The automotive industry is facing a challenging time as OEM margins continue to drop, according to a recent analysis by Bain & Company. In the first quarter of 2025, OEM margins fell to 5.4%, marking a significant decline from their peak in 2021. This trend is a result of softening customer demand and increasing pressure on prices.
Interestingly, this quarter also saw supplier margins outperforming those of OEMs for the third consecutive time, with supplier margins estimated at 6%. This marks a reversal of a 17-quarter trend that began during the pandemic, highlighting the changing dynamics within the industry.
Bain warns that OEM margins may face further pressure in the coming years due to factors such as inflation, high interest rates, subdued demand, rising costs, and falling prices. The uncertainty around the pace of electric vehicle (EV) adoption is also a concern, as OEMs may need to produce both combustion engine vehicles and EVs simultaneously, putting additional strain on margins.
To combat these challenges, many OEMs have announced efficiency and performance improvement programs aimed at reducing material costs. However, this places additional pressure on suppliers who are already grappling with higher input costs.
Further complicating the situation is the fact that a growing number of suppliers are facing liquidity challenges, which may require special support to prevent insolvency. Bain stresses the importance of OEMs and suppliers increasing the resilience of their business models by enacting cost-reduction measures and maintaining price levels.
Looking ahead, Bain cautions that escalating trade tariffs could add another layer of pressure on margins, especially for globally exposed supply chains. In light of these external pressures, both OEMs and suppliers need to act quickly to strengthen their business models and navigate the challenging landscape ahead.
In conclusion, the automotive industry is facing a period of significant change and uncertainty, with OEM margins under pressure and suppliers also feeling the strain. It is essential for companies in the sector to adapt to these challenges, enhance their resilience, and stay competitive in a rapidly evolving market.
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