Build or bust

One in five German automotive suppliers still faces possible insolvency following one of the biggest crises in the global car manufacturing market, according to a new report published by D&B Deutschland. That's slightly better than the one-in-three assessment made by A.T. Kearny a year earlier.

But industry experts aren't celebrating just yet.

"I don't see any sustainable stabilization," Michael Seifert, author of the report, told Deutsche Welle. "Suppliers are benefitting from the upswing in some markets but it is not clear whether it's enough for all of them to survive."

Core business

Germany is home to more than 5,300 companies supplying components not only to the country's big carmakers, such as BMW, Daimler and Volkswagen, but also to manufacturers worldwide. More than half of these make automotive parts as their core business. Altogether, the suppliers employ more than 300,000 people.

The situation in Germany's auto components sector is complex and complicated, according to Seifert. The expert cites as an example last year's cash-for-clunkers program to promote new car sales. "The program helped boost sales but is now winding down for suppliers as they work through the contracts," he said. And with no new incentive program in the pipeline, it's unclear what could stimulate demand in a weak economy.

Automotive suppliers in Germany, especially the some 2,500 companies that manufacture components as their core business, are pretty much at the mercy of carmakers. Christoph Stuermer, an automotive analyst with HIS Global Insight, likens the situation to a train. "When the locomotive accelerates, the back of the train needs to push," he said. "When the loc slams on the brakes, the wheels of the caboose are smoking."

Following in carmakers' footsteps

Auto component makers in Germany face a number of challenges. For one, German carmakers are expanding in the growth markets China, India and Latin America, far away from many of their traditional suppliers and close to new, low-cost competitors.

But Stuermer believes automotive suppliers in Germany are well positioned to meet these and other challenges. The tier one suppliers, he said, already operate globally and will follow in the footsteps of their customers and there will still be plenty of demand domestically to sustain growth in traditional markets.

But Stuermer is quick to admit that competition among automotive suppliers is as fierce as it comes and will fuel consolidation, forcing some players out of the market.

"Moving ahead, suppliers in Germany will have to differentiate themselves even more than they have in the past," he said. "And they can do that by manufacturing still more efficiently through intelligent systems and by placing an even greater emphasis on innovation, where they have plenty of strengths."

Author: John Blau
Editor: Sonia Phalnikar