Coronavirus: auto suppliers cut R&D budgets

14 May 2020

Confidence among automotive suppliers in Europe concerning the Covid-19 crisis has dropped considerably over the past weeks, a survey has found.

CLEPA, the European Association of Automotive Suppliers, surveyed its membership between April 27 and April 30 and found 90% now expect a drop in revenue in 2020 of at least 20%. The figure was up from 60% in a similar survey carried out in March.

Around 35% of respondents expect a reduction of more than 30% in revenue and even greater falls in profitability, with more than half of respondents now expecting to make a loss before taxes.

Respondents are also increasingly pessimistic about the prospect of a quick recovery, with 75% of businesses worrying that it will take more than a year to return to normality.

The outlook worsened considerably compared to the previous survey where most respondents believed it would take between six and 12 months for the economy to shrug off the effects of the coronavirus crisis.

A third of those surveyed were even more downbeat, expecting it would take between two and three years for business to return to normal.

Nine in ten respondents considered the volatility of demand to be the most critical issue for the automotive supply chain.

When it came to health and safety in the workplace, 85% of respondents considered themselves to be well prepared and said they were applying risk mitigation measures proactively. Distancing measures and decoupling of shifts are among the most widely-applied measures.

Eight in 10 (84%) anticipated they will try to cope with the crisis by cutting investment, while 78% intend to reduce the workforce.

Two-fifths have already begun to cut R&D budgets, although 30% are against taking similar steps at this stage and 32% undecided.

“Often... production restarts at very low levels. This makes fixed costs rocket compared to turnover. The further outlook depends very much on demand for vehicles and, hence, for automotive components picking up substantially,” said CLEPA.

“CLEPA together with the other European sector associations representing the automotive value chain has urged governments to launch EU-coordinated vehicle-renewal schemes to kickstart economic recovery and support the relaunch of the sector.”

Meanwhile, Aston Martin revealed it made a £119m loss in the first quarter of 2020, with car sales to dealers down 45% compared to the same period last year. 

However, the firm said it had taken action to “manage proactively across its supply chain” through the onset of Covid-19, which included temporarily suspending production at its UK manufacturing facilities.

It confirmed its plant in St Athan, Wales, where it is manufacturing the DBX, the automaker’s first luxury SUV, reopened on 5 May with operations at Gaydon, Warwickshire, planned to resume later. 

Vikram Bhatia, interim CFO at Aston Martin, told investors suppliers were being paid on time as they build up stocks to manufacture the DBX.

Charlotte Cowley, director of investor relations, added: “Our supply chain team is working very closely with all of our suppliers. One of the reasons we were able to start production of the DBX was the fact that our supply chain team had ensured we secured supply and full production starts in a few weeks. They [the supply chain team] are very busy but we’re in a good place.”

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