Amid Disruption Automotive Suppliers Must Reimagine Their Footprints - Final
Amid Disruption Automotive Suppliers Must Reimagine Their Footprints - Final
Amid Disruption Automotive Suppliers Must Reimagine Their Footprints - Final
Amid disruption,
automotive suppliers must
reimagine their footprints
Technology, sustainability, and the era of electric vehicles are complicating
location decisions for automotive suppliers.
by Andreas Behrendt, Ricardo Moya-Quiroga Gomez, Raphael Rettig, and François Soubien
April 2022
For many automotive suppliers over the past — Where might we have an opportunity to
20 years, the calculus of plant location has been vertically integrate through M&A?
relatively simple. If there was a billion dollars of
revenue in a region, that was probably a reason — What structural advantages—more automation
to build and maintain a big plant there. If low-cost or higher plant efficiency—do our competitors
labor was available in a different country but not in have, and how can we narrow that gap?
one’s own, then the executive team was probably
evaluating the pros and cons of relocating. — For the automation we’re doing, should we bring
it to our existing factories or take a greenfield
Then COVID-19 came along, disrupting supply approach and build brand-new factories with
chains and reducing people’s driving time and the high levels of automation?
demand for cars. Some of the strategizing about
plant location receded into the background as other — What price will we pay—five or ten years
matters took precedence. from now—for being behind in our use
of technology?
Now, as businesses start to contemplate a
postpandemic world and automobile sales recover, — Looking out over the same horizon—five or
automotive-supply executives are returning to their ten years—what will be different in the areas
discussions about footprint location and are finding of labor availability, plant worker wages, and
them more complicated than ever. It’s as though transportation costs?
these executives are captaining a ship that has just
weathered a terrible storm—and, instead of coming Not many automotive-supply executives would
into clear waters, they discover that the rocks that dispute that these questions are important. But
were on the nautical chart before are now much executives’ full agendas mean they’re generally
bigger and closer. not in a position to step back and take a strategic
long-term view. Much of the decision making in
This article dives into the trends that have turned automotive manufacturing is, indeed, incremental—
manufacturing-footprint strategy into such a focused on something happening a year from now
conundrum. Those trends include the rapid rise (such as where to put in an efficiency program) or
of electric vehicles; the arrival of new, disruptive two years from now (such as which plant to use for
OEMs; and CO 2 regulations that loom over the a new product). This incrementalism could leave
automotive supply chain industry. We conclude suppliers in the wrong place, from a physical-
with a checklist that automotive suppliers can use footprint perspective, as the industry reinvents
to determine how their manufacturing footprints itself over the next decade.
should change to give them the best chance of
winning in the future.
The trends affecting
automotive suppliers
New questions for a new era The most important trend, of course, is the rise of
In addition to the traditional considerations about electric vehicles at the expense of vehicles that
their footprints, automotive suppliers today face a use internal-combustion engines and run on gas.
host of new questions. The following are among the This trend is propelling many of the changes facing
most important: automotive suppliers, but there are other trends, too.
Below are four of the most important.
— How can we transform our manufacturing
workforces and develop the capabilities we — Technology-related portfolio shifts. The
need for our future product lines, including more industry’s focus on autonomous driving,
software and over-the-air expertise?
Web <2022>
<Amid disruption, automotive suppliers must reimagine their footprints>
Exhibit <1> of <3>
The component
Exhibit 1 landscape is changing, so suppliers are adapting
theircomponent
The portfolios. landscape is changing, so suppliers are adapting their portfolios.
61%
Stable components
46%
Stable components, eg: exterior lighting; wheels
30%
12% Sunset commodities
Sunset commodities, eg: body exterior; suspension,
Global Global wheels, tires; engine systems
2021 2030
Note: Displayed percent values without accounting for "N/A" answers; n = 74 (February 8–26, 2021).
Source: McKinsey Center for Future Mobility; McKinsey-CLEPA Pulse Check Survey
they will be cut out of a significant value pool. down 20 percent. The Asian market for light
Our view is that the new OEMs are poised to do vehicles grew but not enough to offset steep
well and that there will be a significant volume declines in Europe and North America. Our
shift toward them and away from current OEMs analysis suggests that it might be 2030 before
between now and 2030. the industry again sees light-vehicles sales
matching those of 2019.
— An increased focus on sustainability. Under
pressure from OEMs, media, and capital Because of this decline, roughly half of all
markets, most automotive suppliers (83 percent suppliers are looking for new growth in areas
in our survey) have defined sustainability outside of automotive. Among those looking to
targets. A much smaller proportion (7 percent) branch out, seven in ten say they’re exploring
are actually starting to implement carbon sectors without any connection to automotive,
emissions–abatement programs. From a near- such as everyday household products.
term economic perspective, the gap between
planning and doing is understandable—as is
the decision by many automotive suppliers to The increasingly complex calculus
keep their plants in lower-cost geographies. of supplier footprints
Recent studies have suggested that The math of doing some manufacturing in
transportation costs related to CO 2 would have low-cost countries still makes sense for
to rise by a factor of ten to erase the benefit of automotive suppliers. Consider the example
having a plant in a lower-cost geography. Still, of Europe. Despite the wage inflation in many
there are going to be abatement-related rises low-cost European countries, the absolute gap
in cost, and we think there’s no question that between blue-collar labor rates in low-cost
in the future, suppliers with more sustainable countries and in Western Europe will continue to
footprints will have an advantage in terms of widen between now and 2030. And even if higher
pricing and margin. wages in low-cost countries such as Poland and
Romania erode some of the potential for savings,
— The end of unit growth in the light-vehicle some of those savings will still be possible by
market. Light-vehicle sales have been hit switching manufacturing to places such as Serbia,
hard by COVID-19. In 2020—the first year the Republic of North Macedonia, and the Republic
of the pandemic—light-vehicle sales were of Moldova.
Web <2022>
<Amid disruption, automotive suppliers must reimagine their footprints>
Exhibit 2 of <3>
Exhibit <2>
1 2 3 4 5 6
Benchmark Identify quick Take advantage Consider Assess the cost Design your
your current wins at individual of structural whether you and capital- target footprint
plant footprint plants. levers. have the right spending implica- of the future.
to identify your mix of products tions of any plant
strengths. at each plant. changes you’re
considering.
43
26
21
0
Number of 0–500 500– 1,000– 1,500– 2,000+
employees 1,000 1,500 2,000
1
Top-quartile value at 28%.
Source: McKinsey automotive supplier indirect functions benchmark, n = 198
figuring out the specific restructuring moves Manufacturing footprints that served automotive
you should make and identifying consolidation suppliers well in the past are going to fall short in
projects to get you started. the coming period of disruption. The best way to
survive isn’t to react to the changes. It’s to anticipate
them and get out in front of them—shaping your
company’s future in the process.
Andreas Behrendt is a partner in McKinsey’s Cologne office, Ricardo Moya-Quiroga Gomez is a partner in the Munich office,
Raphael Rettig is a partner in the Düsseldorf office, and François Soubien is a partner in the Paris office.
The authors wish to thank Thomas Baumgartner, Alberto Bettoli, Harald Deubener, Axel Karlsson, Martin Lindner, Nicolai
Müller, and Ulf Schrader for their contributions to this article.