Europe’s largest automotive suppliers are likely to see a stable market in 2019, but many are looking farther ahead to prepare for a vastly more complicated future. Taken together, those two considerations are likely to complicate their profit picture, analysts said.
Most market watchers are predicting that auto sales in Europe will be flat this year, although SUVs and crossovers -- which typically contain higher margin content from suppliers -- will continue to gain market share.
However, a continuation of slower growth following a post-recession peak in 2017 will make it harder for automakers to meet profit targets, and that pressure, in turn, could be passed down the supply chain. At the same time, automakers are spending billions to shift to making electrified and self-driving cars.
“With automakers facing slower growth, regulatory demands to fit fuel efficient/EV technology and other pressures on margins, we believe they will need to find offsets,” Max Warburton of Bernstein wrote in a note to investors in December. “A likely reaction is to start scrutinizing purchasing costs more closely.”
Noting that purchasing makes up about 60 percent of automakers’ costs, “the focus quickly turns to outside suppliers,” Warburton said. “We are now seeing the early signs of automakers targeting big headline savings.”