North American automotive suppliers¹ acknowledge that their long-term prospects depend, at least in part, on extending their typically narrow customer base. This goal will force US suppliers to reach out beyond the Big Three—which may ultimately cause foreign suppliers to serve automakers other than the ones they originally followed into the US market. But a survey² shows that most US suppliers wonder if they have the sales and marketing skills to succeed.

In 2003 North American carmakers³ accounted for 75 percent of the business of their North American suppliers, which now, according to our survey, plan to reduce that level to less than 60 percent by 2008 (Exhibit 1). The pressure to diversify the customer base is growing because DaimlerChrysler, Ford Motor, and General Motors continue to move beyond their traditional US suppliers in an effort to cut costs and gain leverage. As non-US suppliers pursue new business with the Big Three, traditional US suppliers are trying to gain new business with foreign automakers now operating in the United States. Although some suppliers have made headway in winning new, nontraditional business, executives at almost half of them don't believe that they will reach their 2008 targets. For many, failure will mean being driven out of business.

Our survey and our interviews with executives at European, Japanese, and US automakers and suppliers doing business in the United States identified several obstacles that might derail these diversification goals. More than half of the executives at the North American auto supply companies say, for example, that they hesitate to risk investing in people and plants that might make their offerings more attractive to new OEM customers. Two-thirds of the executives at the suppliers said that their senior people don't spend enough time developing deep relationships with target customers. Since all automakers—particularly the Japanese—place a high value on such efforts, that failing alone could exact a toll.

To provide target customers with the information and service they desire, the suppliers must overhaul their sales approach. Japanese automakers, for instance, want reams of hard facts during sales calls, but many suppliers lack the resources to assess and communicate their products' competitiveness. Nine out of ten suppliers don't know the world-class benchmarks for the manufacturing cost and performance of their own products, let alone those of their competitors, the survey found.

To make matters worse, few suppliers seem to have much respect for the sales and marketing function: executives at fewer than half of them believe that the head of marketing is among their most influential figures, and just 40 percent of the respondents perceive the marketing function as a strong magnet for talent. Perhaps that is why only half of all suppliers feel that their customer teams can articulate a value proposition compellingly.

Furthermore, the average supplier's customer strategies and implementation plans are neither rigorous nor detailed enough to affect the day-to-day behavior of its salespeople. Fewer than 30 percent of the suppliers accurately calculate their cost to serve a customer, and hence its profitability. Only half allocate their resources, including management supervision and sales and technical support, according to the future attractiveness of their opportunities. Just a third conduct analyses to understand why they lose bids, and fewer than a quarter examine those they win. These failures can lead companies to underinvest in attractive opportunities and to overinvest in unprofitable ones.

Suppliers find their efforts to minimize costs while maximizing performance, innovation, and quality quite challenging. Although 76 percent of the executives we surveyed said that their companies' products perform favorably against best-in-class offerings, and two-thirds believe that their companies have superior innovation skills and product technology, 69 percent said that cost structures put their companies at a competitive disadvantage (Exhibit 2). The failure to cut product costs or to provide concrete data supporting claims of product benefits and best-in-class quality rank among the suppliers' most serious problems as they look to diversify their customer base. Our finding that top managers have very high hopes for diversification but seem unprepared to back up their words with action is a cause for some concern. Moreover, survey respondents said that fewer than half of their CEOs felt personally responsible for quality issues. If that attitude persists, it will be difficult for any supplier to keep its current business, much less to do business with new automakers.