German car industry baulks at supplier demands over energy hikes

Von Roll Holding AG

14/10/2022 07:00

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      German car suppliers must soon sign new power contracts
for 2023
    

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      Carmakers reluctant to shoulder energy costs
    

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      Energy-intensive parts could be sourced from abroad
    

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      'There are no good options' - foundry association
    

  
    By Victoria Waldersee
       WOLFSBURG, Germany, Oct 14 (Reuters) - Germany's giant
carmakers may have secured their own energy supplies but
thousands of small suppliers faced with a squeeze from soaring
bills risk upsetting production through the winter.
    More and more suppliers are calling on the industry to
renegotiate contracts to include energy clauses so they can
cover the cost of rising bills.
    Top carmakers BMW  BMWG.DE , Volkswagen  VOWG_p.DE  and
Mercedes-Benz  MBGn.DE  have all said their own energy supplies
are secured – but if their supplier network fails, their
production lines could screech to a halt.
    "If we can't build a car because of one missing part, that
hits all of us," Geng Wu, head of group purchasing at Volkswagen
said at a supplier conference in Wolfsburg this week.
    Facing a tenfold increase in energy costs and two weeks to
commit to an energy contract that comes into effect on Jan. 1,
Kron Solingen, a moulding metals and plastics manufacturer and
supplier to the auto and electronics industries, is trying to
renegotiate contracts and is running out of time.
    "We're asking for help with raw material costs, for clauses
incorporating inflation - but the red line is energy costs. If
customers don't contribute to those, we can't go on ... we'll
cancel the contracts ourselves," sales manager Christian Hofmann
told Reuters.
    The 112-year-old company, whose customers are mostly larger
suppliers in the chain like Bosch  ROBG.UL , is busy calculating
precisely how much electricity goes into each of its products to
help in customer negotiations and establish what it could
produce with less power, Hofmann said.
    Bosch declined to comment on any contract negotiations as
did BMW. Mercedes-Benz did not respond to a request for comment.
    Volkswagen said it was in close talks with its suppliers
over shared solutions, but could not share specifics.
    "Our primary goal is to maintain production and avoid
negative impacts on business operations," a spokesperson said.
    Germany's government has yet to implement its planned relief
package for small businesses' energy bills which would give a
one-off payment worth one month's gas bill this year and
implement a mechanism to limit prices from March.
    'NO GOOD OPTIONS'
    While contracts in the automotive supply chain in Germany
often include clauses that adapt prices according to the cost of
raw materials, energy clauses are much less common. They can be
problematic because they are complicated to calculate and
require suppliers to share details on their margins, the
production process and their energy contracts.
    Even then, many smaller suppliers do not have enough
liquidity to be able to pay energy bills for the 4-5 months it
can take for invoices to be paid, said Max Schumacher, head of
the Association for German Foundries.
    "There are no good options," Schumacher said.
    Carmakers and their main suppliers are themselves battling
with higher costs and ongoing semiconductor shortages, but have
been able to largely stick with financial goals by passing on
costs to customers via price hikes.
    Some have said in recent weeks they could source from
suppliers in other countries with more stable energy supply to
keep their production secure.
    Soplast, a Portuguese autos supplier, said it was receiving
higher than usual requests for quotes from German carmakers, who
were increasingly interested in knowing their energy mix.
        Still, in the automotive industry, establishing a new
supplier can take at least six months, said Mauricio Morales,
senior purchasing director at Wuerth Industrie Service
 ADOLF.UL  - among the world's largest providers of screws, nuts
and bolts to carmakers.
    Even for an item as small as a screw, carmakers may need to
run new crash tests on cars to ensure the component's quality.
    "At a car manufacturer it's a lot of effort," he said,
adding that his company only had energy clauses with a few
important suppliers.
        Suppliers who already have factories in multiple
locations are expecting to move more energy-intensive production
abroad in the long-term, said Christian Hennerkes, chief
executive of a producer of thermal protection for batteries with
factories in Asia, Europe and the United States.
    Hennerkes' company Von Roll  ROL.S , which supplies battery
joint venture ACC - a joint venture between Mercedes-Benz,
Stellantis  STLA.MI  and TotalEnergies  TTEF.PA  - has managed
to negotiate energy costs into some of its contracts.
    "Carmakers weren't willing to do this in the past, but they
are now, if only for a limited period of time... it's not in
their interests for their supplier network to collapse,"
Hennerkes said.
    Von Roll is now negotiating with its workers' council to add
extra shifts and produce as much as possible before a new energy
contract kicks in next year, the chief executive added.
    "These energy price increases are long-term," he said.
"Short-term assistance from the government is only buying us
time ... this isn't a wildfire, it's a drought."
    ($1 = 1.0320 euros)
 (Reporting by Victoria Waldersee;Editing by Elaine Hardcastle)
 ((Victoria.Waldersee@thomsonreuters.com;))