Challenges loom for auto supplier bosses

Douglas Bolduc, Automotive News Europe

Supplier executives face difficult times as auto production slows in Europe and North America, raw material prices continue to rise and automakers ask for lower prices.

Lars Holmqvist, CEO of the European supplier association, CLEPA, says that the combination of these factors has led to a negative outlook among partsmaker bosses about the current economic situation.

"The common opinion is this is the worst we have seen for the last 20 years," Holmqvist said.

He said that just about every supplier he has spoken with is considering cutting production shifts, shutting plants and laying off staff.

"It varies from 1 percent to 5 percent of the work force," he said.

Sweden hit by cuts

Interiors specialist International Automotive Components is cutting staff in Sweden. IAC Europe will trim 280 jobs there and has warned of deeper cuts and possible plant closures as a result of declining orders from Volvo and Saab. Both brands have had poor new-car sales in the US and Europe.

Another way that suppliers are bracing for tough times is by lowering their profit expectations. Continental earlier this month announced that the worsening economic environment has forced it to change its anticipated operating profit margin to about 8.5 percent this year. The German supplier's aim was a profit margin of 9.3 percent

The supplier is sticking to its forecast of €26.4 billion in sales for this year.

HSBC analyst Horst Schneider said that one of the challenges facing new Continental CEO Karl-Thomas Neumann is making sure he protects the company's profits in the face of production cuts.

"Neumann has to deal with the changing conditions," Schneider said. "More smaller cars are in demand now, that means a slump for Continental's margin."

Valeo's also is making adjustments. The French supplier will stop making rear lights at its factory in Neuses, central Germany. The decision will affect 200 workers at the plant, which will continue to make windshield wipers. The French parts supplier will shift the production of rear lights to factories in France and Poland.

CLEPA's Holmqvist said that the downturn has forced suppliers and automakers to work even closer together. He said cooperation will be crucial to survival, not just now but in the future. That is why he believes now is the time to really focus on developing cars that are safer and more environmentally friendly.

From Automotive News Europe (A Crain publication)

Guide to Supplier Executives from ANE