Suppliers on the ropes from the worst economic recession to hit the auto industry in decades have been fighting their way back to prosperity for three years.
Now, a seesaw economy between North America and Europe is causing consternation among major global suppliers that emerged standing from the crippling economic upheaval in the U.S.
“Clearly, the recession the industry experienced in 2008-2009 was the worst we have seen in the past 60 years,” says Werner Struth, chairman-Robert Bosch LLC and management-board member of Gerlingen, Germany-based Robert Bosch GmbH. It is the world’s largest supplier of automotive components and industrial technology, with more than 300,000 employees in 60 countries.
Major suppliers such as Bosch worry that as the European economy languishes, 2012 could be a replay of the recent past. Auto sales are part of the problem. First-half sales in 24 European countries declined 4.8%, compared with 2011, according to WardsAuto data.
“The global economy has continued to cool over the past few months. The prospects for business activity remain gloomy. The European economy is stagnating. Many EU countries are in recession,” Struth told Ward’s in August.
“This (situation) also is affecting Germany, even if we still anticipate that the German economy will grow by 1% this year. Especially when it comes to consumer-related products, we are seeing a reluctance to purchase.”
As the economic meltdown hit, Bosch took decisive steps to rein in costs, but continued to fund product development, putting its faith in new technology. The company in 2009 lost automotive revenue, which comprises 60% of its business, but Bosch minimized impact across the company.
“As the industry began to rebound, we were judicious in our spending and in hiring so as to keep the balance between meeting short-term objectives and long-term goals,” Struth says.
To keep ahead of the technology curve so important to auto makers, Bosch continued to invest in R&D while many other companies cut back sharply. The supplier closely monitored spending and preserved value-added and essential functions. To keep the majority of its team intact, capacity was reduced but terminated staff received severance packages, Bosch officials say.
“Many companies reduced R&D because they felt compelled to mitigate losses and protect short-term profit. At Bosch, even though sales dropped, we maintained our investment in R&D,” Struth says.
North American automotive sales were $4.5 billion in 2009, rising to $5.6 billion in 2010 as the recovery took hold.
In 2011, Bosch invested €4.2 billion ($5.3 billion) in R&D, representing 8.1% of sales, with nearly €3.3 billion ($4.1 billion) in the auto-technology sector alone. That commitment paid off: At the end of last year, the company reported record group revenues of €57.3 billion ($72 billion).
But Bosch reported in April that it still was feeling the effects of the economic meltdown. “In the first quarter, we increased our sales year-on-year by some 5%,” Struth says. “Here (in the U.S.), we recorded the strongest growth in industrial technology and automotive technology.” Growth was more modest in the consumer-goods and building-technology sectors.
To minimize the current global economic uncertainty, Bosch is sticking with measures designed to improve cost structure and react more flexibly to fluctuating business climates. To do that, it’s looking back on teachable moments from three years ago.
Bosch leaders believe the lessons learned from hard times are valid for other businesses. Struth revealed some of those lessons while speaking to auto executives in August at a Center for Automotive Research conference in Traverse City, MI.
“I thought about how we weathered the economic storms of 2009 and maximized momentum. It occurred to me then, and is even more real to me today, that the storm clouds are brewing once again with the escalating financial crisis in Europe,” Struth said.
“It is a sobering situation that we are watching intently. The learning from the past and the uncertainty that lies ahead, demonstrate the urgency and relevance of our discussion.”
Hella, a leading automotive supplier of lighting and electronic products, was shored up by its foreign operations during the U.S. recession. But now the opposite may be true. While undergoing fiscal setbacks in 2009, Hella got a jump by securing long-term financing for its global operations and issuing a bond offering in late 2009.
Now the U.S. sector has stabilized and the company is shifting gears to further develop its South American and Mexican businesses.
“We see tremendous potential for growth in the Americas for both electronics and lighting during the next three to four years,” says Martin Fischer, CEO of Hella’s electronics division in the Americas based in Plymouth, MI.
The Hella group believes it can sustain a 5% to 10% growth rate in the near future, he says. The company has more than 2,500 employees in the Americas, but that number is expected to grow by 30% or more by the end of 2014.
Fischer cites three megatrends that will affect business conditions for suppliers this year: Fuel economy and price continue to be erratic in the U.S. and globally; consumer desires for increased safety features; and new auto-interior comfort and styling features.
According to Roger Ventosa, Hella lighting director for Mexico and South America, Brazil and Mexico activity includes:
- Partnering in Brazil with Sao Paulo-based Emicol, a major producer of electronic and electromechanical components; and producing body-control modules for a global OE expected by next year at an Emicol Eletro Eletronica facility in Itu, Sao Paulo.
- Completing a 55,000-sq.-ft. (5,100-sq.-m) addition to its San Jose Iturbide electronics plant north of Mexico City.
- Investing 1.28 billion peso ($97 million) in a 215,000-sq.-ft. (20,000-sq.-m) facility in Irapuato, Mexico, that will produce headlamps and rear-lighting systems and is scheduled to open in mid-2013.
- Opening a 9,000-sq.-ft. (840-sq.-m) R&D center for lighting technology this spring in Guadalajara, Mexico, where Hella also has launched production at a 15,000-sq.-ft. (1,400-sq.-m) expansion of its manufacturing complex.
Behr America, a Troy, MI-based supplier of air-conditioning and engine-cooling systems, dealt with the economic upheaval by reorganizing top management and downsizing.
“With the onset of the crisis, our sales volumes dropped dramatically, and losses were climbing. Behr America put its turnaround plan in motion, accelerating its cost-optimization project,” says Wilm Uhlenbecker, who took over as CEO and president of Behr America in October 2011.
Uhlenbecker previously had managed key turnaround efforts as vice president-operations after joining the company in 2007 as vice president-cost reduction. He replaced interim CEO Heinz Otto, who had stepped in after the departure of CEO Frank Mueller.
“Our product portfolio was adjusted to focus more on module and system assembly, while component production was transferred to Behr America’s Ramos Arizpe (Mexico) plant,” Uhlenbecker says. “Unfortunately, at that time, we had significant downsizing in employment numbers, both in manufacturing and in engineering and other supporting functions.”
Both Behr America and parent Behr Group returned to profitability in 2010. By 2011, Behr America had seen sales climb to $894 million from $749 million in 2010 and $554 million in 2009.
Stuttgart, Germany-based Behr Group has concerns extending beyond the European economic crisis. Two years ago, Behr entered into an agreement in which fellow supplier Mahle Industries would obtain incremental majority shares. Mahle held 19% of Behr in 2010 and 37% last year.
But the European Union and the U.S. Dept. of Justice are investigating alleged competition- restricting charges by Behr involving automotive thermal systems. “The investigation proceedings concern possible events that took place well in advance of Mahle’s shareholding in Behr” and do not affect Mahle,” Behr said in July.