The automotive industry is by far the most important sector of the economy Germany: more than 400 billion euros in annual sales and over a million jobs depend on it. No wonder, then, that politicians and economists are concerned, if about Volkswagen screwed up his software strategy or bmw goes its own way when it comes to drive technology. If Germany’s car manufacturers lose touch, our prosperity is at risk.
What is often overlooked is that around 75 percent of every vehicle consists of components that the car companies do not manufacture themselves, but rather obtain from suppliers. This industry, which is not very visible from the outside, is far more than just an extended workbench for the manufacturers. It is an important driving force and innovation driver and employs around 300,000 people. Many suppliers are of strategic importance for the automotive ecosystem: If they fail, VW, Mercedes and ford the tapes silent. And this danger is currently more than real. If politicians and analysts are currently talking about the threat of de-industrialization in Germany, it could begin in this segment.
Lack of preparation, rapidly increasing costs
First bankruptcies like that of the interior decorator Dr. cutter show that the world from before the pandemic no longer exists. Supply chain issues and declining sales are further emphasizing the disconnect between those companies that have done their homework and those that haven’t. The losers include above all companies that years ago failed to position themselves globally, to reduce their dependency on individual manufacturers, to diversify the product range and to ensure adequate capital resources. In addition, those who do not have their costs under control, have not engaged in forward-looking recruiting and – often as a result – have missed the turnaround in mobility are today a candidate for the intensive care unit.
The supply bottlenecks and supply chain problems caused by the corona pandemic have not been resolved to this day. According to a current Atreus study, for which around 600 executives were surveyed worldwide, 50 percent of companies still see themselves facing major difficulties. China’s rigid pandemic policy, the Ukraine-War, problems with logistics and the lack of raw materials and preliminary products, especially semiconductors, are the most frequently mentioned reasons.
This situation, which is already threatening in itself, is exacerbated by the rapidly increasing energy and material costs as a result of the war in Ukraine. According to a survey by the DIHK, almost a third of all German companies (all sectors) will still have to buy more than 70 percent of the electricity they need in 2022, and a quarter will have to procure more than 70 percent of the gas volume – at far higher costs than originally calculated. The situation is similarly tense for raw materials and preliminary products.
lost sales and staff shortages
While manufacturers are able to pass on their additional costs to end customers, suppliers are largely unable to do so. Long-term supply contracts negotiated with tight margins leave almost no room for renegotiation. Those who try anyway tend to fall on deaf ears. Only those who have great market power or can show a certain singularity in terms of products and know-how have a chance of forcing the car companies to make compromises.
The production figures of the car manufacturers, which have been reduced for two years, as well as the decision of individual premium manufacturers such as Daimler and Audito give up the lower mid-range segment creates another problem: Many suppliers have designed their production capacities for larger quantities that are no longer called up. Due to the shrinking quantities, there are no cost-reducing economies of scale, and investments are no longer amortized accordingly. And there is a hole in sales.
As if all of this were not enough, companies are also being hit by demographic change at the same time: Qualified personnel are becoming increasingly scarce, and suppliers in rural areas in particular are finding it increasingly difficult to recruit enough young people to fill vacancies. In addition, the younger generation has a different understanding of work-life balance, home office and mobile working than their predecessors.
Switch to task force mode
The good news: There is a way out of this misery. The bad: not for all farms. The industry, which has been accustomed to success for decades, finds it difficult to cope with the many challenges at the same time, the management is sometimes overwhelmed – especially in companies with less than 1.5 billion euros in sales. If you want to survive in this situation, you have to switch to task force mode:
Combat delivery bottlenecks with immediate measures. This means identifying the main risks quickly, optimizing inventory management, making material costs transparent and finding alternative sources of supply in order to reduce dependencies.
Use all available resources sustainably and sparingly. Social, ecological and economic concerns have to be weighed against each other again and again and brought into an economically sensible relationship.
Reduce costs and increase efficiency in all parts of the company. All the stops have to be pulled out to obtain the required working capital, from factoring to acquiring new investors or shareholders. If in doubt, a sale can also be a sensible alternative.
Seek dialogue with clients. The sooner this happens, the better the chances of obtaining concessions. In individual cases, it may even be advisable to announce a delivery stop. Car manufacturers need to understand that they are all in the same boat and that the insolvency of a supplier can have serious consequences for their own business.
Dust off the understanding of work. Work-life balance and home office must no longer be foreign words. Software developers today prefer to work at an ergonomically designed workplace at home than at headquarters. Mobile working creates employee satisfaction and location independence at the same time. Skilled personnel can be recruited where they are at home – no matter where in the world they are. Politicians could make a positive contribution to this with a properly regulated employment policy for foreigners.
performers and losers
Companies with annual sales of less than 1.5 billion euros and low profit margins are most at risk of being overwhelmed by the multi-crisis. This is where the insolvency figures forecast by commercial credit insurer Atradius are likely to have the greatest impact. But performers and losers can also be quickly identified among the major suppliers. That’s how it counts Continental, years ago still a takeover candidate, despite price increases of 3.5 billion euros for raw materials, preliminary products, energy and logistics for 2022, still with a profit margin of 4.7 to 5.7 percent. Mahle, on the other hand, a typical loser in the mobility turnaround, made a loss of 108 million euros last year. The management does not want to make any forecast for the current year.
Whoever has the better chance of surviving here is self-evident. The consequences for Germany as an automotive location if several suppliers of this caliber were to fail only become apparent at second glance.
Stefan Randak is a member of Opinion Maker from manager-magazin.de. Nevertheless, this column does not necessarily reflect the opinion of the editors of manager magazin.