BRUSSELS - To be a Tier 1 supplier a company needs sales in excess of $1 billion and 20-40 percent of its chosen global market, said Steve Young, vice-president, 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.
He said 61 percent of the delegates polled said profit levels are 'unacceptably low.'
Young said that '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.'
Three quarters of the delegates polled agreed that 'at least one of Europe's six largest carmakers will close or merge within five years.'
Young said he believes the companies most in danger are Renault, PSA/Peugeot-Citroen, and Ford. But 'it is difficult to see any of them choosing to sell out.'
He also expects 'two to three Vilvoorde-sized plants to close around 2000. Total overcapacity in Europe is equivalent to around 10 of these plants.'
The executives polled strongly agreed that the integration of central and eastern European countries into the EU will 'bring major changes to the shape of the western European auto industry.' They said they felt less threatened by Asian carmakers.
Young disagrees. 'I think the Korean carmakers are a much bigger threat than central and eastern Europe,' he said.
'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.'
The executives polled agreed that it was likely that at least one established manufacturer will attempt to go direct to the customer within the next five years, perhaps following the example of Daewoo in the UK.