On average, Autoliv’s market (i.e. the global automotive safety systems market) has grown by 5% since 1997 when the new Autoliv company was formed. This growth is net of price reductions.
In 2004, when the strong Euro and Yen boosted growth of the market by 5%, the market rose by a total of 11% to $16 billion. However, in 2001, currency effects in combination with declining vehicle production reduced the market by 2%.
Growth is primarily driven by side airbags and smart frontal airbags, which mainly drive the need for more advanced safety electronics.
Side airbags now account for 16% of the market compared to 2% in 1997. This trend benefits Autoliv since we have a relatively strong position in this product area.
The safety electronics product area has grown at an annual average rate of 8% and now accounts for 21% of the market compared to 18% in 1997. To take advantage of this superior growth we acquired Visteon Restraint Electronics in 2001.
The frontal airbag area has recovered after a decline in 2001 that was due to fierce pricing competition, lower vehicle production and the temporary weakness of the Euro. This product area accounted for 34% of the market in 2004, compared to 48% in 1997. Sales of frontal airbags have been virtually unchanged since 1997 while the overall market has continued to grow.
The seat belt area has continued to grow by 4% per year, despite the fact that seat belts were introduced more than 40 years ago. Seat belt systems are continuously being upgraded with new features such as pretensioners, automatic height adjusters and load limiters. This trend benefits Autoliv as the industry’s technology leader. The seat belt product area accounted for 29% of the market in 2004, compared to 32% in 1997.
Autoliv’s market is driven by increasing global vehicle production as well as by the growth in safety content per vehicle. On average, these trends have caused the market to rise at annual rates of 2.2% and nearly 3%, respectively, since 1997.
Vehicle production is driven by GNP growth and fluctuates with the business cycles in individual markets. The age of the vehicle fleet influences demand less than GNP growth.
The safety content per vehicle is driven by introductions and higher penetration rates of new airbags and other new technologies. Equally important are new regulations and crash test programs. The average supply value per vehicle was $258 in 2004 according to our estimates.
However, the gap between the low-end cars and the best safety-equipped vehicles was more than ten times – providing great potential for improvements among less well-equipped vehicles while manufacturers strive to defend the superiority of their best-equipped vehicles. As a result, the safety content per vehicle is expected to continue to rise.
In the regulatory field, the most important recent event is the proposal from the U.S. Department of Transportation to introduce even more stringent side-impact test requirements for new vehicles. This could significantly accelerate the demand for curtains airbag and other side-impact airbags. In Europe and Japan, there are plans to introduce tougher regulations for pedestrian protection. This could possibly impact the market in 2010 and beyond.
Autoliv has steadily increased its market share and now commands more than one-third of the global market.
Our competitive edge is technological leadership, superior global presence and system capabilities with in-house expertise in all key competence areas. We have also advanced our positions in Asia to take advantage of the superior growth in that region. This has also given us a better customer mix globally than most of our competitors.
Takata, which accounts for about a fifth of the market, is a Japanese family-owned company. Takata has grown its business as a result of the global success of the Japanese vehicle manufacturers.
TRW Automotive, which also has about a fifth of the market, is an American company that was acquired in 2003 by the Blackstone equity fund. In 2004, TRW made a public offering and listed 24% of its shares on the New York Stock Exchange.
All the other competitors (including Key Safety Systems i.e. formerly Breed) account for about 25% of the market.
Autoliv’s sales have grown by 89% since the Company was started in 1997. This is an average annual growth rate of 10%.
Acquisitions have contributed 3% on average per year to the top-line expansion while currency effects have increased sales on average by 1% per year.
Sales growth has been particularly strong for side airbags and electronics. As a consequence, side airbags now account for 20% of sales compared to 4% in 1997, and electronics for 9% compared to 5% in 1997. This is the effect of Autoliv’s introduction in 1994 of the world’s first side airbag for chest protection and, in 1997, of the world’s first head airbag for side-impact protection. The growth in electronics is due to both the acquisition of Visteon’s Restraint Electronics in 2001 and to market share gains.
Sales of seat belts have increased by 133% as a result of market share gains, driven by Autoliv’s strong position in pretensioners and other new seat belt technologies. Our inroads into the Asian markets have also been a key part of our succes. Seat belts now account for 33% of revenues compared to 26% in 1997.
Since 1997, Autoliv’s dependence on the frontal airbag product area has decreased from 42% to 26%.
Other products include airbag inflators, steering wheels and seat components. These products accounted for 12% of revenues in 2004 compared to 23% in 1997.
Competition and profitability vary between our products, but the difference is generally small because vehicle manufacturers increasingly buy all safety products in a car model as one combined system and not as individual items. Our profitability depends more on the sales success of individual car models.
Autoliv's sales in the Rest of the World (RoW) have increased by an average of 29% since 1997 and now account for 10% of consolidated sales compared to 4% in 1997. This change mainly reflects our aggressive investments in Korea, China and other Asian markets where both vehicle production and the demand for safety systems are increasing rapidly.
At the same time, Autoliv’s high dependence on the European markets has declined from 61% in 1997 to 57% in 2004, despite the fact that sales in Europe have increased by approximately 70% during that period. Europe’s share of Autoliv’s revenues has fluctuated with the weakening of the Euro in 2000-2001 and its strengthening in 2003-2004.
Autoliv’s dependence on the North American market has remained at 25% despite GM’s, Ford’s and Chrysler’s loss of market share. Sales to the "Big 3" in North America now accounts for 16% of global sales compared to 22% in 1997. But Autoliv has managed to offset this trend by increasing sales to Asian customers in North America. As a result, sales to the Asian and European vehicle plants in North America have increased from 3% in 1997 to 9 in 2004%.
The Japanese market continues to account for nearly 10% of sales.
The most important individual markets are in the United States, Germany, France, Japan, Great Britain, Spain and Sweden (which accounts for 6% of revenues).
In 2004, Ford and its companies (e.g. Volvo with 8%) accounted for 23% of Autoliv’s revenues (compared to 24% in 2003). Renault/Nissan accounted for 15% (14% in 2003) and GM companies for 12% (12% in 2003).
Volkswagen and Peugeot/Citroën are just below 10%, while Toyota and DaimlerChrysler are at 7%.
From a risk point of view, it is important that no contract accounts for more than 6% of consolidated sales. Our largest contract is due to expire in 2009. Each contract typically involves one vehicle platform and is usually valid as long as that platform is produced (approximately 4-5 years).
The contracts are awarded approximately three years before production starts.