German automotive suppliers voice concern over ‘cost pressure’

Düsseldorf, Germany – The German association of automotive supply industry (ArgeZ) has warned of the continued cost pressure on suppliers and has urged the government to tackle the "existential energy price crisis".

In a statement 30 May, the association said the “exploding” raw materials and energy prices as well as the ongoing supply chain issues had made chances of economic recovery “limited”.

German suppliers started 2022 with a sales increase of 13% year-on-year to €63 billion in the first quarter of the year, according to ArgeZ.

However, ArgeZ noted, the increase was only due to higher input material costs and did not reflect better operating results.

Against the backdrop of global supply chain problems, capacity utilisation and production declined compared to the prior-year quarter.

“Suppliers are aware of their responsibility and have kept employment stable despite declining capacity utilisation,” said the statement.

According to ArgeZ, the “fragile situation” is clearly reflected in the current business climate of the suppliers which still have a good order backlog.

However, due to the uncertain economic environment, suppliers have “predominantly sceptical expectations” for the rest of the year.

According to the German association, the price of input materials remains at historic highs.

For example, the prices for many types of steel are still high and in some cases still amount to twice the previous year's peak.

The same, said ArgeZ, applies to non-ferrous metals and petrochemical polymers such as rubber & plastics, whose industry is also facing limited availability of raw materials.

In addition, suppliers are struggling with high energy costs, as electricity and gas remain the most important energy sources for industrial heating processes.

According to ArgeZ, the price for electricity (excluding state levies and taxes) tripled after the outbreak of the Russia-Ukraine war in March 2022 compared to the same month last year.

Likewise, the price of gas has skyrocketed since the start of the war and state measures to cushion the rising costs are not yet bringing about any noticeable relief, said ArgeZ.

“It is obvious that suppliers are suffering in their sandwich position,” said the association, noting that automotive OEMs as well as basic materials manufactures for steel and chemicals continue to record profit despite lower production figures.

“The medium-sized suppliers in between, however, are not in a position to simply pass on the increased costs,” it added.

The association called for a “fair burden sharing” system to address the issue, warning that the situation could threaten the existence of many innovative, medium-sized suppliers.

The statement also urged the government to resolve the continued energy price crisis.

Welcoming the move to scrap clean energy surcharge from July, the association said the measure was not enough “in view of the price level”.

“A further relief from state levies is therefore necessary in order to achieve comparable and, above all, competitive energy prices in Europe,” the association added.

In the case of gas, it said, the CO2 price must be suspended as long as market prices are as high as they are at present.

To conclude, the German association called for measures to make the value chains more resilient to global crises.

“The current price rally in commodity markets is largely a consequence of Europe's dependence on Russia and China.

“It is important that we maintain competences in Germany and Europe and do not lose them,” it said.

To achieve this, ArgeZ said diversification and better production opportunities should be introduced in Europe.

For instance, it said, the entire value chain, starting with the basic industry, must be located in Europe.

“The energy-intensive industry at the beginning of any industrial value creation must also find internationally competitive framework conditions in Europe and produce here,” it added.

Similarly, same conditions should be provided for the processing industries and high technologies.

“Risky dependencies on other regions of the world should be identified through monitoring and avoided or reduced as far as possible in the medium and long term,” it concluded.