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November 15, 2000
Bi-Annual Accenture Supplier Index Cites Top Performers in Sluggish Auto Economy

Detroit, November 15, 2000 – The new Accenture Supplier Index suggests that North American automotive suppliers who have successfully digested their acquisitions are better positioned to withstand the current slowdown in production and merger activity. Accenture, a leading global management and technology consultancy.

Of the 20 publicly traded suppliers included in the Index, Tower Automotive, Federal–Mogul and Delphi Automotive Systems topped the list in terms of performance improvement. The Index, which is calculated quarterly, gauges the health of suppliers by totaling a rolling four-quarter average growth rate, return on assets (ROA) and return on sales (ROS). While the overall Index fell 36 percent from third quarter 1999 to second quarter 2000, ROA and ROS in the same period grew 29 percent and 13 percent respectively.

For the industry overall, slowed consolidation was the primary driver of a slide in revenue growth. This trend was reflected in the total number of completed merger and acquisition deals, which was down for the North American auto parts segment by 39 percent since first quarter 1999. In terms of numbers, this is a decrease from 116 to 72 consolidations.

The 29 percent increase in ROA performance indicates that Index suppliers have managed to squeeze more value out of their heavier asset bases. However, this bright outlook could be the "calm in the eye of the storm," since an ROA downturn is expected due to the substantial slowdown in the heavy truck and light vehicle industries.

"Our Index shows that the slowdown in consolidation is providing an opportunity to improve asset productivity and reduce costs," said Randy Barba, partner in Accenture’s Automotive practice. This trend is confirmed by recent Accenture research, which shows that effective consolidators usually pause after acquisition binges, taking six to 18 months to concentrate on integrating their purchases, reducing costs and, most important, locating synergies across new units.

Tower was able to maintain the top ranking in the Index based on high margins generated from two newly-acquired companies, in spite of a dramatic decline in revenue growth.

Federal-Mogul climbed from third to second place in the latest Index ranking – a move that was powered by continued, strong revenue performance and an ROS that outperformed other Index companies.

Delphi, while still ranked at the bottom of the index companies has improved its score by 150% since 3Q 1999. Lean manufacturing programs and attention to costs have had a positive effect on ROA.

"In an increasingly sluggish environment, industry players must continue to improve profitability as a hedge against the downturn," said Accenture’s Barba. "Key steps toward improvement are to continue to wring out acquisition synergies, create a power shift through focused consolidation, capture value from systems and module investment and advance in asset optimization."

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