It could hardly be more symbolic: The BIA company that manufactures the famous Mercedes badge – the three-pointed star – is on the verge of bankruptcy.
Mercedes’ supplier company based in Bruchsal is now recording “a steady decline in sales, while combined with the explosion of energy costs, it is becoming impossible to continue operating on a sustainable basis,” explained BIA’s CEO, Gerg Pitbach.
BIA is not an isolated case. But, an example of the crisis in the entire supply chain of German industry. Semiconductor shortages, supply chain problems, rising wages and soaring energy costs are creating a far from rosy environment for the German auto industry.
Small suppliers are hit the hardest
The BIA company is an example of the crisis in the entire German supplier industry: Borgers, a traditional North Rhine-Westphalia company specializing in vehicle textile parts, also had to declare bankruptcy after 156 years of family tradition.
Schneider, which makes components for vehicle interiors such as panels or ventilation systems, faces the same problems with major customers including Audi, BMW, Mercedes, Ferrari, Jaguar Toyota and Volvo.
No wonder prominent industry representatives are urgently warning of a wave of walkouts in their ranks, under the latest deal with the metals industry’s IG Metall, for an 8.5% pay rise over a two-year period. “In the last 25 years, we have never experienced such huge cost increases,” says Elringklinger CEO and President of General Metal, Stefan Wolff. He even expects many bankruptcies in the first half of 2023.
The best days are over
The industry has actually seen better days: In Germany in 2016, 5.7 million cars were still manufactured. In 2021, 3.1 million were built, but this year it will be less than three million. How could supplier SMEs cope with these burdens without breaking the bank? All of this inevitably only leads to more bankruptcies.
Even giants like Bosch, Continental, ZF, Schaeffler or Mahle hardly make money. But hardest hit – just like in real life – are small suppliers. Those who deliver only individual components and not complete systems like the industry giants.
Those who already face strong costs and intense competition because their large and powerful customers can more easily switch them to cheaper competitors in the global market.
The automotive industry has never faced such upheaval as it is today, as Thomas Barger, President of the 300-supplier Union of Industrial Machinery, recently explained in Baden.
The under-functioning of the factories, the financial stress of the companies, simply take too long. Energy costs can no longer be calculated. But the worst is the loss of volume. Suppliers are not only deprived of production quantities, but mainly of added value:
There are over 1400 different parts in an internal combustion engine and only 200 for an electric car. And long-term growth prospects are also bleak ahead of the 2035 ban on internal combustion engines.
There is even no hope for a rapid market recovery like in 2010. Without growth in the automotive market, the supplier industry cannot recover. This means that the possibility of waves of bankruptcies increases.