Joint study by the VDA and the strategy consultancy Oliver Wyman

    Automotive suppliers: New financing hurdles are exacerbating the crisis

    Berlin, March 10, 2024

    The increasingly strict lending criteria and increased interest rates are threatening the existence of automotive suppliers - this is shown by a joint study by the strategy consultancy Oliver Wyman and the Association of the Automotive Industry (VDA). The necessary costly transformation to electromobility is made even more difficult by historically low margins. Banks could improve the situation if they took a more differentiated look at the automotive sector.

    The automotive industry is undergoing the greatest transformation in its history. The switch from combustion engines to alternative drives, digitalization and sustainable production must be successfully mastered at the same time. The need for investment is enormous, but increased interest rates and stricter lending requirements from banks are increasing financing costs. A clear majority of the automotive suppliers surveyed are already affected by this, as the study entitled "The next hurdle: How do automotive suppliers finance the transformation?" by the strategy consultancy Oliver Wyman and the Association of the Automotive Industry (VDA) shows. Two thirds of the suppliers surveyed (66%) reported difficult or significantly more difficult access to bank financing in the past three years. "The increase in financing costs is hitting automotive suppliers at the worst possible time," says Dr. Maximilian Majic, partner and part of the restructuring practice of the strategy consultancy Oliver Wyman. "The transformation to electromobility in particular massively increases the capital requirement."

    "The supplier industry and especially the numerous medium-sized companies are a central factor for successful transformation. Around 270,000 people are employed in the automotive supply industry in Germany. In addition, a large number of innovations and technological advances in the automotive industry are driven by medium-sized suppliers. A decline in production by automotive suppliers or an excessive relocation abroad would have a significant impact on Germany as a location," VDA Managing Director Andreas Rade explains.

    According to the survey, pessimism is growing: 8 out of 10 automotive suppliers surveyed report that the mood in their company has worsened over the past year. 9 out of 10 respondents rated the current mood as negative or extremely negative. "The situation in the automotive supplier industry is extremely tense," says Rade. The majority of companies surveyed reported declining (43%) or stagnating (21 percent) profitability. 74 local automotive suppliers were surveyed.

    Differentiation is crucial for lending

    "The rising credit costs are exacerbating the growing financial bottlenecks," explains Oliver Wyman expert Majic. "There is a risk of an increase in bankruptcies in the already crisis-ridden automotive sector." According to the study, smaller suppliers and companies that are owned by financial investors and therefore have a high level of debt are particularly affected by the deterioration in financing conditions. In addition to higher interest rates (88%), companies are particularly troubled by the fact that banks require more extensive security (49%), apply stricter standards to the contractual conditions (covenants) (45%) and shorten the terms of the loans (36%).

    According to the survey, the relationship between banks and automotive suppliers has deteriorated. "Some companies complain about a lack of trust among banks or even report that their main bank is withdrawing," says Majic. The Oliver Wyman expert also sees one reason for this in the fact that not all banks have sufficient understanding of the automotive sector. "Too much is being lumped together," says Majic. "But suppliers are not all the same - differentiation is important." Here it is important for banks to build up the appropriate know-how. A further tightening of lending is expected due to the increased use of ESG (environmental, social, governance) criteria. According to the study, 72% of automotive suppliers expect sustainability aspects to have a significant impact on access to financing within two years.

    Politics must better support transformation

    From the supplier's perspective, their own strategic orientation (76%) and compliance with key financial indicators (72%) are the most important criteria for obtaining bank financing. Majic still sees potential here. "I assume that suppliers will have to consistently optimize their portfolio and say goodbye to unprofitable products," he says. "A sustainable and long-term strategy that will still exist in 10 years’ time is the foundation for successful financing." At the same time, Majic advises exploring new options on the capital market as much as possible. "There are alternatives outside of the traditional German banking landscape," he says. In addition to foreign lenders, corporate bonds or debt funds also offer potential. "Suppliers with a convincingly communicated and future-proof transformation strategy receive loans more easily and also manage to open up new forms of financing," Majic says.

    In Rade's opinion, the Federal Government and the EU Commission are of crucial importance for the future of local automotive suppliers. "In Germany as well as in Europe, we have to work specifically on competitiveness. High energy prices, excessive regulation, a shortage of skilled workers and workers, and increasing bureaucracy are just some of the stress factors for medium-sized companies. Berlin and Brussels urgently need to create more investment-friendly framework conditions in order to support the transformation of medium-sized supplier industries in particular," the VDA managing director says.
    You can find the study here: Automotive suppliers & financing

    Promote transformation financing

    In a position paper also published today, the VDA identifies the specific gaps in transformation financing and provides political recommendations for action to close these gaps. The position paper also contains recommendations for measures that banks can take to promote the transformation of small and medium-sized automotive companies in partnership. "Medium-sized suppliers must continue to drive forward the transformation, adapt their structures to the changed financing conditions and diversify their financing sources. In addition, political measures at European and national level as well as the necessary structural policy instruments are urgently needed to support change in the automotive industry. We are making concrete suggestions for this in our position paper," Rade explains.

    The VDA position paper “Promoting transformation financing. “Challenges for medium-sized businesses in accessing capital” can be found here: VDA SME Forum: Promote transformation financing

    About the study
    This study combines the results of two surveys conducted by Oliver Wyman, an Oliver Wyman Financial Benchmarking among 55 German suppliers with market data and Oliver Wyman market perspectives from projects with automotive suppliers, OEMs and banks. It is based in particular on the results of a survey among 11 German banks carried out in July and August 2023, as well as on a survey among 74 automotive suppliers in October and November 2023. You can find the complete study here: Automotive suppliers & financing

    About the VDA
    The Association of the Automotive Industry (VDA) brings together more than 650 manufacturers and suppliers under one roof. The members develop and produce cars and trucks, software, trailers, bodies, buses, parts and accessories as well as new mobility offerings. We represent the interests of the automotive industry and stand for modern, future-oriented multimodal mobility on the path to climate neutrality. The VDA represents the interests of its members towards politics, the media and social groups. We work for electromobility, climate-neutral drives, the implementation of climate goals, securing raw materials, digitalization and networking as well as German engineering. We are committed to creating a competitive business and innovation location. Our industry ensures prosperity in Germany: More than 780,000 people are directly employed in the German automotive industry. The VDA is the organizer of the largest international mobility platform IAA MOBILITY and IAA TRANSPORTATION, the world's most important platform for the future of the commercial vehicle industry. Further information can be found at

    About Oliver Wyman
    Oliver Wyman is a leading international strategy consultancy with over 7,000 employees worldwide in more than 70 cities in 30 countries. We combine strong industry expertise with high methodology knowledge in digitalization, strategy development, risk management, operations and transformation. We create added value for our customers that far exceeds their investments. Oliver Wyman is a Marsh McLennan (NYSE: MMC) company. Our financial strength is the basis for stability, growth and innovative strength. For more information, see Follow Oliver Wyman on LinkedIn, X, Facebook and Instagram.

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