2024 was tough for automotive suppliers and their employees. In the headlines were the biggest players in the industry, who announced cuts of thousands of jobs: Bosch, ZF, Continental, and Schaeffler.

In their shadow are many small and medium-sized companies struggling with the slow take-up in the transition to electric mobility. While global production of passenger vehicles has recovered since the plunge in 2020 related to the pandemic, the peak level of 73.5 million cars in 2017 is still far out of reach.

Credit insurer Atradius reports that the automotive industry leads the sectors at risk of insolvency, saying that one in six major insolvencies in 2024 is an automotive supplier. In the first half of the year, the number of insolvencies increased by two-thirds. Atradius doesn't expect any easing of the situation. On the contrary, it predicts that the number of insolvencies in the automotive sector will continue to rise in 2025, by a low or medium double-digit rate. Many companies are backed into a corner.

The business climate for the German automotive industry, as determined by the Ifo Institute in Munich, worsened further towards the end of 2024. While the indicator for the current business environment rose slightly to -32.3 points in December, expectations are now even more pessimistic: -37.1 points, compared to -30.9 in November. The order backlog of many companies is too low to fully utilise their production capacities. „More companies than before are discussing job cuts“, says Ifo industry expert Anita Wölfl.

That many businesses continue to operate despite insolvency is due to automotive manufacturers supporting individual suppliers that are essential for their vehicles. For instance, Mercedes-Benz reported financial support for suppliers in the third quarter of 2024. However, Atradius believes the chances of new owners coming in and continuing the business are slim, since "there is a lack of liquidity in the economy to finance such acquisitions.“

Recaro Automotive GmbH in Kirchheim unter Teck, near Stuttgart, is one of the well-known companies that had to shut down in 2024. But at least in this case an investor was found for the manufacturer of sports car seats. In early December, the Italian supplier Proma signed an agreement to take over Recaro. Operations will now resume, but the seat production in Kirchheim will be closed and moved to Italy. Only a few of the roughly 200 employees in Germany will keep their jobs.

Industry expert Stefan Randak predicts that many small and medium-sized companies will fall by the wayside in the next three to five years, "especially those still heavily involved in the business with conventional combustion engines.“ Randak heads the automotive division at Atreus, an interim management provider.

He gives several reasons for the industry's predicament, with a lack of product orders from car manufacturers (OEMs) at the top of the list. „The shortfall can reach up to 90%“, Randak told Börsen-Zeitung. Suppliers have invested in production capacity and components, but customers are asking for less. This affects, for example, business partners for the electric Porsche Taycan, the VW Buzz electric bus, and the Mercedes-Benz S-Class. „Suppliers are facing problems with capacity utilisation, too many employees, and liquidity“, observes Randak.

Another major cause of the difficulties, according to the expert, is that some car manufacturers and many suppliers have failed to review and adjust their organisation and processes in recent years, thereby missing opportunities to cut costs. „Many have not addressed their overcapacity," he says. Often, management and supervisory boards did not act correctly, or were too late. For example, overcapacities at Volkswagen, Audi, and ZF have been known for some time.

Randak also advises suppliers to collaborate and win over expanding Chinese automakers as customers. „There will be much more pressure on suppliers“, he predicts. He expects larger mergers among customers in the coming years, resulting in increased market power. A current example is the Japanese OEMs Honda and Nissan, which are in talks about a merger.

More than 12,000 jobs are at risk at Bosch. In the Mobility division of the world's largest supplier, about 8,500 positions are threatened. In a recent press conference, Stefan Grosch, the responsible managing director for HR, said the markets had worsened significantly in the second half of 2024: „We have overcapacity," he said.

This is not only due to the sluggish development of electric mobility, especially in Europe. Employee representatives have criticised management for being overly optimistic, in hindsight. Bosch is also feeling a significant weakness in its electronics and software division. Automated driving, alongside e-mobility, is the business most affected by weak demand.

„We expected significantly higher volumes for both,“ said Bosch CFO Markus Forschner in an interview with Börsen-Zeitung in mid-December. „And we don't expect demand to increase significantly in the next year or two.“

Car manufacturers, based on Bosch's recent experiences, are postponing or even canceling many projects: „The transition to electrified, software-defined vehicles is overall being delayed significantly", he says. The connection between both aspects is now having a detrimental effect: Many new battery-electric cars are equipped with the most advanced driver assistance systems.

In times of weak demand, competitive pressure increases – and not just because car manufacturers are scrutinising every cost item in search of savings. An example is Bosch's steering division, which is also cutting jobs in Germany. The company justifies this by citing significant advantages of European competitors, who produce in countries with lower wages and other cost savings.

Bosch plans to increase the utilisation of its plants in these countries „to offer steering systems at internationally competitive prices .“ Additionally, the market is shifting, as reported by Götz Nigge from the management board of the division. Demand is increasing in Asia, while it is declining in Europe.

Continental, on the other hand, hopes that the spin-off of its automotive division will lead to consistently good returns. The board is counting on more flexibility: With greater autonomy, all group businesses should be closer to the markets and customers. The goal is to separate the automotive supplier business from the group by the end of 2025. For Continental, the entire industry, and their employees, 2025 will be another tough year.