Italian suppliers are turning to German automakers in response to declining vehicle production in the domestic market. Several suppliers of Fiat are exploring opportunities to supply Volkswagen as the Italian automaker is cutting vehicle production in Italy amid declining sales, reports Bloomberg.
According to ANFIA, the national automobile industry association, Fiat is cutting production in Italy to 420,000 units this year, significantly down from 650,000 units in 2009. The Italian automaker has also canceled its plan to invest EUR20bn (USD26bn) in its Italian factories. The automaker is likely to miss its goal of increasing domestic production to 1.4 million units by 2014.
The sharp production cuts at Fiat have severely affected its traditional suppliers. These suppliers are left with little option than look abroad. “Any supplier depending on Fiat’s European operations has to look elsewhere or risk going bust,” said Flavio Gussoni, Vice-President of Global Sales at Magneti Marelli, a supplier owned by the Fiat Group.
Small suppliers seem to be the worst affected as they generally have a limited range, lack resources and depend on few key contracts. For example, Elmeg which operates a small factory in the Asti wine region in northern Italy was forced to lay off 18 of its 68 employees as orders from Fiat fell. The company, which has been supplying plastic components to Fiat for nearly three decades, was compelled to diversify to non-automotive businesses, including furniture, to survive declining orders from Fiat. Elmeg is currently in talks with Volkswagen to supply plastic components.
Significance: Continuing financial crisis in some European Union countries has severely impacted vehicle demand in the region forcing many automakers to cut production and put future investments on hold. This has impacted order intakes of component suppliers pushing many to the brink of collapse. According to ANFIA, some 75 suppliers failed last year in Italy. About 8,000 jobs were cut in the local auto parts industry. ANFIA fears loss of an additional 10,000 jobs by the end of next year.
Amid such dismal business environment in Italy, exports to Germany are becoming a ray of hope for the struggling Italian suppliers. Besides, German automakers seem to be interested in sourcing high-grade low-cost components from Italy. “German companies are interested in our products,” said Mauro Ferrari, head of ANFIA. “Thanks to the exports, the sector managed to offset a slump in orders from Fiat in Italy last year. On the flip side, small companies, which don’t make high-value products, are going to die.” In May this year, Volkswagen held a fair for Italian suppliers at its headquarters of Italdesign unit near Turin. Some 30 Italian suppliers, including Elmeg, participated in the fair.
