Things are getting tough for the automotive supply industry: During the expensive transition to electromobility, demand is stalling while energy, material and labour costs have risen sharply. The capacity of automotive suppliers is far from being fully utilised, and job layoffs are costing a lot of money. Added to this is the dispute with the United States over tariffs, and possible retaliation from trading partners.

Last year, one in six major insolvencies in Germany was in the automotive industry. No other sector is suffering more. So far this year, the number of companies forced to close is continuing to rise. The wave is getting bigger and bigger. Industry experts are outdoing each other with gloomy scenarios: Only half of the suppliers in Germany will survive this crisis, according to insolvency administrators.

43% of Small and Medium-sized Enterprises believe that their business situation will deteriorate this year, according to a survey by the German Association of the Automotive Industry (VDA). Only 13% expect an improvement. Given tight liquidity and difficult access to bank loans, some companies have no choice but to cancel investments. If innovations fail to materialise, however, this is fatal for competitiveness in the long term.

Companies that invested in electromobility at an early stage are now in trouble. The market for e-autos in Europe and North America is growing much more slowly than most in the industry had assumed and hoped. Before economies of scale can be realised in production for such products, the ramp-up is already being abruptly slowed down.

Car manufacturers and large suppliers such as Bosch are supporting suppliers financially. Of course, they do this out of self interest, to secure their supply of components. In some cases, it is about the survival of manufacturers of very specialised products. SMEs that are still providing technology for combustion engines, find it particularly difficult to obtain loans from banks. This is not only due to the dominant expectation that the future belongs to electromobility – even if this has receded further into the distance. Another reason is the European Union's sustainability requirements: Keyword taxonomy.

Companies with easily interchangeable products such as die-cast aluminium components are in a bad position in times of crisis. Suppliers that concentrate on highly cyclical segments – such as Europe's truck industry – are also in great difficulty. Decisions by managers in favour of an unbalanced strategy are now turning out to be serious mistakes.

On the other hand, there are almost no insolvencies among suppliers that develop software.

In addition, smaller companies often lack professional liquidity management. In the economic downturn, this lack threatens their existence. Even the best products won't help. According to the experience of restructuring experts and insolvency administrators, SMEs often recognise bottlenecks and emergencies too late. Finding solutions in good time with shareholders, employees, customers, suppliers and banks can save the day. The most important currency is at stake: the trust of business partners.

Consolidation in the supplier industry has long been underway and is continuing. The extent to which the industry is shaken up depends on the development of demand, the political framework, but above all on the skill of the management and the abilities of all employees. Insolvency does not have to be the final end. A leaner organisation, and a streamlined portfolio with highly competitive products and less capacity – painful job cuts are unavoidable – are the minimum requirements for a new start. However, this can hardly succeed without an upturn in demand.