Dusseldorf Restructuring Forum: The changing automotive industry - full throttle into the crisis.

Dusseldorf, October 16, 2017 - The automotive industry has always been of great importance in Germany because it is by far the most important branch of industry in Germany in terms of sales. However, the industry is facing fundamental changes. In addition to the automobile manufacturers and suppliers, this also applies to a large number of related services. Therefore, what could be more natural than to deal with the topic of automotive at the 10th Dusseldorf Restructuring Forum? Around 100 guests followed the practical discussion on the subject of “The changing automotive industry: Into the crisis at full throttle”.

Following the introductory words of Ingo Gerdes (Taylor Wessing), Thomas Steinberger (Partner, Head of Automotive Transactions, PricewaterhouseCoopers) outlined the major upheavals that lie ahead in the automotive industry. His main theses: the suppliers would already be confronted with changed business models and therefore the transformation would have to start now and not after 2020. The particular challenge for the automotive industry is that the “conversion at full throttle” has to take place. Because the industry is currently doing really well. The restructuring expert was convinced that the transformation would generate a new wave of restructuring. Because suppliers with low profitability and capitalization would have difficulty keeping up with the changes. Above all, innovative strength is becoming more and more decisive. Steinberger even went one-step further: “In individual segments, traditional restructuring approaches with downstream M&A processes will no longer be effective, as these will become unattractive for strategic investors.” In these cases, all stakeholders, together with consultants and insolvency administrators, will have the task of leading the affected companies into an orderly production process. Steinberger was convinced that this scenario was inevitable and that the automotive industry would experience it faster than it believed. Another thesis by Steinberger concerned profitability: even with good companies, this will decrease. Because high research and development costs paired with a learning curve with the increasing use of electronics and the digitization of traditional products will cause margins to erode.

In the subsequent panel discussion - led by Dr. Jan-Philipp Hoos (White & Case) and Stefan Sanne (Deloitte) - the panelists continued to discuss the automotive industry, its challenges in the coming years and various technologies in detail.

Dr. Bernd Welzel (CEO ad interim, management board advisor and advisory board) was of the opinion that the upheavals in the automotive industry are not about a revolution that changes the industry within a very short time, but rather a normal evolutionary process. Moreover, the industry has already gone through various changes - for example with regard to structural parts suppliers - and has always invested and researched in new technologies. Only the speed and the strength of the change potential are different. However, he also saw the need for those involved to prepare for the further changes. But: “I am convinced that there will be different types of drive side by side for a long time to come, depending on the area of application. Why should there only be one or the other”, Welzel mentioned full of conviction. He advocated not only relying on a single drive concept and, above all, not on the one that would be questionable in terms of environmental policy in a holistic assessment.

Raik Müller (lawyer and associate partner, Rödl & Partner) made it clear that the crisis in the automotive industry was not a new topic: “For many observers, automotive has long been on the list of crisis sectors. In the last few months the subject has only gained momentum,” he explained. In his opinion, the drivetrain-related suppliers in the 2nd and 3rd row would face particular difficulties, as they often do not have sufficient innovative strength, do not have sufficient capital and are not fast enough. The challenge for the restructuring scene is to find an idea of how to proceed with these suppliers and how they could restructure or reposition themselves if necessary. Müller also announced a large wave of changes at the car dealerships, but this will be a while in coming. His guess: in the future there will be significantly fewer car dealers who have to act in a centralized manner. In particular, the small car dealerships in small towns would disappear. In the future, manufacturers would have to sell their cars even more based on brand experience and value. The differentiation via the brand is becoming more and more decisive, since the performance with identical chassis is always more comparable.

In summary, all panelists were convinced that the changes will affect the smaller suppliers more strongly and that adjustments or crises will be found there more often. The past would have shown that suppliers suffer more from technological change than car manufacturers. It is important to prepare for it and to set the course now.

The organizers of the Dusseldorf restructuring forum are Deloitte, hww hermann wienberg wilhelm, SK Dienstleistungs GmbH, Taylor Wessing and White & Case. Twice a year it brings together everyone involved in the restructuring of a company. High-ranking guests present a current topic from different perspectives and share their expert knowledge with the guests in the discussion. Further information at: www.duesseldorfer-restrukturierungsforum.de. The next event will take place in spring 2018.