Major-scale layoffs at automobile suppliers serve as a prelude.
Alright, let's rephrase this:
Individually, German automobile component manufacturers are announcing job reductions: Brose this week, Schaeffler at the end of September, and Mubea prior to that. ZF indicated plans to trim up to 14,000 jobs in Germany during the summer. A study of industry leaders revealed that over half of German firms are planning job cuts. Similar measures are acknowledged at Bosch and Webasto. The gloomy news has been streaming in for over a year now, with Continental unveiling plans to reduce approximately 5,500 jobs.
The reasons for these cost-saving measures among the numerous suppliers are diverse. Some are tardy to the electric mobility party, while others are grappling with the current limited demand for electric vehicles. Moreover, the production of electric vehicles necessitates fewer workforce members than conventional engines, resulting in substantial job losses across the automotive sector.
However, the suppliers' crisis also stems from financial factors, as economist Frank Schwope clarified in an interview with ntv.de. "Between 2021 and 2023, car manufacturers generated substantial profits, but suppliers did not." Due to the chip shortage during the COVID-19 pandemic, manufacturers were unable to fulfill demand, resulting in price increases and record profits for manufacturers. Instead of sharing their financial flexibility with suppliers, manufacturers demanded additional price reductions. "Suppliers' profit margins have been severely impacted in recent years," says Schwope, who teaches automotive economics at the University of Applied Sciences and Arts Hannover. For decades, German car manufacturers have requested price reductions of up to five percent from their suppliers compared to the previous year.
Competition from China
Furthermore, competition from China is posing challenges for suppliers. Chinese automobile manufacturers are progressively gaining market share in Europe, frequently at the expense of German suppliers. Chinese automobile manufacturers primarily obtain parts from domestic suppliers. "German suppliers must work with Chinese automobile manufacturers," says Schwope. The industry expert predicts that Chinese automobile manufacturers will have a long-term market share of ten percent in Europe, particularly if they set up factories in Europe, as planned by Chery in Spain and BYD in Hungary. German suppliers should aim to convert these companies into their customers.
"German suppliers are encountering a transformation unlike any in decades," summarizes Schwope, primarily due to the shift towards electric mobility. Despite the current limited demand for electric vehicles in Germany, suppliers should focus on electric vehicles, regardless of what German politicians have to say on the matter.
Therefore, the current job cuts at suppliers might merely be the tip of the iceberg. The weak demand for German automobile manufacturers in China is also a matter of concern. Unlike manufacturers, who have strong labor unions making decisions, suppliers can implement job cuts more or less freely. Employees affected by these cuts can at least count on a relatively strong job market.
The economy is significantly impacted by the cost-saving measures implemented by German automobile component manufacturers, as revealed by the substantial job reductions announced by Brose, Schaeffler, Mubea, ZF, Bosch, and Webasto. Economist Frank Schwope further highlights that the financial difficulties faced by suppliers are partly due to the manufacturers' unwillingness to share their profits during the chip shortage and their continuous demand for price reductions.
In addition to these internal issues, the suppliers are also grappling with intense competition from Chinese automobile manufacturers, who are progressively gaining market share in Europe. This has led to German suppliers losing business to Chinese suppliers, who primarily provide parts for their own manufacturers.
