European supplier association, CLEPA says a survey of automotive supplier companies on the Continent to gauge the impact of the coronavirus crisis shows the sector’s outlook has worsened considerably during the past weeks.
More than 90% of businesses expect a drop in revenue in 2020 of at least 20%, up from 60% in March, while 35% expect a reduction of more than 30%.
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Profitability will take an even harder hit, with more than half of respondents now expecting to make a loss before taxes, while the perspective of a quick recovery has worsened significantly.
Three out of four businesses fear it will take more than a year to recuperate, whereas four weeks ago the consensus tended towards 6-12 months. One third of respondents estimate a time-frame of two to three years.
CLEPA surveyed its membership between 27-30 April with input aggregated by consultancy firm, McKinsey.
“Volatility of demand is considered the most critical issue for the automotive supply chain at the moment, with almost 90% of respondents ranking the topic their number one concern,” said CLEPA.
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By GlobalData“This makes fixed cost rocket compared to turnover. The further outlook depends very much on demand for vehicles and, hence, for automotive components picking up substantially.
“In this light, CLEPA together with the other European sector associations representing the automotive value chain, has urged governments to launch EU-coordinated vehicle renewal schemes to kick-start economic recovery and support the relaunch of the sector.”
To cope with the crisis, a large share of businesses (84%) plan to cut investment and reduce workforce (78%). Almost 40% have already taken steps to cut R&D budgets, with 32% undecided and 30% at this stage decided against. Automotive suppliers are among the largest private investors in R&D, contributing significantly to the competitiveness of the automotive sector in Europe. Revision of manufacturing footprint is also being considered.
Half of respondents plan to adjust investment and workforce already in the short-term. The remainder foresees such measures to be taken in the next 6-12 months. To date, the jobs of more than 1.1m Europeans employed by vehicle manufacturers are affected by factory shutdowns.
The wider automotive employment impact is even more critical: the general multiplier is three jobs in the immediate supply chain and another three for the value chain further down the line.
Health and safety on the work floor remains a matter of high priority both during and after the ramping-up of production. Some 85% of respondents indicate they well prepared to apply proactive risk mitigation measures.
Personal protective equipment (PPE) is seen as the main measure to be applied on the shop floor, with usage expected beyond the next three months. Distancing measures and decoupling of shifts are also widely applied.
