Automotive OEM Profit Margins Continue to Exceed Those of their Suppliers, but the Gap is ShrinkingJanuary 13, 2023
Automakers’ profit margins were nearly 3 percentage points higher than suppliers’ in the third quarter, according to a recent study from Bain & Co. “For two decades leading up to 2019, automotive suppliers’ EBIT margins were on average 1 to 2 percentage points higher than those of OEMs,” the report notes. “Then came massive supply-chain disruptions with the Covid-19 pandemic and global chip shortage, plus higher raw-material and energy prices, and now rising borrowing costs and wage bills due to inflation. Automotive OEMs were able to ride out the supply shortage by focusing production on the highest-margin models and raising prices, but suppliers had no such strategic options.
“Nevertheless, the margin gap between OEMs and suppliers shrank in the third quarter,” the report continues. “It marked the third straight quarterly margin decline for OEMs after the peak in the fourth quarter of 2021. Meanwhile, in the third quarter suppliers had their first meaningful uptick in margin since the fourth quarter of 2020… Despite high OEM profitability in 2022, the easing of supply-chain challenges and worsening global economic situation—including potential recession—signal that a further reduction of OEM margins is likely in 2023. To prepare for this potential ‘hurricane’ of external pressures on margins, OEMs would be wise to increase the resilience of their business models by maintaining high prices and enacting more extensive cost-reduction measures to compensate for expected increases in their costs.”