The crisis on international finance markets is spreading rapidly to industry. As consumers hold back on purchases, the automotive sector is feeling the pinch. In September 2008, new car registrations in Europe slumped by nearly 9% year-on-year. In August, the downturn was already recognisable, according to the European Automobile Manufacturers Association (ACEA, Brussels / Belgium; www.acea.be), which reports nearly 16% fewer new cars were registered.

The August figures are not all that surprising, as the month is traditionally weak. However, demand usually recovers in September, and this year it did not happen. The burgeoning crisis has spread to nearly all automotive OEMs and some are even reporting significant double-digit declines in the number of units sold in the post-vacation month. A major exception is Dacia (the cheaper Romanian-produced model of Renault). Here, new registrations rose 60% in September.

The logical reaction among car makers is to cut production to prevent stockpiles from growing. Some companies have already taken action. One of the most prominent examples is Opel, which has announced plans for short-time working. Daimler will extend its Christmas holidays to four weeks at two key plants. Nissan of Japan will build fewer large models for the US market. At Renault and PSA in France, the picture does not look rosier.

As alarming as the current news is, it seems likely that it marks only the beginning of a lengthier crisis in automotive OEM production, and possibly in the industry as a whole, including suppliers from Tier 1 downward. The real extent probably will be clearer by the end of 2008 or in early 2009. By now, many people who did not do so before are beginning to see parallels with the finance crisis. An insolvency among OEMs – GM is a possibility that springs to mind – would have a similar effect to that of Lehman Brothers collapse, because it could topple many small and medium suppliers

Wilhelm Crößmann, managing director of the technical components unit within the German plastics processing industry association GKV (Gesamtverband Kunststoffverarbeitende Industrie (Frankfurt; www.gkv.de) paints a mixed picture of the situation for plastics converters. "Many of them are reporting order cancellations, others say business is continuing as usual," he told PIE. Nevertheless, when OEM production lines are at a standstill, the entire supply chain is naturally affected, he adds, while noting that smaller companies are in a comparatively better position to withstand a downturn, as they also supply other business segments. In all, he expects the impact on converters in coming months to be substantial: "It's certainly going to leave a big scar."

Until now, the news has been dominated mainly by the larger, stock market-listed companies. ElringKlinger (Dettingen / Germany; www.elringklinger.com) – see Plasteurope.com of 27.10.2008 – and Leoni (Nuremberg/ Germany; www.leoni.de) have both issued profit warnings. The basic strategy is virtually the same everywhere: dismiss temporary workers, cushion it through flexi-time accounts and apply for short-time working. Johnson Controls (European HQ: Burscheid / Germany; www.johnsoncontrols.com) with GM/Opel as a key account has applied for short-time working until January 2009 for its plants in Lüneburg / Germany (instrument panels and door liners) and half the workforce in Bochum / Germany (seat production for the Opel “Astra” and “Zafira” models).

Rehau (Rehau / Germany; www.rehau.de), which claims its plastics products are built into one in every three vehicles in Europe, is more reticent. Its spokesman points to "a slacker business situation worldwide." The company is considering efficiency-enhancing measures and technical and structural improvements to cut costs, although no details have been provided. Rehau may also decide to postpone planned new capital investments.

While Rehau expects the new car market to pick up again in 2009 with the launch of a number of new models, automotive expert Ferdinand Dudenhöffer has a somewhat different opinion. Dudenhöffer, who was recently appointed professor of automotive economics at the University of Duisburg-Essen in Germany, believes that the market will go downhill until 2010. "We are moving into the biggest crisis since the first oil crisis of 1973," he asserts.

Indeed, the knock-on effects of the financial crisis could have further reaching effects than some automotive players have thought. The automotive industry was already having problems, with global overproduction at around 15 to 20m units and the US giants looking shaky. Nevertheless, it continued to be "business as usual" for credit-backed M&A in the OEM supplier sector. One case in point was the acquisition of Peguform by Polytec Holding (Hörsching / Austria; www.polytec-group.com) for EUR 218.5m (see Plasteurope.com 23.10.2008). Now, as the share prices of stock market-listed companies plummet and banks want further security, most companies are realising that it may be time for a re-think. The real dimension will be apparent when small- and medium-sized companies give some indication of how they will be affected.

Outside the OEM circle, other signs of a general downswing are coming from BASF and Radici (see Plasteurope.com of 21.10.2008 and 23.10.2008), both major producers of polyamide, the plastic most used outside car interiors. The two companies have trimmed production considerably in reaction to a drastic slump in sales. PA compounder Frisetta Polymer (Utzenfeld / Germany; www.frisetta-polymer.de) has reported cancellations and delivery postponements of around 20% compared with the normal volume in the 4th quarter. At Bayer MaterialScience (BMS, Leverkusen / Germany; www.bayerbms.com) CEO Patrick Thomas hinted to financial analysts this week that BMS – where business is driven to 20-25% by the automotive industry – may trim capital spending to the level of depreciation.

Polytec is “still studying” the best reaction to the coming automotive slump. A spokesman told Plasteurope.com that the effects were not yet that great for the company’s products. CEO Friedrich Huemer was less optimistic in an interview with the Austrian publication "Börse Express", predicting that the development will not only continue, but will worsen because the OEMs “still do not accept that there is no scope for price cuts,” in view of cost increases and reductions in the number of units" ordered, and thus produced.

Mann+Hummel (Ludwigsburg / Germany; www.mann-hummel.de) is equally cautious. "Of course we are affected," a spokeswoman said, but added that “it is still too early to say to what extent.” Swiss injection moulder injection Kunststoff Schwanden (Schwanden; www.ks-ag.ch) told Plasteurope.com that the company has followed media reports of the automotive crisis, but so far has seen little evidence of any dramatic effects among its own customers and suppliers.

One obvious victim is Arques Industries (Starnberg / Germany; www.arques.de), which purchased four French plastic components facilities at the end of 2007 from the MöllerGroup (Bielefeld / Germany; www.moellergroup.com) – see Plasteurope.com of 22.10.2008. Arques has applied for creditor protection for the four plants that now operate under the name Eurostyle (Verrières-le-Buisson / France) because of the drastic decline in the number of orders from PSA and Renault.

Even the much-hyped sales boom in eastern Europe in the last few years can do little to ease concerns. The Russian market is continuing to grow, although new car sales slackened to 22% in September from around 40% previously. Even conservative estimates did not expect a decline before 2014). This was despite the fact that the crisis has not yet really arrived in the region, as companies have been busy working off order backlog. When this is completed, probably by the end of the year – a realistic picture of the situation will be apparent.