German supplier industry industry sales rose 5% in the first three months of 2004, according to Bernd Gottschalk, president of the VDA, the German Auto Industry Association.
Sales have more than doubled to €60 billion over the last 10 years. Despite the problems ” this is evidence of strength,” he said in a recent interview with SupplierBusiness.com.
What are the major issues facing German suppliers at the moment, and in particular the small-medium enterprises?
German automotive supplier companies are innovative, flexible, competitive and increasingly global, even though the small-medium enterprises are finding it much more difficult to cope with the growing challenges. The main focus is on financing product programmes and the ever-increasing proportion of responsibility for the vehicle that the suppliers must bear.
They can only innovate if they are profitable enough. However, pressure throughout the chain is increasing all the time.
Is the development of steel and other material prices a cause for concern? What can the VDA do to help suppliers in this area?
The price of raw materials in general is a topic that we are very concerned about. Not just steel prices but also oil-dependent products such as granulates for plastics and some metals for catalytic converters. We can advise small and medium-sized companies on such issues as currency hedging mechanism, framework agreements and contracts, such as the VDA’s purchasing conditions. On topics such as the current steel prices, we can only act as a moderator to help prevent the chain from breaking or to find constructive solutions for all those involved.
Even if at the end of the day it is the market that decides, and contracts are concluded bilaterally, the common umbrella is always better than having to weather the storms alone.
How are relations at the moment between suppliers and vehicle manufacturers?
Things can sometimes become tense. In times of weak market demand – such as has been the case here in Germany for several years now – the level of tension is clearly higher. For this reason we take it all the more seriously if too many burdens are loaded onto the shoulders of the suppliers: volume risks, guarantees, financing, etc. But we often found solutions agreeable to everybody involved. When it comes to sharing the risks we have to find a fair balance.
What has been the effect of the recent tightening of terms and conditions at Ford and General Motors?
We never make public statements on specific questions concerning individual companies. Our success is precisely that being able to tackle delicate subjects behind closed doors and not in the media. But believe me, this is a very serious topic.
Are restrictions on credit from lenders a problem for the German supplier industry at the moment?
Basle II, ratings and a fundamentally more restrictive and risk-averse loan policy among banks are making life difficult for them, or at least making financing more expensive. Certain banks, and in particular state-owned savings banks, have recognised this gap in the market and have often been partners for the supplier industry. Now this appears to be an issue for the big banks, too.
I have the impression that in general banks are rethinking the matter. I welcome this. Overall, doing business with the supplier industry has always been attractive. Financing is so decisive that it could develop into a brake on innovation if it is not resolved. The suppliers know that they have to broaden their equity base. But this requires sufficient margins. And they need reliable financing partners.
What are the major initiatives that the VDA is undertaking to help suppliers in these and in other areas?
Examples would be purchasing conditions, joint agreements for financing tools and for e-bidding, etc. For example, we recently made a cost-free rating tool available to our suppliers. It enables them to pinpoint their own deficits and to arm themselves better for talks with the banks. We help them in the process of opening up new markets abroad by organising joint exhibition stands at large motor shows or manufacturer – supplier forums, such as those in Brazil and Japan, and soon in China. They are linked to co-operation exchanges, where we bring potential joint venture partners together.
What issues are specific to the German industry that may not be big issues elsewhere?
What concerns us, and this applies equally to manufacturers and suppliers, is the competitiveness in Germany as a location for the automotive industry. Our labour system is inflexible. Our labour costs are very high, especially compared with the new EU member states in central and Eastern Europe. This is due principally to the non-wage labour costs that finance the social security systems.
What can be done?
Something must be done, if we want to keep value-added in Germany. More and more companies are searching together with their workforces to find new ways to greater efficiency. And longer working hours, too, are no longer a taboo subject. We are concentrating on advanced technology. But we should not complain: there is hardly any other country where the vehicle producers are as strong as in Germany.