Global automotive suppliers remain under pressure

Approx. 70 German companies are already insolvent, and this number will exceed 100 by year's end. Many car markets have slumped by up to 30% this year. Only massive government support programs have prevented a complete collapse of the industry. "The average returns of global automotive suppliers will plummet to historic lows in 2009," says Marcus Berret, Partner at Roland Berger Strategy Consultants. "We expect that following growth of 5.4% and 2.1% in 2007 and 2008, respectively, an unprecedented level of minus 2% to 2.5% will drag the industry down". Many German suppliers have reacted quickly and have managed to cut their personnel costs by up to 25%, especially through short-time work. "However, this is by far not enough to offset the huge loss in sales," says Berret. The suppliers' situation remains critical Overall, European suppliers have reacted to the crisis by carrying out extensive restructuring actions. Nevertheless, they are looking at some tough years ahead. In 2010, vehicle production will increase once again by up to 5%. However, in Europe stagnation at the 2009 level is the best we can expect once government support programs run out. The disproportionately high drop in sales among premium cars means huge losses in this normally highly profitable sector. At the same time, OEMs will continue to drive down costs over the next few months. Furthermore, technological changes – especially to cut CO2 emissions – and the accelerated relocation of markets to Asia mean suppliers are being forced to incur additional high expenses. One in ten German suppliers will be insolvent by year's end More than 70 suppliers in Germany have had to file for bankruptcy as a result of the crisis. Even if business has stabilized somewhat since June – half of company operations are in the black in the meantime – the number of bankruptcies will go up. Reason: many suppliers lack the liquidity necessary to restart idle facilities and simply can no longer pay for the materials necessary for production. "We therefore expect one in ten German suppliers to go broke by the end of the year," says Felix Mogge, Project Manager at Roland Berger Strategy Consultants.