In recent weeks, the automotive industry across Europe has faced significant turmoil, as the repercussions of a sluggish market have materialized into dire circumstances for many suppliersOne notable example is the case of the German company, Gerhardi Kunststofftechnik GmbH, which was forced to declare bankruptcy after suffering from chronic cost increases and plummeting demandFounded in 1796, Gerhardi initially thrived by producing metal products but later transformed into a leading manufacturer of automotive components during the boom of the German automotive sectorRenowned for its expertise in injection molding and hot stamping technology, the company became a trusted supplier for Mercedes-Benz, producing essential parts such as grilles and door handlesAlas, this legacy came to an end just last month, leaving 1,500 employees uncertain about their futures.

This situation is not isolated

Gerhardi’s collapse is merely a reflection of broader challenges within the automotive supply chainFactors such as a downturn in vehicle production and the shift towards electric vehicles (EVs) are creating a hostile environment for numerous small manufacturers that play a crucial role in this industryAs major automakers like Volkswagen and Stellantis implement painful job cuts in response to decreasing sales and the complexities of transitioning to electric models, many of these smaller suppliers find themselves in perilous circumstances.

The ramifications of the automotive sector's struggles are far-reachingFor example, the French Faurecia Group, which produces components for Stellantis and Volkswagen, has announced significant layoffs, shedding thousands of jobs as traditional products like transmissions and exhaust systems are phased out in favor of electric alternatives

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However, even suppliers related to electric vehicle production are not immune to the economic shifts, suffering from decreased subsidies and diminishing sales.

According to the European Automobile Suppliers Association, this year alone, European parts manufacturers have announced a staggering 53,300 job cutsThe bulk of these layoffs are occurring in Germany, where the automotive industry has been particularly hard-hitThis situation poses an even graver concern when juxtaposed with the COVID-19 pandemic, during which factories and showrooms were forced to shut down for monthsMatthias Wissmann, president of the association, highlighted the crisis, stating, "This is an extremely grave situationNumerous companies invested heavily, expecting sales of electric vehicles to surge, but that hasn’t materialized.”

Employing approximately 1.7 million people across the EU, automotive suppliers range from large conglomerates like Bosch to hundreds of small businesses which often serve as the bedrock of their local economies

The ongoing crisis raises alarms about the stability of these communities, especially as smaller firms may lack the resources to weather prolonged economic downturns.

The current turmoil is far from over, as McKinsey & Company reported that one-fifth of automotive suppliers anticipate losses in the coming yearAlarmingly, two-thirds of suppliers indicated that their profit margins would fall to 5% or less in 2024. This decline in demand for electric vehicles is exacerbating the struggles of companies that anticipated steady growth in this sector and invested heavily in upgrading equipment.

For instance, Webasto, another German manufacturer known for producing components like roofs and heating systems, faces a daunting challengeFollowing significant investments in new products, the company is staring down the prospect of restructuring debts that could exceed €1 billion

This situation captures the precarious balance many manufacturers are forced to maintain as they try to align with shifting market demands while managing soaring costs.

Andrew Bailey, co-leader of the automotive and industrial practice at AlixPartners, lamented, "The automotive industry is one of the hardest-hit sectors globallyManufacturers are slowing down and shutting down production lines, which has profound effects on the supply base." The implications of these changes extend into local economies and communities, especially in regions that rely heavily on these manufacturing jobs.

In Friedrichshafen, for example, ZF Friedrichshafen AG, a key manufacturer in the automotive supply chain, has recently announced plans to drastically cut its workforce by nearly half, from 28,000 employees down to 14,000. This decision puts at risk numerous businesses in the area, ranging from logistics firms to local bakeries and restaurants, all of which depend on the economic stability that ZF provides.

The local metalworkers' union expressed grave concerns, indicating, “Numerous suppliers as well as the entire retail and services infrastructure depend directly or indirectly on this company to overcome the crisis and prepare adequately for the future.”

As supply chains continue to feel the squeeze, the automotive industry’s struggles are evident throughout Europe

For instance, in Italy, Stellantis has paused production at its Mirafiori plant, leading to ripple effects throughout the supply chainThe closure has devastating consequences for manufacturers like Dal Cero, which provides filters for the Fiat factory, resulting in hundreds of job losses early this yearCLN Group, another company supplying tires and steel components, is currently collaborating with PwC on a restructuring plan necessitated by halting operations.

To turn their fortunes around, suppliers are pinning hopes on a rebound in the automotive marketHowever, that recovery remains uncertainFord, for example, announced just last month that it plans to cut an additional 4,000 jobs in the region, while Volkswagen is undertaking a historic restructuring of its namesake brand to combat increasing competition and high operational costs.

Marco Gay, president of the Turin Industrial Union, expressed deep concerns regarding the situation, particularly its effect on suppliers influenced by the Mirafiori plant closure