THE CRISIS in the motor industry is taking its toll on the automotive supply business in Europe and the US.
New car production in Europe is expected to drop by as much as 40 per cent this year and around 10 per cent of the region’s 5,000 suppliers could be at risk, says Lars Holmqvist, CEO of the European suppliers organisation, CLEPA.
“We are paying the price for monstrous over-capacity in the sector, and even if big players like General Motors go out of business there will still be too much capacity,” he says.
The automotive supply industry employs five million people directly across Europe and there has already been fallout in Ireland, where German multinational Kostal announced 300 job losses in January.
Holmqvist expects sectoral failures in Europe to peak in March and April, and for companies to go under quickly. “Suppliers are cash-strapped because manufacturers are pushing payments out to 90 days and money for November-December’s orders is only coming through now,” he says. Banks, he notes, are not willing to help while the crisis worsens.
European suppliers are looking for €10 billion from the European Investment Bank to help them cope with cash shortages.
Consolidation and collapse are not new to the sector. Bigger firms have been buying smaller ones for some time, acquiring 60 per cent of the 300 or so component makers sold in Europe in 2007. Original equipment manufacturers (OEMs) have been propping up ailing suppliers. Fiat bought three, while BMW and Daimler have assisted some of theirs.
Holmqvist predicts, however, that consolidation in the current climate will not come from within, but that venture capitalists will buy up suppliers.
Suppliers have been under intense pressure to continually cut prices despite rising raw materials costs, low-cost competition from abroad and over-capacity. Those which break contracts are likely to be sued.
But cost-cutting is top of the OEM agenda. BMW wants to cut material costs by €4 billion by 2012. Renault and Nissan’s target was to cut 14 per cent out of its €75 billion purchasing budget by the end of 2008.
