Detroit, Michigan – The North American automotive supply industry has already bounced back to profitability levels on par with the early 2000s, when production levels were 30 per cent higher, but companies must employ “smart growth” strategies to capitalize on their hard work and restructuring, according to a new study by global business advisory firm AlixPartners.

The study found that, despite a reduction of more than three million units in U.S. automaker production when compared to 2001-2006 levels, operating earnings as a percentage of revenue are back up to about six per cent, versus a negative two per cent in the first quarter of 2009.

“The good news is, restructuring worked, both for automakers and suppliers,” said John Hoffecker, managing director at AlixPartners. “As a result, many companies today are enjoying profitability levels that seemed impossible a year ago and are now shifting into growth mode. However, these same companies face a decision: whether, as industry sales volumes also start to recover, they’re willing to settle for ‘quite good’ returns or whether they want to use this historic, once-in-a-lifetime opportunity to truly remake themselves into lean, flexible profit machines.”

The study also uncovered some bumps in the road to the auto industry’s comeback, predicting that the “pull-ahead” effect of heavy automaker incentive spending over the past decade, coupled with persistently high U.S. unemployment figures and other factors, will limit the peak of this cycle’s industry sales to 15 to 16 million between now and 2015, versus many current industry forecasts of 17 million units or more. In addition, the product mix is predicted to skew strongly toward smaller vehicles, which have historically been the industry’s least-profitable segment.

Some of the other findings include:

– The current sales recovery has been driven by fleet sales with most fleet buyers replacing vehicles as economic conditions settle. General Motors, Ford and Chrysler have all nearly doubled their fleet volume versus their year-earlier figures.

– Raw material costs went up 53 per cent in the past year, and not all cost increases have worked their way through the supply chain. Steel is singled out for volatility in particular, which requires suppliers and automakers to establish better risk-management systems.

– The bottom 25 per cent of suppliers by financial rating will continue to face challenging times, as 85 per cent of their debt comes due within the next five years.

– A study finds that the U.S. may have permanently passed peaks in vehicles per capita and miles driven per capita, a sign that the country’s century-long love affair with cars may be waning.

– In Europe, where the auto industry has not yet undergone the same level of required restructuring as in North America, the study predicts that the current sales slump in Western Europe will likely continue this year, and that pre-recession sales levels probably will not return before 2014 or 2015.

– China’s auto suppliers are now the most profitable in the world, with revenue growing 23 per cent in 2009, even as exports declined by seven per cent.

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