing, but in the mature markets especially, industry is not yet back on a growth path. Suppliers have to prepare for significant structural changes in the coming years,? said Martin Haubensak, Partner of the Global Automotive Practice at A.T. Kearney.

Sideward movement with moderate growth

The market in 2010 is expected to move sideward with selected positive impulses in Asian growth markets. More than 80 percent of surveyed managers anticipate an overall improvement in the economic climate and expect increases in new order values and the number of enquiries/requests for proposals. Therefore three quarters expect a revenue increase for their global business of up to 10 percent compared to the previous year. However, this increase is lower than the decrease in 2009 and therefore revenues in 2010 will remain below 2008 levels. The same applies for operating results.

?Despite some positive signals, global growth will remain fragile and geographically patchy. It remains very important to continue to closely monitor market developments and to apply a solid sense of proportion?, says Stewart Pedder, Managing Editor of SupplierBusiness.

Top challenges 2010: price pressure, access to capital and reliability of market forecasts

While in 2009 the volume drop was the dominant topic, surveyed suppliers again see price pressure as a major challenge in 2010. In addition, the difficult access to capital and the high volatility of customer forecasts are among the three top challenges for the current year.

The difficult access to capital is one reason for the cautious investment budgets of many suppliers. Despite the mid-term global growth prospects only 42 percent of surveyed suppliers plan higher investments for 2010 than 2009. The highest investment priority is in research and development, but many suppliers will need capital for their restructuring efforts.

?Management, owners and financial institutions have to develop sustainable financing concepts which reflect a company?s operating and strategic fitness. This is key to ensure short-term survival and to profit from long-term growth opportunities,? said Haubensak.

Action plans for 2010 already defined

Suppliers have already prioritized their activities for 2010. At the top of the list are productivity increases, streamlining of overheads, pricing improvements, innovation management and measures to assure liquidity.

Long-term strategic topics are weighted with lower priority for most the respondents. Only one third of participating suppliers plans to more actively tackle basic strategic questions like outsourcing or adjustments of business portfolio in addition to the ?operative homework.?

?The ?Automotive Industry Barometer? shows a stabilization of the global market with significant regional and segment differences. The crisis is not yet over. The industry still shows an increased bankruptcy risk. Suppliers have to face the global structural changes and consequently pursue their restructuring efforts to gain from the changing market environment,? said Haubensak.

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