Pressures are Altering the Automotive Supplier Landscape – RVBusiness

Pressures are Altering the Automotive Supplier Landscape – RVBusiness


The industry’s outlook may be brightening, but for many parts makers, it’s still a dark time of perilous finance and strategic rethinking, according to reporting by Lindsay Chappell for Automotive News.

Even as car dealers scramble to meet new demand, several global suppliers are struggling with deflated profit margins resulting from a disastrous 2020 and the pandemic-caused crash in vehicle production.

Dire earnings reports this summer have prompted some suppliers to sell off operations, rethink strategies and even seek bankruptcy protection. And there’s much more coming. The global industry likely will see 50 to 100 additional supplier bankruptcies in the next six to nine months, forecasts Dietmar Ostermann, U.S. automotive advisory leader for PwC.

“The ramp-up has gone well, but the bankruptcies are not done yet,” Ostermann told Automotive News last week as he drove away from a supplier visit. Crisis support from lenders and governments? “That’s over now. The banks are tightening back up, and a lot of suppliers are still not in good shape. Many of them are loaded up in debt when they need cash. Certainly, some plants will close.”

On Sept. 20, turbocharger-maker Garret Motion Inc. filed for Chapter 11 bankruptcy protection and was taken over by private equity firm KPS Capital Partners. Garrett was created as a spinoff of Honeywell International in October 2018.

“Although the fundamentals of our business are strong and we have continued to try to develop our business strategy,” Garrett CEO Olivier Rabiller said in a prepared statement, “the financial strains of the heavy debt load and liabilities we inherited in the spin-off from Honeywell — all exacerbated by COVID-19 — have created a significant long-term burden on our business.”

The company burned through $172 million in cash in the second quarter as it coped with production slowdowns in Europe, Mexico and India. Its net debt increased by $203 million to $1.43 billion, it told analysts in July, even as it noted encouraging signs from its customers.

But Rabiller added at the time that he did not expect to see factory volumes return to 2019 levels until 2022.

Click here to read the full report.

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