Current Verian Study: Financing is a Major Challenge for Half of German Automotive Suppliers / Industry in Restructuring

One in four (28 percent) of the suppliers surveyed plan to carry out restructuring this year or have already started doing so. Due to the expectation of increased insolvencies coupled with upcoming financing needs, automotive companies are preparing noticeably more intensively for a stricter lending environment compared to other industries.

• Sector Comparison: No machinery manufacturer or consumer goods company sees "very significant" challenges in refinancing
• Credible measures to combat the labor shortage will become relevant arguments for future financing
• Suppliers are tackling challenges with a variety of measures – no "burying their heads in the sand."

40 percent of the companies surveyed expect more bankruptcies in the coming months compared to previous years, with 12 percent anticipating "significantly" more. One in four suppliers (24 percent) predicts a "wave of bankruptcies" within the next two years, with half of them already seeing it on the horizon. The most frequently mentioned risks include stricter lending practices (67 percent), the medium-term loss of significant revenue volumes due to customer bankruptcies (50 percent), and the collapse of established supply chains (25 percent).

"A large number of companies in the automotive supply industry face significant refinancing in the short to medium term," says Ralf Winzer, Senior Partner and Board Member at FTI-Andersch, the business unit of FTI Consulting in Germany specializing in restructuring, business transformation, and transactions. 28 percent of the companies surveyed need to complete key financing by the end of 2025, while for one in five (18 percent) automotive suppliers, negotiations will begin in 2026. 45 percent describe these refinancings as at least a "major" challenge, and 14 percent even consider them a "very significant" challenge.

One in three suppliers undergoing restructuring is reorganizing its finances.

"In comparison to the other industries we surveyed, automotive suppliers are currently preparing much more intensively for refinancings," says Ralf Winzer. "And they must, as growth forecasts for their sector are consistently bleak. This will lead to noticeably higher financing costs." Not a single company from the machinery or consumer goods sectors described financing challenges as "very significant."

One in three (30 percent) automotive suppliers undergoing or planning restructuring also intends to reorganize their finances. By comparison, only 16 percent of companies in the consumer goods industry and just 10 percent in the machinery sector are doing or planning the same. Furthermore, 35 percent of automotive suppliers see the availability and cost of external financing as a key challenge for successful restructuring. This is the case for only 16 percent of machinery companies and just 6 percent in the consumer goods sector.

"Growth forecasts, demand, energy prices, the Chinese market, the slump in electric vehicle sales – it is really hard to find any positive news in the automotive industry right now," says Ralf Winzer. Additionally, companies face labor shortages (the biggest problem, according to 88 percent), inflation, and insufficient pass-through of rising costs (according to 60 percent), as well as fundamental issues with Germany as a business location (42 percent). Ralf Winzer adds, "What gives me cautious optimism, based on the data and my own market observations, is that despite the bad sentiment, many companies are not burying their heads in the sand. They are tackling these problems, no matter how overwhelming they may seem."

More intense communication with financiers and measures against the labor shortage

In the context of refinancings, this means: 72 percent of companies indicated that they are intensifying communication with their financiers (compared to 52 percent in the machinery sector and 41 percent in the consumer goods industry). To strengthen their equity base, all suppliers (100 percent) currently undergoing restructuring reported saving costs in operational processes. 67 percent aim to reduce procurement costs, 56 percent each are working on improving cash management and postponing investment plans. Almost half (44 percent) intend to sell or even close non-core business areas.

One in three companies undergoing restructuring plans to reduce their workforce. "However, this is particularly delicate today," says Ralf Winzer. Labor shortages have been identified as the biggest challenge by all companies. "Companies that lay off significant portions of their workforce today must expect not to be able to replace these losses during better business conditions. This is also the main reason why the recession has barely impacted the everyday reality of society, even though the news has been so grim for months."

To find ways to operate with fewer employees, nine out of ten companies are working on how to perform the same tasks with fewer people. Half (50 percent) are focusing on product modularization and standardization, 42 percent are working on automation, and 38 percent are looking to use artificial intelligence to reduce labor costs. Ralf Winzer notes, "We are in a phase where companies must adapt to the new labor market situation. Even if they market themselves more attractively or retain their workforce more effectively, they are still in a shrinking market and thus facing fierce competition. This will be crucial for financiers in the future, as they assess to what extent automotive companies can credibly demonstrate their ability to survive and grow in this labor market. Proving this will be one of the key challenges for the coming years."

About the Verian Study:

The market research company Verian (formerly Kantar Public) conducted a study called ‘German Economic Pulse 2024’ on behalf of the consulting firm FTI-Andersch. It surveyed 200 companies in Germany from the automotive, machinery, consumer goods, and retail sectors by phone about current economic outlooks, restructuring, insolvencies, refinancings, and other structural challenges.

The companies surveyed have a minimum annual turnover of €50 million, with around a quarter generating over €500 million annually.

About FTI-Andersch:

FTI-Andersch is a management consultancy that supports its clients in the development and implementation of sustainable future/performance and restructuring concepts. FTI-Andersch actively supports companies that have to deal with strategic, operational or financial challenges and transformation processes – or want to align their business model, organization and processes for the future at an early stage.

Clients include medium-sized companies and large corporations. FTI-Andersch is part of the FTI Consulting Group (NYSE: FCN), which has more than 8,000 employees worldwide.