Mercedes star manufacturer bankrupt: wave of bankruptcies in the auto industry can no longer be stopped

Shortage of semiconductors, supply chain problems, rising wages and skyrocketing energy costs: The market environment for the German automotive industry is anything but rosy.

Mercedes star manufacturer bankrupt: wave of bankruptcies in the auto industry can no longer be stopped

Shortage of semiconductors, supply chain problems, rising wages and skyrocketing energy costs: The market environment for the German automotive industry is anything but rosy. Small suppliers are hit the hardest. Politics is required.

It could hardly be more symbolic: now the Mercedes star is also bankrupt. Mind you, it's not about the Stuttgart noble forge with the star as a trademark. No, it's about the Mercedes star itself and its manufacturer, the supplier BIA from Forst near Bruchsal in Baden. Steadily falling sales and the explosion in energy costs had led to rapidly increasing losses, which would have made it impossible for the company to continue "on a sustainable basis", explained BIA Managing Director Jörg Püttbach recently.

The BIA company is an example of the crisis in the entire German supplier industry: The traditional North Rhine-Westphalian company Borgers, a specialist in textile components in vehicles, also had to file for bankruptcy after 156 years of family tradition. Likewise, the Upper Franconian ventilation specialist Dr. Schneider, which manufactures components for vehicle interiors such as panels or ventilation systems, and whose customers include Audi, BMW, Mercedes, Ferrari, Jaguar Toyota and Volvo.

It's no wonder that prominent industry representatives are urgently warning against a wave of bankruptcies in their ranks against the background of the most recent wage agreement in the metal industry - 8.5 percent over a period of two years. In the past 25 years, he has never experienced such massive cost increases, says Elringklinger CEO and General Metal President Stefan Wolf. He expects many insolvencies in the first half of 2023.

A lot will come together in autumn 2022: The crises follow each other faster and faster, and the burdens on automotive suppliers reinforce each other. In the beginning there was the need to invest for the transformation to electromobility. Then came the coronavirus pandemic, followed by supply bottlenecks and shortages of semiconductors, starting materials and raw materials. On top of that, energy costs are skyrocketing. The wage agreements, which are still high, do the rest.

The industry has probably seen better days: In 2016, a peak of 5.7 million cars were manufactured in Germany. In 2021 there were still 3.1 million, this year it will be less than three million. How are small and medium-sized supplier companies supposed to cope with these burdens without being harmed? All this inevitably only leads to more bankruptcies.

It affects both the big and the small in the industry. Even giants like Bosch, Continental, ZF, Schaeffler or Mahle hardly make any money or are struggling with red numbers. But the hardest hit - as in real life - is the small suppliers. Those who only deliver individual parts and not complete systems like the industry giants.

Those who are already faced with strong cost and cut-throat competition because their large and powerful customers can more easily exchange them for cheaper competitors on the world market. Of course, the suppliers try to get compensation for the cost increases from their customers. But that only works to a limited extent - and at most the big ones.

The automotive industry has never been in such a turmoil as it is today, as Thomas Burger, President of the Baden Industry Association with 300 suppliers, recently explained. Hildegard Müller, President of the Association of the German Automotive Industry (VDA), is also concerned about this conflict of interests. She appeals to the community spirit of her members: "Joint responsibility and joint success can only succeed if risks and opportunities are appropriately distributed and shared between the partners in the supply chain." But in the light of the harsh reality, this is a pious wish.

In many cases, it is appeased by pointing out that there have always been crises in the automotive industry and insolvencies in the supplier industry in the past. A good ten years ago, the last one was that pessimism is not a foreign word in the industry. Back then, in 2009, in the middle of the global financial crisis, management consultancy Oliver Wymann feared a wave of bankruptcies in the supplier industry with over 100,000 employees. Even the Schäffler company, now a well-known representative of the German supplier industry, was on the verge of insolvency at the time.

However, the feared wave of bankruptcies did not materialise. Not because the experts were wrong. No, rather because the automotive business recovered just as quickly as the slump had happened before. What followed was a decade of uninterrupted growth.

However, this time everything is different. The underutilization of the factories, the financial stress of the companies have simply been going on for too long. The energy costs can no longer be calculated. But the worst thing is the loss of volume. The suppliers not only lack production quantities, but above all added value: A combustion engine has over 1400 different components, while an electric car only has 200.

And the long-term growth prospects are also bleak in view of the quasi-combustion ban in 2035, the costs of the electric transformation - both macroeconomic and company-specific - are high. There is no hope of a rapid market recovery like that seen in 2010. Without growth in the automotive market, the supplier industry cannot recover. This means that the probability of feared waves of bankruptcies is increasing.

The German premium car manufacturers will survive, many suppliers will not. Similar to 2008/2009 in the financial sector, the policy for suppliers in the automotive industry is also required this time. But for once, no rescue packages or additional money are required.

On the contrary: Politicians can even save tax money here. It only has to suspend sales promotion of electric cars, which are extremely harmful to the climate because they depend on coal for electricity, until enough green electricity is available or the e-fleet can be operated using e-fuels. The core business of the German automotive industry would benefit from this.

In addition, politicians should vehemently advocate free trade - also with China - in order to avoid future disruptions to international supply chains for the automotive industry and to remove strategic obstacles to growth. The clock is ticking! If there is no growth soon, the waves of bankruptcies will come.