Wave of failures drowns automotive supplier market

The difficult car market leaves deep traces in the supplier sector, with a large failure round plaguing the companies involved. Big names like seat maker Recaro and wheel forger BBS filed for bankruptcy this week, while French supplier Valeo and German counterpart ZF are facing heavy restructuring strategies. Bracing for the new automotive era comes at the expense of supplier’s survival.

The supplier base is paying a heavy price for the global car market’s struggle to reconnect with pre-corona levels. At the same time, automotive brands gasp for breath in the wake of the costly electric transition, the rising cost of materials, and the cooling down of profit boosters like China.

BBS: serial bankruptcy syndrome

In the run for survival, the suppliers are the first to run out of breath. Two bankrupcies took Germany’s biggest worker’s union, IG Metall, by surprise this week. Most unexpected was the fall of Recaro Automotive, a long-lived supplier of sports seats and a strong favorite of petrolheads. In an official statement, the company pointed to “a major contract loss” and “price increases” as the main culprits. Note that the aircraft, office, and baby seat departments are not involved.

The famed seat manufacturer was joined in its misfortune by wheel maker BBS, which has a decade-long record of bankruptcies. The renowned company, once owned by Flemish entrepreneur Guido Dumarey between 2007 and 2011, filed for insolvency for the fifth time in its history—it’s serial in this case.

However, its current Turkish owners allegedly transferred the brand and the rights last month, signaling another relaunch. BBS, the sole supplier of the F1 cars, faces a dwindling market for conventional wheels as electric cars rely on aerodynamically shielded versions.

France suffers in multiple areas

Impériales Wheels in France produced its last unit last month in the same sector, affecting 176 workers. It’s far from the only storm cloud in the country, as the nation’s most valued supplier, Valeo, is seeking a new owner for two of its factories and a research center, employing roughly a thousand workers, before a final shutdown resolves as the go-to solution.

In reaction, the French Association for Manufacturers and Suppliers Plateforme Automobile (PFA) pointed to inflation. “Though the situation is also difficult for car brands, they have adapted by price hikes. For suppliers, the situation is completely different.” The pressure built-up was premonitioned by Stellantis boss Carlos Tavares at Bernstein Strategic Decisions conference earlier this year. “You are going to see a huge shift in the supplier base. The sourcing will move from the Western world to the best-cost countries.” He summarized: “The EV race has become a cost-cutting race.”

Adapting to a new scope

Adding to the reality of growing competition is the scope change. While many suppliers have relied on the conventional parts and logistics business model for combustion-engined vehicles, they must adapt to less complex electric cars. This translates into a lower people count and venturing into and investing in less-experienced territory.

As Newmobility.news reported earlier this week, this changing competitiveness is also witnessed at one of the largest automotive suppliers, ZF Friedrichsachsen. The German giant is forced to cut one-fourth of its staff in its home country. As the supplier built a significant part of its business on gearboxes, it now faces a reality where these have become almost redundant in the electric car market. Fears are imminent that other international divisions from ZF will follow.