Dusseldorf For weeks, employee representatives and the executive board have decided on the austerity program Continental wrestled. Since Wednesday it is clear how many jobs should be canceled and which works should be closed. Especially for employees in Germany, the cost-cutting measures of the Dax Group should be a disappointment.
As part of the "Transformation 2019 – 2029", Continental will have up to 20,000 jobs at risk worldwide over the next ten years. In Germany alone, about 7,000 of the total of 62,000 jobs are affected, 5,000 of them by 2023. The supplier hopes to reduce the gross cost by 2023 with the measures from 2023 annually by 500 million euros.
In Germany, it is above all employees who design and produce components for internal combustion engines. At the Roding location in Bavaria, where 540 employees produce hydraulic components for petrol and diesel engines, production will be discontinued by 2024. 330 jobs will be dismantled here.
At the plant in Limbach-Oberfrohna, Saxony, which produces diesel injectors, 860 of the 1230 jobs will be canceled. For the 370 remaining employees, the Continental is looking for a transition to function-related task funds.
In Babenhausen, Hesse, research and development work will be relocated to other locations by the end of 2021, and by 2025 serial production of the Instrumentation division will cease. 2200 jobs are affected here.
Continentals austerity program is likely to be the benchmark for how high the cost pressure within the supplier industry. The decline in car sales, the weakening economy and the transformation of the automotive industry are forcing suppliers all over the world to make savings. The cost reduction projects of the supplier from Hanover could thus be a foretaste of what competitors like Bosch or ZF is still to come.
"Our structural program has been designed to be fast-paced so that we can successfully launch into the future of healthy mobility," says CEO Elmar Degenhart in a letter to the austerity program. "Like our industries, we are forced to a very fast pace of adjustment. It demands the highest concentration from us. The consistent implementation of the structural program will push us to the limit and sometimes probably beyond. "
Operational layoffs are indeed "the very last resort of choice". But she does not want to exclude Degenhart. "If they should be unavoidable, we want to support our departing employees as best we can," it says in a statement from the group.
The union hails criticism. "The employee representatives on the Supervisory Board of Continental did not approve the closure of sites in Germany, but only an open-ended audit. The from the They will not accept the planned serious downsizing of the Executive Board ", said in a statement by Christiane Benner, second chairman of the IG Metall and deputy chairman of the supervisory board at Continental. Employees alone would pay for management errors, according to Benner. She expects forward-looking concepts from Continental.
Hasan Allak, Group Works Council Chairman at Continental, says: "I strongly condemn the Board's plans," Allak said. "I am convinced that not all decisions have a connection with technological and disruptive changes. "In the past, management mistakes were made, for which some employees now pay the" bill ".
At the same time as job cuts, Continental plans to hire more people in growth areas. The focus will be on the software area. The Group has identified autonomous and networked driving as growth areas.
In addition, Conti relies on software-based services for mobility customers. In this context, the Group has set up a "comprehensive qualification offensive" for employees affected by job cuts. In addition, Continental continues to rely on its traditional tire business with the aim of becoming one of the world's top three tire manufacturers.
In the field of propulsion – which in the future will be called Vitesco Technologies – the Group is aiming for profitable growth with electromobility. In the past year, the order value in the electrical sector was two billion euros.
Global headwind for the suppliers
Already with the profit warning at the end of July it had become clear that Continental had to readjust its strategy. A few days later, the group released weak half-year figures. Although sales remained stable compared to 2018, profitability fell significantly from 2.1 to 1.6 billion euros.
The effects on operating cash flow were particularly clear. This slumped from just under 1.5 billion to around 744 million euros. Investments in research and development are made via the operating cash flow, among other things. Thus, the inflow of funds is also an indicator of how capable a group is to expand into new business areas.
Crucial for the headwind, which not only Continental, but all suppliers in the world feel, is the surprisingly strong decline in passenger car sales. The Chinese car market is developing particularly devastatingly, for a long time a kind of supplementary insurance for the industry.
There, only 9.9 million vehicles were sold in the first half of 2019, around 14 percent less than in the same period of the previous year. Continental expects a decline in sales of five percent for the full year. Converted into cars that would be six million fewer vehicles, for which suppliers supply components.
CEO Elmar Degenhart had therefore called for increased cost discipline with publication of the half-year figures and called on the policy of this year's IAA to support the auto industry. "In Germany, the highest corporate taxes of all OECD countries apply. In addition, there are very high social costs and the second highest energy costs worldwide, "said the Conti boss. These are too high loads to keep up with stagnant growth worldwide.
"Continental had a cost structure for a car market based on higher sales," said Chris McNally, auto analyst at Evercore ISI. However, the expert does not see any big step in the current cost adjustment, which could bring Continental forward again. This also shows the weak resonance on the financial markets. The Conti share rose only briefly after announcing the austerity program and ended the trade with a slight minus of less than one percent.
High investments in growth areas
Unlike previous low-growth cycles, suppliers can not cut back on their investments right now. On the contrary: autonomous, networked and electric driving requires huge financial advance payments from Continental, which put a strain on balance sheets in times of lower margins.
The electrification and digitization of the business in times of weak economic activity is likely to have been too much of a challenge for Continental. In order to gain more air, the Hanoverians therefore tighten a corporate transformation into a holding company. It will be based on three pillars: tires / industrial business, automotive (autonomous and networked driving) and powertrain (powertrain). In this context, Continental is planning a partial listing or a complete spin-off of the drive division. The Group states that Vitesco Technologies could thus operate more independently and agile in the drive market, which is undergoing a disruptive change from the combustion engine to the electric motor.
On the other hand, Continental can then focus more on the software-driven driver assistance market (ADAS). After all, this will require investments worth billions in the coming years. But one thing is different in the development of the drive and ADAS market. ADAS is already yielding significant returns, not electric mobility. So far, the electric drive business is nothing more than a promise.
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Continental (t) Supplier (t) Bosch (t) ZF (t) Automotive (t) Job market (t) Labor market (t) Rationalization and rehabilitation (t) Location (t) Car technology (t) Vitesco (t) IAA (t) OECD (t) Elmar Degenhart (t) Jörg Hofmann (t) Automotive parts (t) Suppliers (t) Tires