Automotive News - December 1, 2008 - (Page 28d) 28D • DECEMBER 1, 2008 Suppliers brace for tough 2009, prepare for upturn Arjen Bongard and Bettina Mayer abongard@craincom.de Dana’s Paul Burman: “In my 30 years in the business, we have not been in a situation where you cannot forecast next week, let alone next year.” WOLFSBURG, Germany — Automakers are temporarily halting production. More shutdowns may be announced soon. And car companies’ volume projections for 2009 are anybody’s guess. But suppliers say they aren’t panicking. “Our plan is to hope for the best and plan for the worst,” said Klaus Deller, deputy CEO of Brose Fahrzeugteile GmbH & Co. KG. In interviews at the International Supplier Fair here in October, most suppliers said they expect the newcar market to return to growth in a couple of years. Consumers will want to buy new cars again, they said. But the current situation is tough. “We have a weekly forecasting meeting now,” said Paul Burman, director of global marketing for Dana Holding Corp. “In my 30 years in the business, we have not been in a situation where you cannot forecast next week, let alone next year.” Executives were universal in their anxiety over the short- and mediumterm outlook. But they also seemed to be adopting a pragmatic approach to the market downturn. “Alarmism over this doesn’t help,” said Heinrich Baumann, managing partner at German supplier Eberspaecher GmbH & Co. KG. Added Uwe Lamann, board member at wire harness maker Leoni AG: “You don’t want to stick your head in the sand and whine. We have to deal with the issue without panic or pessimism.” WE KNOW THE AUTO INDUSTRY Tough year ahead As with all downturns, this one, too, will pass, industry executives say. “This is a cyclical industry, and we don’t just look at 2009,” said Deller. “We will make sure we’ll be stronger when the market turns up again.” But until that happens, suppliers are bracing for an extremely difficult 2009. In the view of suppliers interviewed, the market decline will: Lead to a further shakeout that could mean more bankruptcies for weak or highly leveraged suppliers. Result in a sharp drop in carmakers’ 2009 production, which will trigger layoffs throughout the industry. Harden tensions between automakers and suppliers, as cost reduction targets become tougher to realize. Eddy van der Vorst, an industry adviser, expects more suppliers to turn down contracts that they cannot afford to take. He said suppliers’ profit margins will narrow further. “A supplier will be happy if he gets a 2.5 percent to 3 percent net margin, and he’ll have to do a lot to get there,” he said. The expected shakeout in the industry will provide opportunities for closely held and relatively well-capitalized companies such as Brose, Leoni and Draexlmaier Group. They are the ones that will be in a position to expand through acquisitions if suitable companies come up for sale. Reinhard Schuele, executive board member for interiors at Draexlmaier, also said expansion through acquisitions is part of the supplier’s strategy. “But that is, at the moment, superseded by the necessity to deal with the situation at hand,” he added. It’s not all bad Despite the general anxiety, several supplier executives cited positive factors in the current market. They said Volkswagen group, a big client for almost all suppliers because of its sheer size, has stuck to its forecasts. And they predicted continued though slower growth in markets such as China, India and Russia. Some companies, such as Leoni, are growing because of new business. Lamann cited new contracts Leoni had for BMW’s 7 series and two Mercedes models. “We are still expanding our market share through projects we started before the crisis,” he said. And some business areas are growing despite the crisis. Said van der Vorst: “Electronics and software are areas that are doing relatively well.” c HIGH EFFICIENCY. HIGH QUALITY. HIGH PERFORMANCE. The world’s leading automotive manufacturers and suppliers know what drives their business. They also know they can’t delay when it’s time to hit the road. That’s why they turn to Dykema — the law firm that’s been with them on every route they’ve traveled. When it comes to knowing the auto industry, Dykema is the only choice for high efficiency, high quality, high performance representation. A LAW FIRM FOR THE AUTO INDUSTRY UNLIKE ANY OTHER California I Illinois I Michigan I Texas I Washington, D.C. © 2008 Dykema Gossett PLLC Visit www.dykema.com to Download Our 2008 Auto Outlook Survey http://www.dykema.com http://www.dykema.com
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