Germany’s automakers are currently celebrating hefty profits. Many of their suppliers, on the other hand, are on the brink. Jobs are disappearing in droves, and every fifth person in the south-west fears for their existence. The mood is in the basement. Even the manufacturer of the Mercedes star is insolvent.
It’s the old chef and waiter story. One has to run, the other collects the laurels at the end. The same game has been repeated in the auto industry for years. However, the differences have never been as extreme as they are now. While premium manufacturers in particular are increasing their profits, more and more auto suppliers are on the brink of bankruptcy – and beyond.
Now it hits a manufacturer who makes a Mercedes part that every child knows: the star on the bonnet. The radiator grills from BMW will no longer roll off the assembly line in the Baden Forst near Bruchsal. The supplier BIA GmbH is shutting down production and 154 employees are left on the street with no prospects. “In view of the sales that have been falling steadily for around two years and the resulting rapidly increasing losses, we unfortunately no longer see any possibility for the company to continue in the long term,” says company boss Jörg Püttbach, explaining the step.
An electroplating line costing around one million euros was commissioned at the site in 2020. Puttbach’s colleague Danny Kelm, who manages the operative business, explains that there were no orders from the auto industry, which would have allowed profitable production. The system is now to be dismantled and parts of it used at other locations. The current orders would also be completely fulfilled, it is said. Production is to be relocated to the main plant in Solingen and to a branch in Slovakia. The increasing energy costs have developed into an “incalculable risk”.
This problem affects more and more suppliers. In the south-west alone, which lives particularly well from the auto industry and mechanical engineering, 17 percent of companies from the metal and electrical industry see their livelihoods in jeopardy. Only one percent of the companies managed to offset the increased costs with higher prices. The negotiations for a new collective agreement are correspondingly tough in Baden-Württemberg.
“The crisis affects large and small suppliers alike. This is new in form,” explains Harald Marquardt, who is conducting the negotiations for the Südwestmetall employers’ association. In fact, even industry giants like Bosch or Mahle hardly make any money or are struggling with red figures. At the chassis manufacturer Continental, the share price plummeted: minus 44 percent in twelve months are on the price list. “The world of the automotive industry has never been in such turmoil as it is today,” says Thomas Burger, President of the Baden Industry Association, which represents 300 suppliers.
Marquardt is well aware of the difficult development among automotive suppliers from his own company. The turnover of the family company of the same name in the Swabian town of Rietheim near Tuttlingen will grow to 1.4 billion euros this year. But in the end one is happy if red numbers can be avoided. Like many suppliers, Marquardt suffers from the fact that manufacturers are building fewer cars because parts – especially microchips – are missing. In addition, the important sales market China is not running as usual due to the pandemic.
Sales by German manufacturers in particular are declining: Sales by Volkswagen, BMW and Mercedes-Benz have fallen by nine percent compared to 2020. The China share of the total sales of the three German manufacturers fell to 37.4 percent in 2021 (2020: 39.4 percent). At Volkswagen, the proportion of total sales is the highest at 40 percent. Overall, the world market will only reach a volume of 73 million vehicles produced this year. Before the pandemic, forecasts were still at 90 million and more.
This has an impact on the suppliers. The car companies are currently only reluctantly and irregularly calling up the ordered goods, which are often delivered directly to the assembly line. For some suppliers, this means that extra shifts go directly to short-time work. Anyone who produces continuously often gets stuck with the goods. “Our inventory has doubled within a year,” explains Marquardt. This means higher costs, which have to be financed more and more expensively when interest rates rise. And the clock is ticking: all vehicle generations are replaced by a successor model after a certain period of time. Suppliers like Marquardt then run the risk of being left with the expensive inventory.
The manufacturers are not interested in the plight of the suppliers. You have the upper hand. Suppliers are considering carefully whether they should dare to enter into conflict with the powerful major customers. “Then you’re just not there when the next order is placed,” says Klaus-Peter Manz from IG Metall in the Swabian Jura, describing the rude methods in the industry. Manufacturers are traditionally expected to lower prices every year because manufacturing is becoming more efficient. Most people in Ingolstadt, Munich, Wolfsburg or Stuttgart don’t want to hear about increased costs at the suppliers. “Everyone has to sweep in front of their own yard,” commented Mercedes CFO Harald Wilhelm recently, after he had just explained that the Stuttgart group will increase record profits in 2021 by a fifth. Although the sales figures are falling, the German premium manufacturers are compensating for this by preferring to install the existing parts in the upper-class models. Their margin is many times higher. In the first nine months of this year, BMW’s profits rose by 8.5 percent, Audi by 14 percent and Porsche by 18.5 percent.
Hildegard Müller, President of the Association of the German Automotive Industry (VDA), is now also following the development in her industry with concern: “Joint responsibility and joint success can only succeed if risks and opportunities are appropriately distributed and shared between the partners in the supply chain.”
But sometimes the stinginess of the car companies backfires. The annoyed suppliers like to tell the story of a battered Swabian colleague who demanded eight million euros in advance from three major customers in order to be able to continue working. Like many in the industry, the costs have outgrown him. But the purchasing department of these companies refused. The result: the supplier went bankrupt. In the end, the manufacturer had to pay the insolvency administrator a whopping 135 million euros to get the goods. But you have it.
Germany’s automakers are celebrating big profits. Many of their suppliers, on the other hand, are on the brink. Jobs are disappearing, and in the south-west every fifth person fears for their livelihood. The mood is in the basement. Even the manufacturer of the Mercedes star is insolvent.
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The article “Now the Mercedes star is a candidate for bankruptcy” comes from WirtschaftsKurier.