The German automotive suppliers have to master the transformation from combustion engines to e-mobility. The car manufacturers should now help – but the customers would also feel that.
In the German automotive industry, a gap is opening up between manufacturers and suppliers. Both are struggling with the consequences of the corona pandemic and the Ukraine war, with problems in the supply chain, a shortage of semiconductors and rapidly rising costs, for example for energy.
But while the manufacturers are still earning handsomely, the suppliers are groaning under the price pressure. The calls for help are therefore increasing in the industry: The suppliers want to pass the price increases on to the manufacturers.
Volkswagen has made strong gains
Manufacturers such as Mercedes-Benz could absorb the cost explosions by raising the prices for their luxury cars – the customers pay for it. Mercedes even sold fewer cars in the first quarter than in the previous year, but sales and earnings increased sharply. The sports car manufacturer Porsche also earned more in the first quarter despite falling sales. Volkswagen almost doubled its profit in the first quarter.
This is not so easy with the suppliers who are tied to contracts. Germany’s largest supplier Bosch is far from in the red, but will probably have to cut back on profitability this year due to rising costs. “Not only the car manufacturers, but also the suppliers are dependent on passing on price increases,” said CFO Markus Forschner at the beginning of May. Only then can Bosch continue to operate its supplier business profitably, added division head Markus Heyn.
The negative influences are also making themselves felt in the core business of Germany’s second largest supplier, Continental. Continental expects a total of at least 3.5 billion euros in additional expenditure this year. CFO Katja Dürrfeld said: “You can see that we are struggling with increased costs.” However, there is a “partnership exchange” with the customer about the division.
Fair burden sharing required
The supplier industry is also in the middle of the transformation, away from the dirty combustion engine and towards clean e-mobility. Business models that have been successful for decades are being put to the test. The Stuttgart supplier Mahle, for example, is feeling the effects of this. The company, which has long earned its money with parts for the combustion engine, is in the deep red. The group made a loss of 108 million euros last year, after a loss of 434 million euros the year before.
Mahle CFO Michael Frick complained at the end of April: “The serious supply chain problems are escalating beyond the well-known semiconductor issue.” The war in Ukraine is putting additional strain on the already tense industry. “We are currently dealing with cost increases that are greater than anything else before and the development of which is largely beyond our control,” said Frick. While Mahle has largely taken on the burden over the past two years, he is convinced that “in the current situation, car manufacturers and suppliers are required to work together as partners to find out about a fair distribution of the burden from this difficult situation”.
With the manufacturers, he should not break open doors with this demand. When the CFO of Mercedes-Benz, Harald Wilhelm, was recently asked about Mahle’s call for help in a round with journalists, he said that of course Mercedes-Benz was interested in healthy and stable supply chains. In its calculations, the company definitely allows profit markups. However, everyone is then responsible for themselves as far as profitability in the supply chain is concerned.
“Smaller supplier companies that still only produce components for combustion engines are now getting into trouble relatively quickly because electric mobility has come faster than expected,” said industry expert Stefan Reindl, head of the Geislinger Institute for the Automotive Industry, the German Press Agency. “It could be ruinous for them if the effects of Corona or the Ukraine war dissolve, because then there will be a need to catch up.” What is then added to the number of units with electromobility is eliminated with the combustion engine.
Longer waiting times for new cars
“Supplier contracts have a long-term character and certain commitments, including prices,” explained industry expert Reindl. Nevertheless, the manufacturers are interested in continuing to work with the supporting pillars of the suppliers. If, for example, the supplier Bosch were to disappear from Mercedes, the car manufacturer would have a huge problem.
The consequences of losing suppliers could be seen recently with wiring harnesses from Ukrainian production: Several German car manufacturers had to interrupt their production when they were suddenly no longer supplied. The challenges in the industry are also likely to have consequences for end consumers, be it through even higher prices or even longer waiting times for the delivery of a new car.
“The demands of the suppliers are not absurd, because it cannot be denied that their costs have risen drastically,” said Reindl. The relationships between manufacturers and suppliers are communities of destiny. In the crisis, many suppliers lack the financial strength that would now be necessary for the change. The expert assumes that manufacturers will pass on the higher prices that they can achieve on the market “to the suppliers on a pro rata basis in order to ensure the economic viability of the relevant suppliers”.
