GERMANY: Suppliers maintain margins despite cost hikes
A survey of the German supplier industry, published by the German investment bank, IKB, has found that suppliers have generally been able to maintain their earning margins, despite raw material price increases.
Suppliers have benefited from strong growth at the vehicle manufacturers, although turnover slowed to around 6% in 2005, down from a trend level of 9%.
Alarm bells are ringing at some companies, however. One in eight produced an EBITDA margin of less than 5%, considered to be an unsustainably low level over time. The main reason for this was cited as material price rises which, because of the scale of the increases, companies have not been able to offset with productivity improvements.
The survey was based on the financial results of 158 suppliers with a turnover of more than EUR40m. Aggregate sales of the companies included in the study came to EUR53.7bn, representing roughly of 40% of industry sales.
For 2006 the IKB says it expects sales to have grown by roughly 8%, slightly below the long-term trend. This should allow most suppliers to remain their earning margins, particularly since most of the raw material price increases occurred in 2005.
The outlook for 2007 is less certain because of the model cycles of German manufacturers. The only major all-new model launch in Germany is the Mercedes-Benz C-Class. The IKB expects to see a small decline in German vehicle production (-1%) in 2007 as a result. Some relief may come from raw material prices, which are thought to have peaked now.