Press Releases

Bräunig: “Automotive suppliers are now stronger as they face tougher competition”

München, 09 May 2014

Suppliers increase share of sales in Asia – domestic employment is stable

“The German automotive suppliers have gained in strength since the crisis, but at the same time they are facing tougher competition. Therefore only those who are in a global position or deliver around the world can benefit from the markets with strong growth and enjoy lasting success. Small and medium-sized suppliers are also driving forward their internationalisation,” said Klaus Bräunig, Managing Director of the German Association of the Automotive Industry (VDA), at a press conference of the Commerzbank in Munich. Furthermore, he explained, the ongoing tense market situation in Europe was reinforcing the pressure for internationalisation. Bräunig continued, “The German suppliers are used to the intensive competition in Europe. Now new competitors are also appearing from Korea and China, who are active mainly at the foreign locations where the German manufacturers are.”

German suppliers operate a total of nearly 2,000 sites outside Germany. They are developing especially dynamically on the Asian growth markets. “Since the year 2001 the share of sales of many German suppliers with customers in Asia has increased greatly. It is currently about 10 per cent, and for some major suppliers it is actually far higher.” The VDA managing director went on to stress that, “Our suppliers know that the future automotive growth markets are outside of Europe, at present principally in China and the USA, and in the medium and long term in India and South America, too.” The most dynamic development was still occurring in China – the country with the highest rates of market growth and now with the largest vehicle market in the world. “Today, German suppliers employ a total workforce of more than 70,000 in China, and their annual sales there exceed 10 billion euro,” Bräunig said. “With their extensive export activities, in 2013 the suppliers were able to maintain employment at their domestic sites at the high level of 291,000. At the same time, the German automotive supply industry has pushed up its sales: at just over 70 billion euro in 2013 it broke the record from the year 2011,” Bräunig emphasised.

“The success of the German automotive industry is primarily based on our suppliers’ unswerving drive for innovation. They account for 75 per cent of an automobile’s added value. When it comes to developments in driver assistance systems, optimisation of conventional propulsion technologies and the continuing development of alternative ones, the suppliers’ know-how is indispensable,” the VDA managing director underlined.

“In such a situation, the suppliers in particular are more dependent than ever on freely accessible markets. One key issue in this context is to combat increasing protectionism,” Bräunig explained. Around the globe, he added, one could make out an increasing tendency towards protectionist measures. The European Commission had identified around 400 new protectionist measures world-wide since 2008. In many countries the prevailing attitude was unfortunately that one’s own national economy could be protected or even promoted by isolating it. The effects of this were being felt in export-oriented industries like the German automotive sector. Bräunig said, “In the new legislative period the European Commission should therefore put all its effort into countering protectionism and promoting open markets.” He went on to say that family businesses among the suppliers could benefit in particular from the future Transatlantic Trade and Investment Partnership (TTIP) between the USA and Europe, and emphasised, “If the existing trade barriers are removed, the transatlantic market will also open itself up to small and medium-sized firms in the supply industry. They will then have a much easier time offering their products for sale in the USA with less red tape. We are working to make sure that this opportunity is utilised.”

The strong position of the German industry was something that could not be taken for granted, Bräunig added. “We have to work for it every day. We need a smart location policy that boosts the companies’ drive for innovation and investment, and does not undermine industry and SMEs.” This included competitive unit labour costs and proven tools for flexibility on the labour market. Bräunig stated, “Another key site-related factor is the price of electricity. In recent years the cost of energy has risen drastically. The OECD and the International Energy Agency have calculated that the price of electricity here has increased by 80 per cent since 2000. Our electricity costs more than double that in the USA, due to the burdens imposed by the state. And in the EU in general average energy costs are almost fifty per cent less than in Germany.” The greatest burden here was the Renewable Energies Act levy. Most companies in the automotive industry were not exempt from the levy and were paying it in full. Over the last five years the levy has climbed to 6.24 cent/kWh, thus almost equalling the costs of generating the electricity. “We welcome the fact that the amendment of the EEG is intended to prevent further increases in the levy. But it is questionable whether this will actually work to the necessary extent. And we need an energy policy with more market,” Bräunig warned.

The VDA managing director called on the banks to support the SMEs in particular in the long-term corporate financing of their foreign expansion. He said that establishing and expanding production sites abroad required small and medium-sized suppliers in particular to make large investments, most of which could not be completely financed from their own capital and would take longer than five years, for example. Tighter regulations imposed on the banks for issuing loans were a cause for concern, Bräunig said. “In the future this must not lead to banks restricting their long-term loans to SMEs or making them more expensive. The VDA is therefore engaging in dialog with banks to jointly develop models for financing foreign expansion, which are tailored especially to the needs of family-run SMEs,” he explained.

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