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January 29, 2013 3:21 pm
Given the plunging sales and overcapacity at Europe’s mass market carmakers, one might expect Europe’s car part suppliers would be in dire straits.
But executives and analysts say the continent’s component makers are coping fairly well and so far there has been no repeat of the widespread insolvencies that hit suppliers in 2008-09, when global car part orders evaporated overnight.
Europe’s carmakers avoided closing plants three years ago and still enjoy a degree of implicit state protection. But suppliers do not have that luxury and many closed factories or cut jobs when the recession hit. Suppliers have since made efforts to increase flexibility, which served them well last year when European car sales plunged in 2012 to their lowest level in 19 years.
“We don’t see the overcapacity that is affecting the [European] auto manufacturers on the supplier side as these capacities were adjusted in 2008-09,” says Bernd Bohr, head of automotive at Bosch, the world’s largest car part supplier by sales. “We don’t see a structural adjustment need.”
Europe’s car parts sector employs about 5m people and for many years companies have sought to move away from commoditised products to more valuable technologies such as safety, fuel efficiency and infotainment systems.
They have also expanded their international footprint, a process that was given impetus by a growing reliance of carmakers on a shrinking number of global vehicle architectures or platforms that require common parts.
“Suppliers who invested in research and development, added international production early and who supply these big new car platforms are doing well,” says Jean-Marc Gales, chief executive of Clepa, the European automotive supplier body. “I would not describe the situation as bad; it’s not, indeed it’s better than it is for some of the carmakers.”
In spite of Europe’s woes, global car sales are still growing and big suppliers such as Germany’s Bosch and Continental have led the way in setting up production in countries such as the US, China and Korea to capitalise on this demand.
Bosch’s automotive technology sales rose 2 per cent to €30.9bn last year, while Conti’s group sales rose 7 per cent to €32.7bn, according to preliminary figures.
But component makers dependent on auto customers in southern Europe are experiencing problems and some local manufacturers face a bleak future if Fiat, Ford, General Motors and PSA Peugeot Citroën carry out plans to shutter car plants. “If car plants close in Europe then there will also be supplier plants that close as well,” says Mr Gales.
Smaller suppliers in hard-hit markets such as Italy and Spain are therefore rushing to diversify their client base, for example, by winning business from German carmakers such as Volkswagen, BMW and Daimler, which are setting sales records thanks to international demand for premium vehicles.
“If you’re a Spanish or Italian supplier and you have carmaker customers outside your home market you’re probably doing OK. But if you are only dealing with carmakers in your own country then that’s a problem,” says Julian Buckley, principal analyst at consultancy IHS Automotive.
Daniel Schwarz, at Commerzbank, says: “The less diversified you are, the weaker your performance. The performance of suppliers is mostly driven by their overall exposure to Europe, and within Europe by which carmaker they are supplying.”
Faurecia of France, the biggest maker of vehicle interiors by sales, is heavily exposed to Europe – which accounted for 57 per cent of its sales in the first nine months last year – and to its parent, Peugeot. Last year its net income fell 63 per cent to €140m and it announced plans to cut 3,000 jobs in Europe. Over the past year, its shares have fallen almost 30 per cent.
In contrast French rival Valeo – which makes less than half of its sales in Europe and has only a quarter of its production in Europe and Africa – has fared much better and its stock rose about 12 per cent over the past year.
Germany’s Leoni, a supplier of wires and cables whose major customers are thought to include Opel and Peugeot, warned on profits in October – in part because of weak carmaker demand. However, it has been able to limit the impact of weaker European sales by increasing sales to premium and US manufacturers.
Similarly, GKN, the UK company that is the world’s biggest maker of steering joints, warned in the autumn that insipid European vehicle demand would likely hit 2012 profits. However, Nigel Stein, the chief executive, reassured investors that the company’s strong presence in the US and China has helped to counter some of the shortfall in Europe.
Nevertheless, raising the proportion of international sales, developing innovative technology and supplying the big carmaker platforms require larger investments which have obliged suppliers to keep tight control of costs. Bosch said it would run the rule over fixed costs and rein in spending this year. It has already cut the hours of hundreds of workers in response to weak demand for its diesel systems in southern Europe.
Additional reporting by Peter Marsh in London
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