‘Distressed’ Auto Supplier Numbers Increase

Seven North American suppliers are among those who will “seize the moment and make more acquisitions,” predicts PwC’s Dietmar Ostermann.

Steve Finlay, Contributing Editor

August 5, 2020

1 Min Read
BorgWarner Indiana lab
BorgWarner tech center in Indiana. The company is among those that could acquire distressed suppliers, according to an analyst.

Automotive supplier bankruptcies and sell-offs are on the horizon, says analyst Dietmar Ostermann, PricewaterhouseCoopers’ U.S. Automotive Advisory Leader.

Most suppliers had averted dire measures in the face of COVID-19’s economic effects.

But that’s changing.

“The number of suppliers moving into the danger zone is doubling,” Ostermann says, citing increased debt leverage and decreased profits in recent months.

In North America, at least 30 suppliers are “likely distressed,” he says during a session of the Center for Automotive Research’s annual Management Briefing Seminars, which this year are online because of COVID restrictions.

The supplier situation is even worse elsewhere, says Ostermann. By consultancy PwC’s reckoning, distressed suppliers number 150 in Asia and 40 in Europe.

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So far, most suppliers have avoided severe COVID-related consequences for three reasons, he says.

One, they received government aid, primarily in the form of loans.

Two, “they pulled out all their revolvers” and relied on cash reserves, Ostermann says.

Three, banks have offered degrees of forbearance.

“But that won’t go on much longer,” he says.

The most distressed of the lot are body and chassis makers, but powertrain, interior, electronics and other suppliers also are on shaky ground.

Ostermann (pictured below) predicts some suppliers will declare bankruptcy while others will sell themselves or separate operating units. PwC foresees more than 200 supplier merger-and-acquisition deals this year, 250 next.

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Seven North American suppliers are among those who will “seize the moment and make more acquisitions,” he predicts.

Globally, he says, suppliers in potential acquisition mode include Michelin, Continental, Cummins, ZF, BorgWarner, Aptiv, Freudenberg and Magna.

What does he think they will buy? Primarily makers of vehicle bodies, interiors, powertrains and chassis.

About the Author(s)

Steve Finlay

Contributing Editor, WardsAuto

Steven Finlay is a former longtime editor for WardsAuto. He writes about a range of topics including automotive dealers and issues that impact their business.

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